The People's Owner The first thing Arte Moreno did after buying the World Series--winning, money-losing Angels was to slash the price of tickets and beer. The move could cost him millions. It may also be the model for modern baseball.
(FORTUNE Magazine) – She wants you to sign this for her," says a grinning dad, framing a space with his fingers on his daughter's T-shirt. Arturo Moreno, the new owner of the Anaheim Angels, bends down, happy to oblige. "Arte," he signs with a flourish. Just Arte. If you call him "Mr. Moreno," even if you're a little girl, he'll call back, "My name's Arte!" Just six months ago there was little chance anyone would have stopped the 56-year-old Moreno in a crowd--except, perhaps, in confusion. (He looks uncannily like Alex Trebek in his pencil mustache phase.) Moreno had been the prototypical quiet, unassuming billionaire next door--making his fortune in the very unglam business of billboards. Outdoor Systems, the company he ran and co-owned for 16 years, was acquired in 1999 by Infinity (then part of CBS, now Viacom) for a stunning $8.3 billion. Then he bought the Angels from Disney this past May, for $183.5 million, and made a flurry of unexpected fan-friendly changes. Now, whenever he ventures outside the owner's suite at Edison Field--even during the final days of what's been a dismal season, with the defending world champions struggling to avoid last place--the fans are all over him.
"You're the best thing that's happened to the Angels in a long time!" comes one shout, and then,"I just have to tell you how wonderful it is to have you around here." Dressed tonight in chinos, a red polo shirt, and reptile-skin loafers, Moreno weaves his way through the crowd, grinning and signing, signing and grinning, greeting Spanish speakers in their own language, accommodating every request--until he's met by a kid with a chocolate sundae in a souvenir cup who wants his money back. Moreno listens to the customer's complaint, then huddles with the surprised vendors at the concession stand. "He doesn't like his ice cream," Moreno explains. "But he wanted to keep his cup. I just said no."
It's a word Moreno rarely says these days. Since arriving in Anaheim, he's said yes to new contracts for his manager and key front-office executives. Yes to cheaper seats and concessions for the fans. (In his first official act, he cut the price of a premium draft from $8 to $6.75.) And yes to just about every conceivable charitable appeal from the community. But Moreno's purchase of the Angels wasn't a charitable act; it was a business proposition. So the question is: In an industry famously distorted by passion, ego, uncontainable costs, and sky-high expectations on the part of all interested parties--in a business where nearly every bottom line is crimson red--can Moreno turn a profit by never saying no?
It is that question that has more than just Anaheim fans watching Moreno's every move. Some believe this billboard billionaire--baseball's first minority owner and only the second in all of pro sports--might well revitalize America's pastime.
One thing is certain: Moreno, who met with FORTUNE for a rare extended interview in September, picked one heck of a test case. He bought baseball's most intriguing and befuddling franchise, one that shares the second-biggest media market in the country with the Los Angeles Dodgers yet generates revenues more in line with a middle-market team: an estimated $125 million in 2003. The Angels' local media money--a key variable, since baseball doesn't have anything like the NFL's gargantuan national TV deals--is a disappointing $16 million, compared with $29 million for the Dodgers. One-third of the Angels' schedule isn't even televised in L.A. Doug Pappas, who chairs the business committee of the Society for American Baseball Research, has calculated that the Angels earn fewer media dollars per capita than any other franchise save for the hapless Montreal Expos.
Disney never could figure out how to make that work. It bought the Angels for $140 million, completing the two-part purchase in 1999, then spent nearly $100 million on Disneyesque stadium renovations (complete with a center-field rock garden). It was all part of a grand plan to build a cable sports network in Southern California that would have carried the Angels and another Disney property, the NHL's Mighty Ducks. But the cable venture fell through, and with losses mounting (not even 2002's unexpected World Series victory was enough to turn things around), Disney put the Angels on the block, originally asking $300 million. Moreno paid far less, leaving Disney, after seven years, with the slimmest capital gain resulting from the ownership of a major league franchise since CBS sold the Yankees at a loss to George Steinbrenner 30 years ago. Overall, Disney claims to have lost about $100 million on the Angels.
How does Moreno intend to succeed where Disney failed? With a strategy so quaint, so old-fashioned, so out of sync these days with the world of bigtime sports that it sounds almost radical: by pampering his customers. Think of it as a supply-side approach to baseball economics. Lower ticket prices, cheaper concessions, and better customer service will stimulate fan activity and generate enough revenues to offset the lower margins--or so Moreno is betting. In the end it's all about expanding his audience and grabbing market share in a vast market with lots to grab.
Moreno's theory has yet to be tested. He's had a free pass this year, thanks to the afterglow of the World Series. But assuming he can keep fans coming to the ballpark, the real challenge is translating that top-line growth into actual profits, given baseball's out-of-control cost structure (read: player salaries). Dean Bonham of the Denver-based Bonham Group, a prominent sports-marketing firm, is skeptical. Few major league franchises, he says, will ever generate consistent profits until baseball adopts NFL-style salary caps and revenue sharing. Still, he's impressed by Moreno's grasp of what he calls "basic principles, the most notable of which is the following: Everything begins and ends with the fans. I cannot tell you how dumbfounded I am that so many major-league marketers with years and years of experience lose sight of that simple concept."
"It's a real minor league approach," says Robert Baade, an economics professor at Lake Forest College who has written about the business of baseball. "In the minors you actually have owners and fans wooing players. What a novel concept! If you try that in the majors, who knows what you might be able to accomplish?"
Moreno is no natural-born fat cat, which may be why he identifies so closely with the fans. He's a fourth-generation Mexican American, the oldest of 11 children who, growing up in Tucson, shared two bedrooms and one bathroom with their parents. His father published the city's Spanish-language newspaper and ran a printing business on the side. The elder Moreno was what his son describes as a "good-guy business guy," which is not the same as a good business guy. He gave neighbors steep discounts on wedding invitations and published the church program for free. By the time Moreno enrolled at the local community college, his father had lost his business.
Moreno didn't last long in college, and in 1966 he got drafted. It was while serving in Vietnam that he did some "soul searching" and set some goals. ("A goal is a dream with a deadline," he says piously, quoting his favorite self-help author, Harvey Mackay.) They were to complete his college education and to make a million dollars before he turned 40.
Back home, Moreno enrolled at the University of Arizona and afterward went looking for a job in sales. He was hired by a local billboard company, Combined Communications, which was later swallowed by Gannett. Moreno liked the corporate life, loved the structure and the rewards, and might have stuck it out his whole career had he not perceived, ultimately, that his path up the organization was blocked. "I was doing very well for them," Moreno says, "and I was generating x amount of profit, and I knew that if I could have a small company generating even just a percentage of that profit I could reach my goals much faster. Like I once told somebody, I became very dangerous when I learned how to add."
In 1984, Moreno approached Bill Levine, the founder of Outdoor Systems, and offered to buy his company. Levine wasn't interested in selling the company, which at the time had 80 billboards in and around Phoenix and less than $1 million in revenue, but he was looking for a partner. He gave Moreno equity and made him CEO. What played out over the next 16 years was a heady process Moreno sums up simply as "leverage and acquire, leverage and acquire, leverage and acquire." Outdoor ultimately swallowed the giant outdoor units of 3M and Moreno's old employer, Gannett, surpassing all competitors to become the largest billboard company in the country.
Moreno has an equally simple view of the business proposition of the Angels. The biggest chunk of revenue for any baseball team is attendance. The way Moreno sees it, he's got a perishable inventory of seats--not unlike the billboard business, when you get right down to it. "I've always studied supply and demand," Moreno says. "If you have a high vacancy, then you lower your price." So now at Edison Field on Tuesdays, a child--recently redefined by Moreno as anyone under 18 years old; it used to be 12--can sit in the nosebleed section behind home plate for $3. ("You get me the kids in here," says Moreno, "and I'll get you a fan base that will last for a long, long time.") Monday through Thursday, right-field bleacher seats are just $5. And with four hot dogs, a liter of Coke, four cups with ice, and a giant popcorn for $16, a family of four can enjoy an evening at the ballpark, with parking, for less than $50.
Value is one way Moreno hopes to appeal to an important, though long overlooked, demographic for the Angels: Hispanics. Nearby Santa Ana has the highest concentration of Spanish speakers in the nation, 74% according to the 2000 census; Anaheim itself is 43%. Longtime Angels vice president Kevin Uhlich admits the club has not always done a good job marketing to those fans, but under Moreno, that's changing. "This year almost a third of our budget is devoted to the Hispanic market," Uhlich says.
"What I'm trying to do is take the pressure off of a fan coming to the ballpark," says Moreno. "I want to be able to create a family atmosphere that's reasonably priced. That way we expand our overall audience." The bigger the audience, the more Moreno can leverage the second variable in the baseball business, local operating revenue. That's concessions, parking, stadium advertising, and luxury boxes, most of which flows directly to the Angels thanks to an excellent lease with the city of Anaheim.
Expanding audience is the key, finally, to meeting Moreno's biggest long-term challenge: capturing a bigger slice of the mammoth L.A. media pie. "I definitely see that as an opportunity," says Dean Bonham. "But it's a little misleading to say that the Angels sit in the L.A. market. It's the Anaheim market. L.A. has been dominated for many years by the Dodgers." There's a good reason for that. The Dodgers, historically, have been winners. The Angels went 16 years without qualifying for post-season play. "I'm not talking about winning the World Series," Uhlich emphasizes, "but even just going to the playoffs. There was not a lot of excitement around the product."
All that changed last year, of course, and Moreno is reaping the benefits. The Angels sold 22,000 season ticket packages in 2003, nearly twice as many as the year before. Total attendance this year surpassed three million, a franchise record. That's a good number--the average club drew 2.3 million--and it was worth about $58 million in revenue. But how long will the excitement last?
Not long, warns professor Baade. "In every bit of statistical work I've done, the one variable that's critical to generating revenue is competitiveness on the field," he says. "Fans just won't support teams that are mediocre or worse." Success doesn't have to mean a staggering payroll: The Oakland A's have proved that. Still, says Baade, "if you don't manage a team well, and you don't turn it into a competitive entity, you are going to have problems."
And those problems start in the locker room. Attendance isn't the only number that rose sharply this year; so did payroll, from $62 million to $80 million. The trouble with winning is that winning players want raises. Bottom line, Moreno says he will lose $7 million in 2003 and at least $10 million in 2004. And that's without signing any free agents. No wonder Bonham doesn't think much of Moreno's chances. "Major League Baseball ... doesn't work," says Bonham. "Until it has cost certainty, it won't matter if you are the Moses of marketing coming down from the mountain with the tablets in your arms, you are not going to be successful. The economic model won't let you be successful."
Still, Moreno insists that by 2005, 2006 at the latest, the Angels will be operating in the black. He's going to build a new, state-of-the-art video scoreboard this winter, designed to accommodate more flashy ads. "I think we can double the in-stadium signage revenue," he says optimistically. And he's looking ahead to 2005, when $45 million worth of guaranteed contracts drop off the payroll. Knowing that's coming, he says, means he can "spend some money [in the free agent market] in '04 to start building for '05."
In Moreno's perfect world his new team starts winning again, fan interest grows, media dollars soar, profits roll, and the Angels assume their rightful place as one of baseball's big-market powerhouses. "I have a lot of money invested here, and long term, I would like it to be a good investment," says Moreno, back in his suite now. He is drinking a beer, watching the final innings of an Angels double-header. "You know, it's a fun business. It's supposed to be fun." Then he adds, "Makes me sick to lose."