NEW YORK (The Deal) -- On Sept. 8, 1999, the Rockford Reds, the Single-A affiliate of Major League Baseball's Cincinnati Reds, played their final game in Marinelli Field in Rockford, Ill., in front of a crowd of just 684 people.
The Chicago Cubs had sold the former iteration of the team, the Rockford Cubbies, a year earlier, and the Rockford Reds were set to undergo a huge transformation with a new affiliation and a new ownership group. Mandalay Baseball Properties, a subsidiary of former Columbia Pictures head Peter Guber's media conglomerate, Mandalay Entertainment Group, backed by New York private equity firm Seaport Capital, had just purchased the team with plans to move it from the 164th most populous city in the U.S. to Dayton, Ohio -- the 43rd largest.
Over the next 15 years, under Mandalay's ownership, the club was revitalized with a new name -- the Dayton Dragons -- new sponsors, and new food and beverage options. Most important, Mandalay managed to negotiate a $23 million state-of-the-art stadium in downtown Dayton that was largely funded with public dollars.
The stadium, as well as the host of other improvements Mandalay would make to the club and the venue, were key drivers in making the Dayton franchise one of the most successful minor league teams in baseball history. Coming into the 2015 season the Dragons had sold out 1,051 consecutive home games, and are expected to sell out the entire 70-game 2015 home schedule.
But Mandalay and Seaport weren't terribly interested in good baseball. They are in the business to make money. So in July Mandalay sold the team to Palisades Arcadia Baseball, a group led by Michael Savit, an investor in the National Basketball Association's Memphis Grizzlies, for a record $40 million, according to a person familiar with the situation, marking it the most expensive sale ever of a minor league club. The record was set at a time when minor league properties, especially underperforming clubs, were trading hands in the low single-digit millions, according to industry watchers.
The Dragons were the first of as many as eight teams that Mandalay Baseball would either own or manage over the next decade and a half. Like the Rockford team, the investments Mandalay made were predominantly in teams in need of new stadiums or teams that could benefit from new starts in new markets.
Mandalay would purchase the rights of the teams and negotiate continued affiliation agreements. But for one of the largest expenditures -- the new ballparks -- the group relied largely on public money. Thus, Mandalay got taxpayers to cover its biggest cost, which also produced the greatest increase in the teams' valuations. Bigger, better stadiums mean more people in the seats. And bigger crowds mean bigger price tags when the teams are sold again.
"Dayton was the poster child for this strategy," said Larry Grimes, head of the Sports Advisory Group, who worked with Palisades to purchase the Dayton team, but declined to comment on the valuation. "The team has been phenomenally successful." Grimes noted that Dayton does not have any major competing sports venues, is a relatively large metropolitan area, and that the city was willing to help in building a sports complex for the team.
The deals worked out great for Mandalay, if the Dayton outcome is any indication. And the city officials who pushed for the stadium projects insist that they are happy with the results -- and so, apparently are the fans filling the seats. But investors and municipal officials elsewhere thinking about emulating the Mandalay model should know that the arrangements are not without costs. Public funds spent on stadiums can't be spent on schools and other municipal services. That downside has been enough to convince some voters that baseball isn't worth the price. And there's no guarantee that minor league baseball will work everywhere. Even if a city builds a beautiful ballpark, the fans -- and thus redevelopment -- won't necessarily come.
In 1998, the city of Dayton approved a $14 million bond sale to fund its first baseball stadium. The bonds were incrementally forgiven with each passing year, and the Dragons agreed to pay about $80,000 per year to rent what would become Fifth Third Field and control the gate, according to the Dayton Business Journal.
The Dragons' sale surpassed the previous record for a minor league club, which Mandalay set in June 2014 when it sold the Texas Rangers' single-A affiliate, the Frisco RoughRiders, of Frisco, Texas, for around $30 million. Frisco RoughRiders, a group led by the team's president, Scott Sonju, and Chuck Greenberg, the former CEO of the Texas Rangers, was the buyer.