Padres Reportedly Had To Take Out A Huge Loan To Make Payroll This Year
The San Diego Padres spent big on free agency and retaining core players in the 2022-2023 offseason, despite playing in one of the league's smallest markets.
In signing Xander Bogaerts, inking Manny Machado to an extension, retaining Yu Darvish, Jake Cronenworth, Robert Suarez and bringing in pitchers like Seth Lugo and Michael Wacha, the Padres ran their payroll up to $255 million before luxury tax penalties. That put them third in Major League Baseball, with expenditures so high that other teams wondered how they could afford it.
Well, turns out they kinda couldn't.
The Athletic reported on Wendesday that the Padres took out a massive, $50 million loan in September to deal with cash flow problems and pay their monthly obligations. Obligations including player payroll.
According to sources quoted by The Athletic, it's not that unusual for teams to access lines of credit, but the scale of the loan and the fact that there were already concerns about San Diego's massive obligations does seem to make this situation more serious than others. Padres CEO Erik Greupner issued a statement for the report, saying that the team is operating in "accordance" with a predetermined plan.
“The Padres organization continues to have access to all the resources, financial and otherwise, it needs to field a championship caliber team for the fans of San Diego,” Greupner said. “We established a capital plan for 2023 with our ownership group and lender partners and are operating our business in accordance with that plan.”
But this news all but cements that San Diego will essentially have to cut payroll expenditures heading into 2024.
READ: SAN DIEGO PADRES SET TO SIGNIFICANTLY CUT SALARY FOR NEXT SEASON, DESPITE BIG FREE AGENTS
SAN DIEGO, CA - JULY 25: Blake Snell #4 of the San Diego Padres pitches during the first inning of a baseball game against the Pittsburgh Pirates July 25, 2023 at Petco Park in San Diego, California. (Photo by Denis Poroy/Getty Images)
Padres' Payroll Viewed As Unsustainably High
The Athletic quoted a source inside the organization casting doubt that revenues have kept up with payroll obligations.
“If the question is, despite all that revenue growth, why would we need to be borrowing more money? I mean, you can connect those dots,” the unnamed official said. “The levels of payroll that we’ve been at have probably reasonably been in excess of what we could have supported, but it was part of the larger plan.”
The "larger plan" referenced by the CEO and the Padres official almost certainly revolved around the team making the playoffs again in 2023, likely with the hope that it would come with a division title. The extra postseason home games would have created another revenue bump, especially with a deeper run in October.
Instead, the Padres floundered, sitting well below .500 until an end of the season surge against bottom tier teams like the A's and White Sox.
San Diego also dealt with losing revenue from their television deal with Bally Sports. After Bally's parent company declared bankruptcy, MLB stepped in to broadcast team games, but rights fees were almost certainly impacted.
This revelation comes at a pivotal time for the Padres, and has major implications for the immediate future in San Diego and the free agent market.
How Do They Handle Revenue Shortfalls?
Blake Snell and Josh Hader are set to become free agents in a matter of days. Seth Lugo and Michael Wacha could decline player options after serving as valuable, reliable rotation depth. If the Padres are effectively short on cash, retaining any of those players becomes extremely unlikely.
Especially Snell, who's estimated to receive a contract in the $200 million range.
The biggest question mark, however, immediately becomes Juan Soto. Soto is in his final year of arbitration, with projections putting him at a $33 million salary for 2024. The Padres, needing to replace Hader, Snell, Wacha, Lugo and a few others, already have nearly $243 million in luxury tax commitments, putting them above the first threshold.
Signing depth in free agency, even cheap depth, could easily push them above the second threshold at $257 million. Adding even more to their financial obligations.
Trading Soto may be the only remedy the Padres have to try and get payroll down closer to the $200 million range. But Soto was the team's best offensive player in 2023, and for an organization hoping for a quick rebound, trading him might be untenable.
What's remarkable about the Padres' spending is that there's no end in sight. Their luxury tax payroll estimate for 2027 is already roughly $163 million. That's four full seasons from now. And it's just for seven players.
Some around the league have wondered if the team could sustain these massive payrolls, and the immediate answer seems to be no. That said, the massive spending led to 61 announced sellouts and one of the highest attendance figures in the sport.
With plenty of talent to build around, the answer to the Padres' revenue problems may just be to spend more and hope for better. But if next season starts off as poorly as this one, those financial issues may get even worse if fans tune out.