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Q4.2012
scribed a team on the brink of financial ruin. One insider said Colangelo, the managing partner, had miscalculated the market and the team’s revenue-generation capacity. Overspending had put the team on the verge of bankruptcy, and a couple of bad seasons, with attendance plummeting, forced a change in leadership. The team had lost $350 million in its first seven years of existence. Out of the background, Kendrick emerged in 2004 to take control as managing partner. He set out to recapitalize the team and change the culture of the business. Kendrick’s remedy was to raise the franchise value by finding ways to increase revenue while keeping cash flow in check. “In baseball, you want to try to build a model around a break-even cash flow,” Kendrick explained. “You build an expense base in terms of primary expenses such as payroll, minor league operations, baseball operations, scouting. You want to build a model, and we have done that consistently, where we are cash-flow neutral in our operations. And then you presume – over time – franchise values will increase, and the return on investment is built around increased franchise values.” And in a league where the Los Angeles Dodgers, a division rival of the Diamondbacks, was sold in 2012 for
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“We were a software company before the word was coined,” Kendrick says. He ran the northern Virginiabased Datatel until 1990, when he stepped down from the CEO role and decided to shift gears and move to Arizona. Settling in the tony suburbs of Phoenix, he was offered a chance to own a minority stake in the Suns, the local N.B.A. franchise. His involvement with the Suns, which was considered a model basketball franchise run by Colangelo, put Kendrick at the center of the city’s sports scene. In 1995, when Major League Baseball announced plans to expand in the 1998 season, Ken drick became a charter member of the ownership team that won a franchise for Phoenix. Colangelo was the primary founder and principal owner. Kendrick served as a limited partner from the team’s inception in 1998 through its 2001 season when it upset the mighty Yankees to win the World Series, a stunning achievement for such a young franchise. With an inviting stadium and 3.2 million fans pouring through the turnstiles, the D’Backs seemed like the ideal expansion team. But all was not well behind the scenes. The on-field success was masking serious money problems, and though Kendrick won’t provide details, local reports de-
T h e K o r n / F e r r y I n s tit u t e