The Twins’ Clean-Sheet Reset
Twins president Dave St. Peter is a Bismarck, North Dakota, kid who joined the team as a media relations intern in 1990. He rose through the ranks on the communications/marketing side to become SVP/business affairs in 1999, and then, in 2002, was elevated to the role of president. Through the 2010 season he presided over the longest stretch of playoff runs in Twins history and the team’s move into Target Field. But half a decade ago, the Twins stopped winning, and last year the organization, known for its stability and traditional approach, faced some difficult transitions, culminating in the ouster of longtime general manager Terry Ryan.
St. Peter—one of the longest-tenured sports executives in town—and owner Jim Pohlad hired Cleveland Indians executive Derek Falvey to rebuild the baseball operations. Now a period of change is at hand. We spoke to St. Peter in a Target Field conference room overlooking a wintry ballpark about the organization’s time in the wilderness and the changes required to return to winning.
The State of the Business
Q How is the business right now?
The foundation of the business is solid. We spent a long time with a fair amount of instability because of the lack of a [ballpark]. But since Target Field has opened it’s put us in a different category. We operate in a dynamic marketplace. Highly competitive, but high per-capita income, spending, entertainment usage.
Q So the foundation is solid, but given the slide in ticket sales, to an outsider it appears you should be hurting.
While there are clearly concerns about attendance, largely due to team performance, the organization is in a good spot because of the ballpark, the market we’re in, and the stability ownership provides and its willingness to invest in the team.
When assessing revenue for an MLB team, remember that many factors beyond attendance contribute to the health of the business, including 1) national revenues (including media and digital revenue distributions as well as revenue sharing); 2) stadium revenues (concessions/merchandise); 3) sponsorship; 4) local media.
Major expense variables include 1) Major League payroll; 2) player development and signing bonuses for amateur talent; 3) facility investments. Rest assured, our business was healthier in 2011. We have benefited from other factors—mainly national in nature—to help us somewhat offset a decline in ticket revenue. But to clarify, we operated with a break-even budget in 2016 and expect to do so again in 2017.
Q How does losing affect your revenue streams?
Well, the industry is in a good spot. Revenues are strong—broadcast, digital, sponsorship; we have a system that is working and we’re beneficiaries of that. We should be at about the median of the 30 baseball teams in revenues. We have averaged slightly above median, and in 2016 we were slightly below. But we built a financial model around attendance of 2.3 million to 2.5 million people, and we’re not there right now.
Q Season-ticket equivalents were near 14,000 in 2016, after peaking at 25,000 in 2011. Where will they end up at opening day?
Our fans have been enormously patient. We expect to be at around 12,000 for this season. . . . I am far from pleased with that number, but it is going to land in a bit better place than I personally feared last fall.
Q Attendance is the most visible metric. What are the other key buckets?
Biggest would be media revenues—local TV and radio. Our revenue is constrained by market size, but we work to maximize them.
Q Do those fluctuate from year to year?
No, they’re contract-based. But we try to estimate where they are going to fall well into the future.
Q The team handles its own radio broadcasts on Pohlad-owned GO 96.3 FM, but do TV ratings not affect the team’s financials?
No, that would be Fox Sports North (FSN), primarily, in what they can charge for advertising. But we feel very comfortable with where baseball sits for a regional sports network (RSN). For any RSN to be successful, you have to have baseball. Historically, Twins baseball has been the No. 1 ratings driver for FSN. Even in a down year, compare our ratings to the winter sports, and Fox will take our ratings every single day.
Q Corporate sponsorships look meaningful. Are they?
Significant, but nowhere near as significant as ticket sales or broadcast. We’ve been the beneficiary of a very dynamic marketplace of Fortune 500 companies who have chosen over time to invest in the Twins, utilizing Twins baseball as a platform for a host of reasons—brand expansion, hospitality, using our [trade]marks. Sponsorship revenues have been flat; they have not declined.
Q What else?
There are some ancillary revenues from non-baseball events at Target Field like concerts [and] merchandise sales, but attendance drives so many things because it drives concessions and merchandise sales. What people consume in the ballpark is a function of attendance.
Q Patrick Reusse suggested in the Star Tribune recently that the Wild’s strong season could diminish interest in the Twins. How close is the connection?
Patrick’s very worried for us. He’s more obsessed with our business than I am, and I am obsessed.
Actually, I think it helps us long term. Winning activates sports fans. This is an incredibly competitive market. It pressures the owners to deliver on the field and in customer service.
Our problem is not another team’s good season, it’s our won-loss record. Five of the last six years have been historically bad. Any brand can sustain a couple bad seasons if you’re doing a good job of communicating your plan or stemming that tide. We have nobody to blame but ourselves.
The Lost Half-decade
Q Let’s talk about the last six years. Was there anyone here who could have forecast what’s taken place? Does a cause come to mind?
As we went to spring training in 2011, there were many picking us to go the World Series. [What followed was] the perfect storm of problems, just an ugly season.
Q When the decision was made to shift Bill Smith out of the general manager’s job and bring Terry Ryan back for 2012, was it based on a realization Smith’s tenure was unsuccessful?
Jim and myself felt a change was needed. Bill did some good things, I do believe history should be kinder to him when you look at the results—a couple division championships, a game 163 we lost to [the White Sox and] Jim Thome. Certainly Bill deserves credit for amping up our international operations and the signing of Miguel Sano, Jorge Polanco, Max Kepler.
Q But you didn’t keep him.
There was a belief that we needed to make changes throughout our system to make sure we were filling that pipeline with players. But I’m not sure we would have made a change had Terry not said he was willing to come back. Jim or myself were not making change for the sake of change. It was that Terry was going to be in a position to recultivate our pipeline of players. He did that. The farm system is in a better spot today than in 2011. Ultimately, we hoped Terry would be in a position to make shrewd baseball decisions, much as he had done in his first tenure with us. Terry’s track record was impeccable in the 2000s. Unfortunately, we were unable to regain any level of mojo.
Q Is the game inevitably cyclical? Jim Pohlad told me a few years ago that he was pondering that question with an eye toward smoothing out the cyclicality of it. I ask because in Ryan’s case: same guy, same game, completely opposite result in his second tenure.
There’s an inevitability to seasons that go wrong, but I do believe the best organizations find ways to shrink those valleys due to leadership that makes really shrewd baseball decisions. We had that in the 2000s.
I don’t think we made enough good decisions this decade outside of player development—such as the free agent signings, some of the trades. Combine with some bad luck and injuries [and] it can snowball.
Q Did a culture of losing set in?
There is a mindset that losing creates. That’s something that all of our top candidates talked about at length when we went searching for new baseball leadership.
Q I’m sure the decision to relieve Ryan of his responsibilities was extremely difficult for the organization, given his tenure. What is it you came to understand that led you to believe a change was essential?
It would be wrong to say it was exclusively based on last year’s won-loss record, but it was looking at our performance and having some very direct discussions with Terry about where we were and where we wanted to go. And over the course of those discussions it was evident that a change was going to be in everyone’s interest.
Terry is someone we have so much respect for as a baseball person, but also as a man. He has meant more to this organization than any single individual I can cite. But ultimately, we wanted to see our organization evolve.
Q So was a different arrangement broached?
There was some hope that Terry might stay on but maybe with some different structure, maybe a different delineation of responsibilities. It became evident Terry was not going to be as comfortable with that based on the autonomy he had enjoyed and earned over time. He let us know he was going to step down if he was not likely to enjoy that same level of autonomy.
Q What is different about the game in the generation since Terry Ryan started as GM?
The skill sets of this new age of general managers are quite a bit different. They haven’t necessarily played the game or scouted. But they are very learned about analytics, psychological factors, organizational behavior.
Q Describe your oversight over baseball operations.
[That department] reports to me. [Editor’s note: That has not changed despite the change in leadership.] I view it as a partnership. I provide them with incremental resources and counsel if asked. They also have a very strong dotted line to ownership. It was true when Carl Pohlad was the controlling owner, and certainly now with Jim. And I think that’s really important. It’s a good model that’s served us well.
Q You have a handle on baseball operations, then?
I’d hope so. It’s evolved dramatically. I think that’s one of the things we’re going through right now. There’s a change within our organization to add significant resources, people, and refine our processes to be more well-rounded in our decision making.
Q What did you and Jim Pohlad decide needed to change?
We gained an understanding of the importance of alignment between all aspects of your organization. So what is expected at the major leagues is 100 percent aligned with what is being taught at Rochester or Chattanooga. It became evident we were missing some alignment. It’s one of [new vice president of baseball operations] Derek Falvey’s most important priorities.
Q Any other things you’re rethinking?
Derek and [new general manager] Thad Levine have been getting a look under the hood, building relationships. From the outside looking in, it seems like we’ve had a quiet off-season. But it’s an inside-out approach—establishing an expectation around culture. Derek surveyed all our people about their perceptions about the organization. The survey will be critical for establishing a baseline.
Q Any results surprise you?
I’d rather not get into the specifics, but there were some surprises, and they underscored areas of opportunity that maybe needed attention.
Q It’s been said the organization is bulking up in behind-the-scenes roles.
Yes, in our front office, scouting, medical, analytics. It will take some time. We will look much different going into spring training in 2018. I don’t mean people will be gone; [but] you’re going to see a fair number of new faces.
Q Is it a substantial investment in head count?
Oh yes, yes. Oh yeah.
Q Seven figures?
Deep into seven figures. Derek comes from the [Cleveland] Indians, a market level below the Twins, but if you look at what they’re spending on personnel, it’s a level beyond the Twins. Part of what we’re doing here is playing catch-up. But we are doing it methodically rather than checking boxes. They want the right people.
Q And there’s not been the rumored “housecleaning.”
We believe we have good people. There was no mandate to keep people or clean house. We asked Derek to make his own evaluation. Some of that is ongoing. But he looks at a player and thinks in terms of a development challenge, not just a track record. Every single employee has a development plan to get better. Derek’s attitude is “How do we support that?”
Q Did the success of the 2000s make the Twins complacent about the analytics revolution happening in baseball? Baseball was once a business that could only ostensibly be understood by men who had played it and thus had intuitive experience in it.
I don’t think we were as far behind in analytics as many in the public might believe. I asked Derek for his perspective on this vertical and he did not think we were as lacking in people and systems as he thought we might be, but we lack horsepower that can expand its influence across our operations. Over time, Derek and Thad will push us toward the top.
The Season Ahead
Q Let’s talk about some issues related to the season ahead and seasons ahead. You reference the “quiet” off-season. When a player doesn’t sign with the Twins, the public perceives it to be about money. Is that usually it?
No. This year it’s because they thought other teams were closer to winning a world championship and they signed with them.
Q Teams have been undertaking radical restructurings of their ballparks to appeal to a millennial fan who likes to move about the ballpark and mingle. The Twins dipped their toe in the water last season with the center field renovations. Are more planned?
Yes. I give Jim Pohlad tremendous credit with having an obsession to make this ballpark better—to continue to spend money year after year to enhance the facility, and [these changes] don’t always deliver ROI. This year was relatively quiet; we upgraded the stadium to LED lighting.
We’re looking at some significant projects for 2018-2020. Some of it is following through on this trend line with fans looking for gathering spaces versus fixed seats. Ticketing is moving electronic, so what can we do with that large [box office] space to make the plaza experience even better . . . . for the entry sequence into the ballpark.
Q Downtown seems to always be battling the same concerns. We’re talking about safety again. The loss of retail. Are you concerned about the health of downtown?
It’s all relative. I talk to my peers and frankly, I’d take downtown Minneapolis over many other ballpark settings in the league. I’m bullish on downtown based on the trend lines about residential population. The concerns are not ill-placed, but we think over time if we do our job that it will help downtown Minneapolis.
Q The Cubs’ systematic five-year climb to a World Series is inspiring, I’m sure, but there are examples of clubs making the same investments the Twins are making in personnel and systems that have not delivered anything close. How much optimism do you allow yourself?
I’m highly optimistic that exciting days lie ahead. We have work to do. We have a young core that’s very special. But the vision is to play meaningful games in August and September on a regular basis. I think our fans are realistic. They know world championships are the goal, but they want a competitive team even more. Derek and Thad are not miracle men, but they are inheriting an organization ready for positive change—ready to take a step toward contention.
Adam Platt is TCB’s executive editor.