San Diego — As the deadline for the city's November ballot draws closer, Padres owners John Moores and Larry Lucchino are turning up the heat on the city council. At issue: the millions of dollars of taxpayer subsidy that all sides acknowledge will be needed to build a new downtown baseball park. Last week, Moores and Lucchino fired off a letter to the council, spelling out their rules of battle. A verbatim transcript of a leaked copy of the letter appears below.

June 18, 1998

Honorable Susan Golding and Members of the San Diego City Council

City Administration Building

202 C Street

San Diego, CA 92101

Dear Mayor Golding and Members of the City Council:

Tuesday evening, the Padres received the City's revised ballpark financing proposal in the form of a 31-page draft "Memorandum of Understanding." Although City officials and attorneys needed over 30 days to prepare the proposal, the City has requested that we respond in writing to do just that. Since it is not possible to respond in detail to each of the issues addressed in the proposal in such a short time period, we have outlined below our reactions to the central issues. We trust that our effort to comply, even with this unreasonable timetable, is further evidence of our good faith eagerness to make a deal with you in a timely manner.

In general, our efforts to reach agreement have been stymied by a flawed negotiating process. It now appears from the new and non-sequential proposal we have received that the City's decision-makers have not been at the table during the negotiations. We respectfully suggest that if we are to reach agreement on a project of this magnitude in accordance with your deadlines, it will only be after authorized decision-makers for both the City and the Padres meet to negotiate. Moreover, we are somewhat troubled by the way in which the City is seeking to use the calendar. For months now, the Padres have asked repeatedly that the City submit a "comprehensive" proposal to the Padres for discussion and that this be done in time to permit any agreed-upon plan to the voters in November. After months of waiting, we were presented Tuesday evening at 6:30 pm with a completely unacceptable financing plan, asked to provide a written response by Thursday morning (which we have done), and required to sign an agreement with the City in nine days (by June 25, 1998, sooner than we had ever been informed by the City staff) if there is to be any ballpark plan on the November ballot.

To summarize at the outset with respect to the specific proposal, we found the City's proposal, as well as many of the statements made in the cover letter, disturbing. While the City's proposal may be more detailed and certainly is structurally different from all prior City proposals, from an economic and a risk assessment standpoint, the City's proposal relegates the Club to a bleaker financial position than it was in under prior negotiations. Therefore, we simply cannot accept the City's proposal without major change. While the Padres appreciate the time and effort spent by the City to prepare the proposal in an effort to make it comprehensive (as we had requested in our May 22, 1998 letter to you), the City's proposal is unacceptable for many reasons, including the following:

1. The City's proposal is a step backwards in our negotiations. While the City's proposal offers the same $175 million in transient and occupancy tax revenue that the City previously offered, the City's proposed Padres/private sector payment of $135 million is $10 million more than the City requested orally during our last meeting. Also, the City's proposal unrealistically sets the cost of the Ballpark at $240 million, an amount less than any amount recently discussed with the City. This is critical to the Padres since the City's proposal would require us to assume all Ballpark cost overruns, including this extra $25 million.

2. The City's proposal differs in several significant respects from the structure of the agreement that we have been discussing for several months. For example, whereas the parties have agreed that the contributions from the Padres and the private sector be combined and our discussions have long proceeded along these lines, the City's proposal for the first time separates the two (although it would require the Padres to generate and guarantee both the Padres and private investments). In addition, the proposal is so riddled with generalities and legal loopholes that it is difficult to identify what, if anything, the City is agreeing to commit itself to do.

3. The proposal is not based at all on the agreements reached between municipalities and other clubs in similar circumstances with whom we compete. In fact, the City's proposal appears to ignore this market analysis. As we have made clear to the City's negotiating team several times, there is a market for determining the reasonableness of an agreement between a municipality and a club, and the City's proposal is clearly unreasonable in light of that market. A construction contribution from the Padres on the order of magnitude as that proposed by the City is wildly out of sync with the contributions made by other Major League clubs in public/private partnership over the last 10 years, contributions which averaged about $50-60 million. The City has yet to explain why it feels justified in demanding a sum from us that is nearly triple that, when our revenues at Qualcomm are not close to the levels enjoyed by our competitors. The City's proposal would simply not allow the Padres to compete (financially or on the field) with other MLB Clubs that are receiving "market-based" deals.

4. Contrary to the assertion in the cover letter, the proposal is flatly inconsistent with at least one of the basic ballpark construction financing principles to which we have agreed. It would not provide the Padres with the opportunity for long-term economic and competitive visibility. Indeed, were the Padres to accept this proposal, the Padres would be burdened with one of the worst deals in Major League Baseball. While the agreement would purportedly ensure that the Padres remain in San Diego, our financial situation would continue to be desperate and our competitiveness non-existent. We can never agree to such an arrangement.

5. Contrary to the assertion in the cover letter, the City's proposal is actually not comprehensive. Surprisingly, the proposal contains a gap of $50 million in the financing plan. In the event that other funds are not identified and secured to fill this gap, the proposal would require either that the Padres guarantee such additional funds or that the Ballpark project estimate be reduced. In addition, the proposal fails to address a variety of issues that the Padres have repeatedly identified to the City as significant to the success of the project, such as financial involvement by the Port, Qualcomm lease adjustments for any interim period, and completion of Ballpark construction for opening in 2001 (rather than 2002).

6. The proposal is unreasonable and unrealistic with respect to the risks it places on the Padres. For example, the proposal requires the Padres to assume responsibility for cost overruns on the land and infrastructure, when those are customarily the city's role and responsibility and the Padres have no control whatsoever over these elements. While the Padres have expressed to your negotiators a willingness to take on certain major risks -- such as Ballpark construction cost overruns -- it is unreasonable to expect that the Padres would shoulder the magnitude of risks that the City's proposal would require and that were never asked of us before. Moreover, since the City will share in the upside of a successful redevelopment effort, it should share in at least some development risks. Also, remarkably, the City's proposal requires the Padres to guarantee public funds from an unidentified project and proceed with ancillary development concurrently with the Ballpark before the City has any duty to fund Ballpark construction. All without any commitment by the City to enter into the prerequisite development agreements.

7. With such extraordinary financial obligations, the Padres would be required to pass on these costs to its fans. Thus, the concept of "affordable family entertainment," which is a hallmark of the ballpark development plan embraced by the City's Task Force, will be destroyed.

8. The proposal ignores the fact that the South Embarcadero site was the City's choice, not the Padres', and one CCDC [Centre City Development Corporation] was highly confident was "doable," affordable and would provide the most benefit to the City, and therefore could justify the City's investment. (You will recall that the South Embarcadero site was neither the first choice of the Padres or our fans.)

9. The proposal is entirely unmindful of the gigantic losses that the Padres have suffered playing in Qualcomm Stadium in an effort to field a competitive team worthy of the public's support. Over the past three baseball seasons, the Padres have incurred cash operating shortfalls totaling $48.9 million. We face further losses during this 1998 season, and realistically, must plan for continued operating losses in both 1999 and 2000, until a new ballpark can be readied for our occupancy, whether in San Diego or elsewhere. From an operational standpoint, these losses represent massive sums that we must infuse into the Padres franchise from our personal resources in order to meet player payroll, front office payroll, and other operating expenses. As a result, it is neither reasonable nor realistic for the City to demand that the Padres now commit to contribute between $135-160 million toward the cost of constructing a new ballpark (with the precise amount depending on whether the construction will cost $240 or $265 million), and pay virtually all of the operating expenses, and pay $2 million in annual rent, and pay what we estimate will total $1 million in annual possessory interest taxes and provide guarantees for everyone. Such a deal would make this one of the costliest ballparks in history for any Major League club. Similarly, the City's proposal to share in any profits from any sale of the Padres franchise unrealistically permits the City to benefit in the "upside" while the Padres alone bear the "down-side" risk.

In sum, we are saddened and disappointed at the City's continued unwillingness to provide us with a proposal that is reasonable and based on comparability. In light of the City's most recent proposal, however, we are sure that it would be unproductive to continue in the same manner. Yet, we recognize that the people of San Diego are eagerly awaiting the details of our deal. They expect to vote in November. To that end, we need to change the process, and therefore suggest that the Mayor, the City Manager and a representative of the City Attorney's office, authorized to negotiate and make decisions, meet with a similarly limited group from the Padres in a final effort to reach an agreement. In the context of such a meeting, we are prepared to present a comprehensive counter-proposal immediately.

Sincerely,

John Moores

Chairman

Larry Lucchino

President and CEO

cc: Michael Uberuaga *