Theo’s plan won’t bank on Cubs selling minority ownership shares

Theo’s plan won’t bank on Cubs selling minority ownership shares
April 8, 2014, 11:30 pm
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Selling minority ownership shares won’t be a quick way to infuse Theo Epstein’s baseball operations department with more capital and help the Cubs act like a big-market team again.

Chairman Tom Ricketts is weighing that possibility as his family figures out how to pay for the $500 million Wrigleyville neighborhood project. Ricketts has argued that a renovated ballpark could mean an extra $30 to $40 million of incremental revenue per year, while acknowledging the construction won’t immediately speed up the franchise’s cash flow.

“My understanding is that’s more to finance the renovation,” Epstein said Tuesday at Wrigley Field. “No one knows what the final plan would be. There are a lot of options on the table. (But) that’s really to finance the renovation.”

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It’s simplistic to think the Cubs have black-and-white financial issues. It’s also naïve to think that everything is part of some divine plan at Clark and Addison.

The Cubs are believed to be making debt-service payments in the range of $30 million annually since entering into a leveraged partnership with Sam Zell’s Tribune Co. and acquiring a piece of Comcast SportsNet Chicago in 2009. However the minority-ownership plan plays out, insiders expect the Zell restrictions to remain in place through 2019.

Since that deal, the Cubs have slashed their Opening Day payroll from around $145 million in 2010 to less than $90 million this season. Subtract the money the Cubs are paying Alfonso Soriano to hit home runs for the New York Yankees and the actual on-field product is about $75 million.

This at a time when baseball’s exploding into a $9 billion industry and the collective bargaining agreement’s restricting how much teams can spend in the draft and the international market. 

According to Forbes, the franchise value has soared from $845 million to $1.2 billion, the anticipated jumping-off point if the Cubs sell a non-controlling interest.

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As the Masahiro Tanaka rumors were flying at Cubs Convention in January, Epstein paused after a reporter asked if he’s gotten the financial resources he expected when he left the Boston Red Sox in 2011.

“There can’t be any hard-and-set expectations,” Epstein said. “It’s a dynamic landscape that constantly changes. We were all hopeful of getting some public money for the ballpark and it didn’t happen, so we went out on our own. Those are just audibles, things that happen along the way that you have to adjust with.”

So Cubs fans must be tired of hearing this: Be patient.

The Cubs would be able to start their own cable network in 2020 – the Los Angeles Dodgers and their SportsNet LA carriage disputes should be a warning sign – or sell around 150 games to one outlet instead of dividing the television package between WGN and CSN.

The Cubs are using their WGN opt-out clause, making this the final guaranteed season on the superstation that once gave them a national platform.

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“We’ll see,” Ricketts said. “We’ll know a lot more about what our media-rights options are as the year goes forward. I’m not really sure.” 

The Cubs still have the third-highest ticket prices in baseball, according to Team Marketing Report. They draw a disproportionate amount of their revenues from ticket sales at a time when stadiums have essentially become television studios.

On a 48-degree night, the Cubs announced a crowd of 26,177 during Tuesday’s 7-6 loss to the Pittsburgh Pirates. It can’t be easy for the business side to sell a last-place team with almost no star power.

“Attendance is somewhat related to wins, right?” Ricketts said. “So a better team would help some. But for us, the focus is to do things right for the long-term.”

Epstein has dismissed the questions about his future in Chicago, ignoring the outside speculation wondering if he’d finish out his five-year contract and calling Ricketts an “ideal boss” in certain ways.

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“We talk enough to make sure that we’re aligned philosophically and that we share the same vision for where we’re going,” Epstein said. “(Tom) gives us a lot of freedom to go and execute and make judgments. I keep him posted on the big-picture stuff and make sure he’s aware of things that are going on so he can stay in the loop.

“He’s just really supportive. He’s good for organizational morale because he shows up to minor-league games and he knows scouts’ names. That stuff matters.”