Though it will probably never again come up in the context of operating the franchise, it is interesting to know how the sale of the Chicago Cubs was financed – it looks like a big ‘ole mortgage, with the Ricketts family putting down $171 million, and taking on $674 million in debt. That debt has some interesting characteristics, and the team’s financing will provide additional opportunities for the millionaires among you to get involved with the team.
The $250 million raised in the private placements goes toward a $425-million bank loan that would have matured in October 2013, leaving $175 million that will likely be refinanced at that date. The new private placement notes have staggered maturities out to January 2022, according to deal documents that also show the debts are secured in part by all Cubs’ assets, including Wrigley Field.
The remaining $249 million of borrowing in the deal is subordinated debt, with the Ricketts family itself providing at least $175 million.
“Building capital structures is something Tom Ricketts knows,” a spokesman for the Ricketts family says. “This is what the family is really expert at.”
Joining Tom Ricketts in overseeing the Cubs will be his sister Laura and his brothers Todd and Pete, a one-time Senate candidate in Nebraska.
The Ricketts’ spokesman says that converting the term loans into private placement notes with longer maturities provides “flexibility” for the family, and he insists that despite the heavy debt load, the team won’t cut payroll. Mr. Ricketts also has said that in the near future he plans to plow any profits back into the club.
The team, now interviewing candidates for the new position of chief financial officer, still intends to raise additional money, upward of $100 million, by selling “investor notes” to wealthy individuals, the spokesman says. That money would go to pay for capital projects, he says.
While the use of private placement debt in a sports franchise deal is novel, Mr. Zimbalist and other experts say the high-profile nature of the Cubs and the team’s strong following probably bolstered the sale and helped lower borrowing costs for Mr. Ricketts.
“This is A-grade paper,” says Andrew Kline, founder and managing director of Los Angeles-based Park Lane, a sports investment banking firm that wasn’t involved in the deal. “The strong tradition and stable financial standing of the Cubs made this a legitimate investment opportunity even for institutional investors and insurance companies that would not conventionally consider lending capital to a professional sports franchise.” Investment News .
Now, let’s go ahead and put that financial stability to work on the field, shall we?
Also, who wants to get together and buy up some of this Cubs debt? Then, when the Cubs are bombing and we’re booing, we can say: hey, they owe me.
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