Chicago Cubs 2016 NL Central Championship Gear

ricketts-interviewWhen Chicago Cubs Owner and Chairman Tom Ricketts spoke to the media this past weekend, he touched on a variety of things: the expectations for 2013, the future TV home of the Cubs, the status of talks with the City on the Wrigley Field renovation, and more.

For me, all of the topics coalesced into a singular focal point: what is the Cubs’ payroll going to look like going forward?

We’ve seen the Cubs’ payroll trending downward during the Ricketts Family’s ownership. $135 million in 2009 (just before they took over), $144 million in 2010, $134 million in 2011, $109 million in 2012, and a projected $95 to $100 million in 2013. Are we to expect this trend to continue? Are we to expect that the Ricketts Family is going cheap?

Well, no and no.

“You’re kind of comparing [recent payrolls] to the Tribune payrolls of the last couple years,” Ricketts told the media, including CSN, when asked about the payroll trend. “Which, from our standpoint and from the team’s standpoint were just unsustainable. But what I can say is that it’s a closed system. Every dollar does stay in the baseball organization.”

That is to say, the Ricketts Family isn’t pocketing the “saved” cash from payroll reduction. Instead, payroll was artificially inflated by an organization looking to pump the Cubs up in advance of a planned sale, and payroll is coming back down to a “sustainable” level.

But, even if that’s the explanation, that’s not, like, a good thing, right? If $100 to $110 million is the sustainable level for the Cubs right now, are they doomed to being a middle-market spender despite being a large market team?

Once again, no, according to Ricketts.

“That’s why it’s so important when we have these discussions about how you improve the field,” Ricketts went on, “to make sure that you’re really representing … the fans in terms of trying to make sure that we get the financial resources of the team to be as large as they can be.”

In other words: those higher payroll levels will be doable, but only after the Cubs increase their financial resources.

If you still needed further emphasis that the Wrigley renovation story and the TV deal story are *the* most important stories in the Cubs’ world right now, there you go. Get those two things done, and more money goes into payroll. With additional revenue from a renovated Wrigley Field (to say nothing of, eventually, additional revenue coming from those renovation funding mechanisms (increased ad signage, more night games, more concerts, and street fairs)), and from a renegotiated television contract (the Cubs’ agreement with WGN-TV for a portion of their games ends after 2014, and with CSN ends after 2019), “high” payroll becomes “sustainable.”

Ricketts has been adamant that every dollar that comes in the door is going right back into the organization, and he says that getting payroll up is going to be predicated on increased revenue from the fruits of the renovation and the new TV deal. It is plausible that the Tribune was outspending its revenue levels in an effort to drive up the Cubs’ sale price back in 2007 and 2008 (and, more to the point, backloading contracts it could pass on to the next owner). If true, the Cubs need more revenue to sustain a consistently higher payroll level. There’s a whole lot of fudging available in this discussion, but it passes the smell test for me.

Subject to one big caveat.

There is one question that has lingered for me for quite some time, as we look at the financial story of the Chicago Cubs under the Ricketts’ ownership. When the family bought the Cubs, a sizable portion of the purchase was financed – which is to say, the family borrowed money to complete the purchase. They now owe regular payments toward that debt.

So, the lingering question: When Ricketts says “every dollar does stay in the baseball organization,” does he consider money used to pay down the family’s Cubs-related purchase debt as staying “in the baseball organization”?

If so, he shouldn’t.

The Cubs don’t own the Cubs, and the Cubs don’t hold debt on the purchase of the Cubs. The Ricketts Family owns the Cubs, and holds the debt on the purchase of the Cubs. When the Ricketts Family bought the Cubs, it was not unlike buying a house: they made a down payment, and borrowed the rest (like a mortgage). If you are paying down a mortgage on your house, and someone gives you $10,000 to put toward the mortgage, is that money going into the house, or into your pocket? It’s clearly the latter, because that $10,000 does not impact the value of the house. But it does save you $10,000 that you otherwise would have had to pay. Maybe this is an overly simplistic comparison, but it makes sense to me.

To be clear: I’m not going to lose my stuff if some of the revenue coming into the Cubs is being used to pay down the debt that the Ricketts Family took on in order to purchase the Cubs. But, if that is happening, I would like them to be transparent about it. Because, in that situation, Cubs revenue is being used to increase Ricketts Family wealth (by turning their debt into equity), which isn’t quite consistent with the “every dollar goes back into the organization” narrative.

Again, I’m not saying that would be morally wrong or anything (it’s their team). I’m just saying that it would be important to know if that’s happening, if we’re to credit those “every dollar is going back into the organization” statements. And, frankly, it would help answer questions folks have about the dropping payroll. If revenue in the last three years has been going to pay down the debt, and if the Ricketts Family wasn’t going to go into its own pockets to sustain operations, then of course the payroll was going to decline. That’s just math, and it doesn’t even consider attendance declines.

Ultimately, however, what matters right now are the Wrigley renovation and the new TV deal. With each taken care of, the Cubs’ revenues will increase substantially. And, in turn, payroll will increase substantially – at least insofar as Theo and Jed decide they need it.

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