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ricketts-family-wrigley-fieldIn a piece that I would imagine he’s been working on for a while, and saving for Opening Day, Sun-Times writer Gordon Wittenmyer wrote an extremely long, very detailed take down of the Ricketts Family’s ownership of the Chicago Cubs. It’s been clear for some time that Wittenmyer isn’t buying the financial story the Ricketts are selling, and today, he made his case. According to Wittenmyer, the declining payroll in the Ricketts era has been less a factor of the rebuild plan than it is a factor of a complicated purchase structure, which put the Ricketts Family in a bind when it came to spending on the Cubs.

A very small selection from Wittenmyer’s piece:

For all the talk from Ricketts about the family’s “mission” to win, dozens of conversations with banking experts, attorneys, sports economists and baseball officials inside and outside the organization suggest that ownership’s focus since the purchase has been to climb out from under the heaviest debt load in the majors.

It explains almost every conspicuous move by the business operations since then, from the push for more concerts and football and hockey games at Wrigley Field to various efforts for public partnerships in achieving Wrigley renovations to the infamous (and since-departed) noodle in front of the ballpark ….

Even two years ago, a source with direct knowledge of the paperwork told the Sun-Times [the purchase structure] would prevent the Cubs from spending significantly on the big-league product for several years. That prediction has coincided with an austerity-based rebuilding program.

The family trust portion of the financing is the key, insiders say.

Experts in the area of family trusts say that an incentive for using that vehicle — which otherwise comes with one of the biggest tax bites in banking — is to shield personal assets from loan liability.

But that, in turn, comes with strict requirements for the business operation of those assets, including meeting bank “covenants” that often dictate revenue-to-spending and profit-to-cost relationships across periodic deadlines.

That could help explain why the Ricketts’ takeover of the Cubs coincided with immediate and continual budget cuts for the baseball operations, according to multiple front-office sources, including periodic midseason cuts that trimmed existing, promised budgets, such as amateur spending.

Wittenmyer’s report is dense, but if you’re even remotely interested in the financial side of baseball operations and the Chicago Cubs – and, given that the team’s finances have a continuing and important impact on the product on the field in the long-term, you should be interested – you should take the time to read it. Maybe not today, since it’s Opening Day and all, but tomorrow.

That said.

I’ve long thought it difficult to comment intelligently – and fairly – on the financial relationship between the Ricketts Family and the Chicago Cubs. Some of that is probably just fan-self-protectionism, but, having been a lawyer for a few years, I know what I don’t know. Large transactions are absurdly, hilariously complicated endeavors, and any attempt to reduce them into a sound byte (or even a 10,000 word article) will prove woefully inadequate. In some deals, it could simultaneously be true that “there’s too much debt!” and “there’s not enough debt!,” and the reality depends on the hundreds of pages of documentation that lies in between.

I don’t know enough about the details of the Ricketts Family’s purchase of the Cubs – and none of us will, short of a leak of all of the relevant documents – to speak to Wittenmyer’s report. He may have a great deal more visibility than I do, but his reliance on the Forbes estimates to call the Cubs the most profitable team in baseball in 2012 – the estimates were dismissed by a Ricketts Family spokesperson as “not accurate,” and which are widely considered just educated guesses – is a little troubling. And, if Wittenmyer were going to rely on Forbes, I would have thought he would have pointed out that, shortly after the Ricketts Family purchased the Cubs, Forbes reported that the debt they took on had an interest rate of less than 3%. At less than inflation, the Ricketts Family would be crazy to pay off any of that debt a day sooner than they absolutely had to. And, at that rate, rather than a crushing burden, the debt would actually be considered a good thing to have on your books.

I’m also troubled by a minor – but obvious – factual error in Wittenmyer’s piece, which error serves to further his point about the cost-saving ways of the new owners. Wittenmyer writes: “But the guy who outbid the field to land Japanese pitcher Daisuke Matsuzaka, a key to the Red Sox’ 2007 World Series championship, didn’t come close to beating the competition with his 2011 posting bid for Yu Darvish. The Texas Rangers’ winning bid was less than Epstein’s $51.1 million bid for Dice-K five years earlier.” In fact, Darvish’s posting fee was $51.7 million, slightly higher than the bid for Matsuzaka. It’s a minor error, and the numbers are very close. But when the error serves to further a writer’s argument, it bothers me, and it makes me question other factual assertions that, unlike a posting fee, I am not able to verify. How closely were those other factual assertions checked if this one slipped through the cracks?

All of this is not to simply carry water for the Ricketts Family. Wittenmyer’s ultimate point, as I take it, is not necessarily to suggest the Ricketts are bad people or bad owners. Instead, he attempts to raise the issue that, perhaps, because of the original deal structure, the Ricketts are forced to operate the Cubs more as a “profitable business” right now than as a fan-driven trophy, hell-bent on winning.

Wittenmyer may be onto something here, and it’s not as if anyone outside of Forbes has even seriously attempted to dig into the private financial issues of the Ricketts and the Cubs. Obviously the Ricketts’ ability and willingness to spend on the Cubs is of paramount importance – particularly when set against the backdrop of a badly needed renovation of Wrigley Field, a renovation the Ricketts are unwilling to begin until certain funding requirements are in place – and I applaud any writer willing to take on a very difficult, dense, and obscured topic. Getting private financial documents is difficult enough; deconstructing them thereafter for readers is another thing entirely. What Wittenmyer is doing is important, even if I’m not sure I agree with some of his apparent conclusions.

In the end, I fall back to what I think I know. Tom Ricketts has repeatedly said that every dollar that comes in the door is ultimately repurposed into the organization, and I have not yet been handed any reason not to believe him. Ricketts went out and hired one of the most expensive baseball-driven front offices in baseball when hiring a couple up-and-comers would have been plenty sufficient to satisfy fans (I know – I was there). I believe there is a plan in place.

And if, in service of that plan, money is saved from 2012 to 2013 – which will eventually make its way back into the organization – what beef have I got with it?

  • Kyle

    “I’ve long thought it difficult to comment intelligently – and fairly – on the financial relationship between the Ricketts Family and the Chicago Cubs.”

    Fortunately, I’ve never felt constrained by either obligation before commenting. This is fascinating stuff.

    • Caleb

      Second!

  • jim

    Been telling you! Get rich(er) through using other peoples money! Never put your own bux at risk. But, cubs will have #1pick for rest of decade.

  • Brobots

    april fools? :(

  • hansman1982

    Ummm…

    So he’s using Forbes’ numbers when they benefit him (Operating Profit) but not when they hurt him (Player Expendatures).

    • hansman1982

      Additionally, if he is doing an in-depth financial review of the Cubs, he would be wise to note that their Operating Income (not profit), doesn’t include the $16M-ish paid each year to finance the debt.

      • http://www.bleachernation.com Brett

        (I know no one agrees with me, but I maintain that debt service payments – because the debt doesn’t benefit the Cubs, it benefits the Ricketts – shouldn’t come out of Cubs money anyway.)

        • Kyle

          I figure that’s balanced out and then some by the increase in franchise value.

          • http://www.bleachernation.com Brett

            That’s my point. The Ricketts are benefiting financially from the debt, because the value of their investment has rocketed up. The Cubs have not so benefitted.

            • Kyle

              Would you like to borrow my pitchfork?

              • http://www.bleachernation.com Brett

                Nah, because I don’t have a problem with it – I just want everyone to be above-board about it, if my understanding of what is happening is correct.

                • aCubsFan

                  Above-board? Transparent? LOL. What private business, especially a sports franchise, is ever transparent with what they are doing with the team.

                  Do we really care what the Cubs do with the income they receive so long that the outcome is to put a winning team on the field?

                  I think the Cubs have been quite honest. They said it was going to be a long term process. No shortcuts would be taken. And, they wanted the team built from the farm team not from a bunch of free agents.

                  And, to think that they purchased the team without heavily leveraging debt, especially when the Tribune Company still has a stake in the team and was in bankruptcy court at the time, is being short-sided.

                  • aCubsFan

                    Not short-sided. but short-sighted. My bad.

                    • Rebuilding

                      I won’t bore anyone with more, mainly because I think Darth nailed it further down/up in the comments. Again, that’s all well and good, but when you are selling it one way to the public (Theo’s grand plan), but the reality might be more financial then I think there is a problem

        • hansman1982

          I see your point and I think it’s valid. The “ownership” of the debt and the paying into it depends, partially for me, how that translates into future spending.

          If revenues were used to pay down the debt but that meant the Ricketts were more willing to dump money into the Cubs now and in the future, I’m ok with it. Similar to how I am ok with the increased revenue from the renovation being used to pay for the renovation.

          If the Ricketts won’t ever contribute money to the Cubs, then the debt needs to be paid by them.

          • http://www.bleachernation.com Brett

            Spot on fair.

    • Rebuilding

      Well, well, well. This article really confirms many of the things I, Kyle and others have been saying. Anyone who thinks that any part of that debt is being paid out of the Ricketts pockets doesn’t understand how these transactions work. There is no way they would guarantee half of their family net worth when the Cubs serve as perfectly good collateral. That’s also why saying the renovations would be “paid for by Ricketts”. No, it would just be more debt to be paid for out of Cubs revenues.

      Look, there is no way that the roster construction last year was based on nothing but baseball decisions. Theo and Jed may want to rebuild but I’ll give them more credit than what they put out last year. There had to be pressure from the top to cut payroll. These people did not become billionaires by being dumb

      One thing I think is interesting is dovetailing this piece with the Forbes article. It was very mysterious in Forbes that the debt load had not changed in two years. I think we can safely assume now that the debt has been reduced by about the same amount as what our “net profit” was minus interest because obviously Forbes has no idea what the repayment schedule is. It’s also interesting that the same amount would be about how much the Cubs have reduced payroll. My guess is that with interest payments of 15-20 million per year we are paying down about 15 mil a year in debt.

      I like Theo and Jed, I think they will eventually build a winner, but hiring them was a master stroke by Ricketts to deflect heat

      • pete

        I agree with your thought on the hiring of Theo and Jed but, after reading Mooney’s interview with him, did Theo have even the slightest of clues as to the finances, i.e., the constraints, when he was hired? Or when he recruited Jed and Jason? Granted, all three are being well compensated if they were indeed kept in the dark and/or misled, but would they have been so wiling to come on board if they had known?

        This is all so peculiar.

        • Rebuilding

          It’s a good question. Just speculating, but to steal a thought from Kyle, it’s possible that Theo and Jed may just be more interested in the prospect side of things and trying to build something completely organic. could see Theo maybe having a whipped pup psychological reaction to the signings of Crawford and Lackey. He took so much heat for those moves he might be a little gunshy

  • Coldneck

    Brett, you’re being too kind. That article was complete shit. Wittenmeyer’s arguments about the Yu Darvish and the Korean pitcher were just plain stupid. The Cubs were rumored to be the next highest bidder for Darvish, but the Rangers overspent by close to $20M IIRC. The Dodgers have outspent everyone on the players they decide to bid for.

    I think Wittenmeyer may have a point that the Cubs finances and debt structure are holding them back in some ways. I just think he did an awful job of making the point by using irrelevant examples. Did the Cubs not overspend everyone for Jorge Soler and a couple other Cuban prospects? Why did that not get a mention?

    • Kyle

      Interestingly, Rivero is the only prospect we’ve gotten with a big contract where it’s signing bonus and not spread out over years.

  • MightyBear

    The Cubs DFA’d Whitenack. I hope he clears waivers. Boy I would hate to lose him.

    • Crockett

      Keith Law had just seen him and said he was throwing 83-87…and is a prime example that Tommy John surgery is not a guarantee.

  • IrvingandAshland

    This is probably the best piece you’ve ever written. You didn’t try to be cute and really wrote a detailed piece on your opinion on a very confusing and possibly troubling story. I know my thoughts don’t matter because you’re obviously doing well for yourself, but I think you’d find it beneficial for your career long term to keep writing like this…and less goofy.

    • http://www.bleachernation.com Brett

      I appreciate the compliment, even if it was wrapped in a poo-poo package.

      (I believe that would be the goofiness to which you referred … I gotta have a little fun. Your point is well-taken, and I will do my best to maintain the balance that makes me a serious writer, but also one that isn’t lost among a million other writers doing everything the same way.)

      • Coldneck

        Without the poo poo, I think it was one of your best as well. Very informative and direct. Well done.

        • http://www.bleachernation.com Brett

          Well thanks, Cold.

          (And the poo-poo was required by the headline.)

          • Joker

            I, for one, come here for the goofiness. It’s like I’m listening to Ace relay news and tell me stories over a cold one in the bar (with TWC, Doc, Hansy, Kyle, Goat, etc all dropping in and partaking as well)

            Keep doing what you are doing, sir.

          • Jono

            I like the goofiness, too.

      • IrvingandAshland

        You’re right I respect that. I really wasn’t trying to take a shot at you. I mean, you’re doing what you love for a living and I read the page everyday! I just really enjoyed this piece because it was very well written and informative.

        • http://www.bleachernation.com Brett

          I genuinely appreciated the feedback, by the way. And thanks.

    • Andy

      Brett does a superb job of taking this stuff seriously while not taking these stuff too seriously. Don’t change a thing, Brett.

  • jayrig5

    The validity of the Forbes stuff is always in question, and as Brett said, there are so many unknowns in deals like this that it’s hard to get an accurate picture.

    All that said, the “periodic, midseason cuts” to promised budgets is concerning. That’s not working off a Forbes estimation.

  • Clay

    Damn, I wish I was so “burdened by debt” I could spend $500 million of my own money to renovate my debt ridden ballpark.

    Tribune paper is just trying to save face after the crappy product they put on the feild and see Theo and Co. doing it the right way.

    • Hee Seop Chode

      The $500MM would presumably include new debt for new structures taken out by the Rickets. As long as they’re servicing the debt with income from the new properties, it makes sence to continue investing in the immediate area; but don’t think it’s all paid with cash.

      • Rebuilding

        Don’t think any of it will be paid for by Ricketts cash. The structures will serve as collateral, Cubs revenues will make the payments

  • andrewmoore4isu

    I just do not see evidence to what Gordon sees. For the past couple of years, the cubs have been getting rid of bad money. I.E. zambrano and other Hendry era contracts. The ownership has invested in new homes for minor leaguers throughout the Americas, both in Arizona and the DR if my memory serves me right. Also, they won the bidding on Soler and conception, even if the latter does not turn out. The front office was able to sign all high draft picks unlike others teams, I.E. The Pirates.

    I dont thinkt here has been a single free agent to come on the market that we have questioned the front office not getting. Yes, there was Prince Fielder, Josh hamilton, Bourn, B.J. upton, and others, but The Cubs, as most of you would agree, were not reading for those players because those contracts were something the Hendry regime would have signed.

    Like I said, I’ll believe the cubs are really cutting money for the long run in 1-3 years when w dont start signing big contracts or even giving big contract extentions to homegrown players.

    • Rebuilding

      Maybe. At least that’s what they want you to think anyway. That debt isn’t going away any time soon and will most likely be added to with the renovations. If they are now paying $30-40mil in interest and principal a year and a $140mil a year payroll was unsustainable with no debt then we are looking $100 mil a year payrolls until we find new revenues

  • swaz46

    This is what I love about coming to this site, Brett. Well thought out, articulate pieces that give pertinent facts and reasoned opinion. You always treat people respectfully, even when you disagree or take issue with their facts. Well written, as always. Happy opening day, everyone.

    • http://www.bleachernation.com Brett

      Well thanks, Swaz.

      • pete

        I’ll second what Swaz says Brett. And your article has made me wonder what the other bids looked like, especially contrasted with the use of the personal trust in the financing. Was the Ricketts’ bid really the best? And I ask that legitimately, as I have no effing idea.

  • OCCubFan

    I know even less than Brett about the details, but I’ll follow Kyle and not let that stop me from commenting.

    From what I understand about the transaction, the large loan was made part of the deal to help the Tribune’s tax situation. The loan was from the Ricketts family and at less than 3%. Therefore, the loan is, in essence, equity in that it is money the Ricketts owe to themselves.

    The annual interest would be on the order of 15M. That would be an expense as far as the Cubs are concerned and would reduce their reported profit, but it is meaningless to the Ricketts family in the big picture because it transfers money from one pocket to another. However, the 15M, plus any amortization of the principle, leaves the baseball operation unless the Rickett’s send the funds back to the Cubs. As Brett has noted several times previously, this may or may not be considered a violation of Ricketts’ pledge to keep all the profits in the baseball operation.

  • Edward

    I didn’t quite get the negative vibe your headline suggests. I feel that Theo & Co wouldn’t have done anything differently under more amicable financial constraints. Rebuilding is a tough process, and having a high draft pick is now paramount to that process.

    As the article suggests, “the real judgment day will come when Epstein says the team is ready to win, pending a free agent or two, and Ricketts has to decide whether to write the check.”

    • http://www.bleachernation.com Brett

      I think Gordon did his best to balance the outputs in the piece, but I also think it’s pretty clear that he’s got an angle – he’s had it for months. He very much intended this as a take down, right or wrong.

      • BT

        You probably don’t see it unless you are in Chicago, but the difference between how the Cubs beat reporters treat the Cubs and the Sox reporters treat the Sox is startling. Wittenmeyer is much easier on the Cubs than Sullivan is (although to be fair, Sullivan pretty much hates everyone), but on the flip side, listening or reading Mark Gonzales, the Trib’s Sox beat writer, you’d be hard pressed to guess whether or not he is employed by the White Sox. He constantly refers to the players by their first names and is always impressed by whomever he is currently talking about. It’s really something.

      • Noah

        I’ve actually noticed that especially some of the older beat writers seem to dislike the current regime. Now, some of that from the Trib side could just be that there was some potential conflict of interest stuff before. But I have sensed some frustration from the beat writers, and I think it stems from the fact that the whole administration of the Cubs organization is much more closed off from the media than the Hendry regime was.

        Although I guess that’s not a fair statement and is more just aimed at the Trib and Sun Times. Bruce Miles is excellent. As is Patrick Mooney. I guess I just think the Trib should get rid of Paul Sullivan and hire Sahadev.

  • cubfanincardinalland

    My questions are these. Is this what Theo is talking about when he discusses his frustration about using assets to build the team in such a big market?
    And the day before Theo took the job, what if you would have told him you will be putting a team on the field in 2013 with a 101 million dollar payroll?
    And is a 101 million dollar payroll for a team who will have revenues of 275 million this season, really make sense?

  • Tommy

    I can’t be the only person wondering why a guy that is pinching pennies would be willing to spend $500M of his own money on renovations, am I?

    • Kyle

      “His own money” is kind of a vague term.

      He’s not writing a check for $500m. He’s trying to get the city to let him add new revenue streams to Wrigley and use them to pay for the renovations.

      • Cubbie Blues

        Which if not used for the renovation would be the Ricketts’ money.

        • Cubbie Blues

          Well, it is no matter what just not that long if used for the renovation since it will be going to the contractors and architects.

        • Kyle

          If the Ricketts weren’t promising to use it for the renovation, there would be no money because the city wouldn’t approve the plan.

          • Cubbie Blues

            When the Ad Agencies purchase space where does that money paid to? That is who is paying for the renovations. Whether or not you think they would be granted permission or not is an arbitrary point. You would be silly to think they wouldn’t go after that resource with or without the renovation.

            • Kyle

              You aren’t following.

              There is no ad space right now. The Cubs do not have permission to put up the ads we are talking about from the City of Chicago.

              • Cubbie Blues

                I’m following perfectly.
                “You would be silly to think they wouldn’t go after that resource with or without the renovation.”
                Meaning ad space as the resource they would go after.
                “There is no ad space right now.”
                They would go after that ad space whether there was a renovation or not. They would be stupid not to. It is an untapped resource that every other stadium in the MLB gets.

  • CubFan Paul

    Payroll was $140Mish

    Now its $100Mish

    Every dollar coming in is clearly not being repurposed back into the organization. Finding a way to put $20-$50M a year back into the organization will be hard to do, even if it’s “time to win”, because at that point the payroll will probably have already swollen to $120M-$130M

    Hopefully Wittenmyer gets more sources on the subject to follow up.

    • itzscott

      It could also be that we all misinterpreted Ricketts when he said that all increased revenues would be plowed back into the organization…. may have been a sly way of saying that they would also be used to pay down the debts incurred to purchase the Cubs, which you couldn’t blame them for.

      How else would they be able to do that without using the profits generated?

      • aCubsFan

        It’s naive for fans to think that building and renovating facilities isn’t part of the putting money back in to the Cubs baseball operations. Better facilities attract and retain better quality person in the long run.

        Furthermore, do you think the minor league pitching instructor, all the new scouts, new computers, remote video capabilities, etc. don’t come with a huge price tag on them and that is money being pumped back into the organization?

        I just think when the fans heard ‘money would be put back into the organization’ that meant it was immediately going to go towards buying free agents.

  • itzscott

    Beyond the all too predictable “fan-self-protectionism”, it’s actually refreshing and something I’ve never seen before, for a Cub reporter to hold Cub ownership/management accountable and keep it in the fan domain to ponder beyond all the BS happy talk that’s historically been fed to the fans.

    I agree with the complete tear down and rebuild of the baseball operations but time will tell if Wittenmyer is onto something, if it’s just his payback for the dumping of his buddy Hendry or if Ricketts is just pulling the wool over all of our eyes.

    • aCubsFan

      Have you ever thought that it could be a bit of both? That Wittenmeyer is attempting to hold the Cubs up for scrutiny while at the same time trying to embarrass them for the perceived slight to the former regime.

  • Kevin

    Isn’t it true that if you want Cubs news you read the Tribune and if you want to read about the White Sox you should read the Sun Times?

  • Matty V

    I’m pretty uninformed on all of the financial operations of the Cubs, but the impression I’ve had is that they are trying to reign in a payroll that was bloated from the Tribune-mandated spending spree when the team was up for sale.

    Other than getting out from under some bad contracts, and seeking other funds to upgrade the ballpark (which is essentially controlled by the city, even though the Ricketts own it), I’m not sure where the Cubs are being financial tight-wads. They spent lots of money on the draft for overslot guys (before the new draft rules went into effect). They greatly expanded the front office. They have purchased property adjacent to the park so they aren’t so landlocked. They’ve built a new facility in the Dominican. They’re building brand new Spring Training facilities in Mesa. (I understand other funding is at work in this project as well, but they do have some of their own cost in it too.)

    Like I said, I don’t know the whole picture, but my impression is they aren’t acting like a team that’s strapped for cash, they are just choosing to spend it in different ways and taking a long-term approach to the team’s payroll. Until I see them pinching pennies in every area, I’m not very concerned and expect the payroll to go back up in the coming years. If I’m off-base on anything here, someone let me know.

    • aCubsFan

      Look it has been well known for quite some time that the Tribune Company was doing everything they could to pump up the value of the business before they sold it because of their own financial mess. At the same time there were many writers who said that the Cubs’ spending on players was going to come back and haunt them causing drastic reductions in payroll. So it causing me to shake my head in dismay when so many say they didn’t see this coming.

  • EvenBetterNewsV2.0

    This may be your best planned/executed article yet Brett.

  • itzscott

    >> If I’m off-base on anything here, someone let me know. <<

    Not completely off-base, but what you don't seem to be considering is the savings from the reduced payroll + the increase in overall revenues against the cost of the things you mentioned and the length of time those costs will be spread out.

  • Aaron

    In all, Chicago Cubs fans deserve better. I was hoping for an owner that would use their resources to put together a winner right away. It is possible to draft quality players, sign your own guys to long deals and sign key free agents. Look at the Giants are Cards for example. I believe Ricketts made a smart business purchase with the Cubs. He stands to make a 300-400 million profit if he sells the club in the next 4 years. If the team is not competing for a championship by that time, which I know the Ricketts hope will be, then he really should sell the team to an owner who truly wants to win and give the Cubs and their loyal fans the championship they deserve.

    • Noah

      By the time the Ricketts got ownership, though, there was no decent farm system. They started spending on it on their very first draft in control of the team, and then starting the very next year the rules changed. You used to be able to spend no matter what you wanted in the international amateur market and the draft. Now the amount you have to spend directly correlates to how bad you are. The Cardinals built up their great farm system by spending heavily in the draft and international amateur markets for the last several years before the new CBA hit. The Giants did it largely by being bad in the post-Bonds years (from 2005 to 2008 the Giants finished with 75, 76, 71 and 72 wins).

      And I’m not seeing who in the system the Cubs should have signed to long term deals since the Ricketts took over that they haven’t? Castro is really the only deserving one. Samardzija is apparently asking for the sort of money he should only expect if he repeats his 2012 performance. Rizzo has only played half a season. Darwin Barney is a role player who should probably at least be shopped when Logan Watkins is ready.

      This isn’t to say the Ricketts are amazing or anything like that. But they came in for 2011 and clearly said we’re going to step back and let Jim Hendry run this team. They immediately increased the dollars available in the draft. And by midway through the 2011 season they realized Hendry wasn’t the right fit, and spent a bunch of money to get a top notch front office.

      For the Cubs to have competed right away under the Ricketts, they couldn’t have just signed their own guys to long term deals and signed some free agents. The upper minors were barren (and aren’t much better yet today, but that’s just a matter of normal progression). The Cubs would have had to be much more active in free agency, potentially signing another bunch of star free agents, which would have both cost the Cubs draft picks and bloated the payroll. Again.

      • Grant

        A million times – this.

        The only way the Cubs could have spent more money in the Theo era is by signing more expensive free agents, which just puts us back where we were with Hendry – band aids on severe wound. To make the team competitive for the long term, the Cubs needed homegrown talent, something they seriously lacked (particulary after the Garza trade, though I note Robinson Chirinos was DFA’d today).

        Ricketts and the front office will spend money when it makes sense to do so. Right now, it doesn’t make a whole lot of sense.

  • Dustin S

    It’s an interesting article but I’d like to see some more detailed evidence than conjecture based on Forbes articles.

    As respected as Forbes is, they lost a lot of respect from me when about a month ago they put out a “Top 20 Worst Places to Live in the US” article, and 3 of the top 10 were cities in Illinois. Chicago was basically right behind Detroit. It was almost 4 out of 10 counting St. Louis (which was probably referring more to East St. Louis, although the article did not mention that) which was also high on the list. Chicago’s gang problem is certainly out of hand, but it seemed more like a desperate attempt at getting readers through shock. It’s a tactic that has become common in journalism sadly in the past few years. By the way, “Chicago Suburbs” (?) was also one of the “cities” on the list. How ridiculous to lump all of the suburbs together and count them as a single city.

  • Stu

    It really doesn’t matter to the paying public how the internal financial structure of the Cubs is organized. Last year they got a free ride with a bad organization. The Cubs have a lot of fan emotional capital to draw on. Long time fan loyalty is a marketers dream that most companies would dream to have.

    But everything has a limit. If the anticipated sell off occurs again at the trade deadline, the falloff in attendance might be a little bit more than last year. The speeches from the front office will probably lose their effectiveness.

    The part that might be missed is that fans shell out premium money to see a competitive game. Remember, it is still a game and not a prospect tryout for 2015.

  • Daniel

    I think it is a classic example of wanting something to complain about, or feeding conspiracy theorists.

    I like the direction the organization seems to be heading in. There will always be Wittenmeyers out there that blow smoke up uninformed people’s butts. I think most people who frequent this site understand that, too.

    Sometimes I think the media in general think that it is illegal to report good news.

    • Rebuilding

      101 loss seasons while slashing $40 million in payroll will bring out people who “like to complain”. Add in a duplicitous statement by the owner that everything is “going into baseball operations” while it is obvious now that he is including debt service that will enrich his family also brings out complainers. Hopefully most of our prospects pan out so we have a young, cost controlled team because our payroll is going to be stuck around $100 mil for awhile

      • Daniel

        I think it’s funny that so many people act as if they know exactly what’s going on…

        How do you know they aren’t planning on saving from spending 30 mil this year so they can spend it next year, or on a posting fee to an up and coming Japanese player?

        • Rebuilding

          I hope you are right, but I think everything we have read or know infers something different

          • BT

            But you are cool with flinging terms like “duplicitous” out there, because you read some stuff on the internets? It’s fine if you don’t like the direction they are taking but out and out calling them liars based on nothing sorta blows.

            • Rebuilding

              Is intentionally ambiguous better?

  • Jono

    This article does not support the “spend now to win now” crowd. How do you react ti this article by writing, “see, they should be buying up expensive free agents”? Its the opposite. Thus article suggests that they can’t, and wont, do that

    • Rebuilding

      I would agree that they “can’t”. And the reason they “can’t” is because $30-40 million a year that could be going into making the ball club better is being used to pay off a Ricketts family investment. That’s the whole point

      • Jono

        Exactly. Buying a winning team can’t happen. This supports the “build from within” crowd

        • Rebuilding

          Yes, I guess that’s one way to look at it. And as Cubs fans we deserve better. If Ricketts had come out and said that we were really limited to a $100 million payroll while they pay off debt I think there would have been a revolt, but that’s what’s happening. I just hope everyone will stop acting like this is some grand master plan based purely on baseball and see it for what it is

          • aCubsFan

            But it was the big, grand, master plan. Ricketts said so from day one. His belief for long term winning you must build from within. That means you get rid of the bad (mistake) contracts and you build a farm system that cultivates and develops a variety of super star, star, and average joe players.

            • Rebuilding

              And that just so conveniently matches up with having to slash payroll

              • aCubsFan

                And yes getting rid of bad (mistake) contracts and going with home grown players matches up with reducing payroll.

                • Rebuilding

                  Out of curiosity – what bad or mistake contracts have been moved? Soriano and Marmol are still on the payroll. The guys we have moved – Dempster, Maholm and Soto weren’t bad contracts. You do realize we are paying Scott Feldman, Carlos Villanueva, Scott Baker, Ian Stewart and Cuban guy that no one knows anything about over $21 million this year?

          • Jono

            I don’t believe buying a winning team is a sound stategy, anyway. i support this plan whether it’s by force or by choice. We tried buying success before, it failed terribly. we deserve a team that builds from within. I’m happy with the plan so far

            • http://401klogic.net Westbound Willie

              I’m happy you’re happy.

              Next

              • Jono

                ? what kind of reply is that?

            • Dave

              Two playoff appearances and three winning seasons in a row is not failing
              terribly.
              Having three seasons of increasing losses while reducing payroll is failing
              terribly.

        • aCubsFan

          Which Ricketts had stated from the day he got approval to buy the team.

          • Rebuilding

            When has he ever explicitly stated that payroll would be slashed by an amount necessary to pay debt service?

            • aCubsFan

              I was referring to Jono’s remark that the Cubs can’t and won’t buy a winning ball club because it is a failed strategy. Ricketts said that from the day he got the team that he was not going to buy a winning team. That’s exactly what the Tribune tried in the end.

              • Rebuilding

                A guess it depends what you mean by “buying a winning team”. I haven’t seen anyone advocate ignoring the farm and buying free agents will-nilly. I just think you can add pieces each year and build the farm at the same time. That’s actually what seems to produce winning teams

                • aCubsFan

                  That’s your opinion, but clearly that is not the Cubs’ opinion because Theo/Hoyer/Ricketts have said as much from when they joined the team, and continue to say it in every interview they do.

                  • Rebuilding

                    Yes they do. Maybe I should restate my point. I think they give off the impression that the decision is entirely baseball related when I think it has just as much to do with slashing payroll to pay debt. Again, just my opinion, but I do t think that is the impression they give off at all

                  • DarthHater

                    Yes, the FO has obviously chosen to rebuild via the “major dismantling” method, rather than via a more limited dismantling. I don’t think there can be any doubt that history is full of examples of successful rebuilds that involved only limited dismantling. I haven’t studied the issue, but I suspect that there may be fewer examples of successful rebuilds through major dismantling.

                    The question, then, is why did the Cubs FO choose the major dismantling method, which appears to be both riskier and potentially more alienating for fans. Do they really think that the best rebuild results will come from a strategy of hugely slashing payroll, discount signing lots of long-shots coming back from injuries, annual July sell-offs for minor leaguers, and second-half tanking for higher draft picks? Or are they opting for that route out of financial necessity, while selling it to Cubs fans as Theo’s grand vision for long-term success?

                    I can’t claim to know the answer, so I’m not going to get my undies in a bundle over it, but I think it’s a legitimate concern.

                    • Rebuilding

                      You said it better than I have

                    • aCubsFan

                      Well discount signings is all about risk-reward. There is very little risk in signing these types of players and super high reward if the player plays well, especially if you can flip them for prospects or draft picks.

                      Additionally, the rules of the game have significantly changed since Theo/Jed took over, and they are going to change again with the international draft and the teams signing pre-free agency players to long term contracts. So they are going to have to adapt. One of those adaptations is being very diligent in scouting before drafts because now those picks are going to be quite valuable and you won’t be able to miss.

                • Jono

                  uh, that’s what many people are advocating that the Cubs should be built to win now. But the future and the present are not mutually exclusive, there is a relationship between the big league team and the minor league system. GMs often trade veteran big leaguers for prospects.They often sign guys to big contracts that handcuff them in the future. I’m surprised I even have to make that point

          • Rebuilding

            He has been perfectly ambiguous about that point. The idea is being peddled that these decisions are being made on a purely baseball basis, and articles like this point to the fact that is not entirely true

            • Jono

              not sure that they’ve claimed anything about decisions being purely for baseball purposes. I think everyone with half a brain knows that decisions are affected by the financial impacts of the recent purchase

              • Rebuilding

                Ok, obviously we don’t agree. What I see is a $40 million slash in payroll while the team loses 100 games. If Ricketts would have said to Cubs nation on the day he bought the club that he would cut that much I think there would have been a revolt. Instead he hired Theo, they have cut payroll that much and dressed it up as a master plan as a smokescreen (my opinion). I’m all for building the farm, but think we could have done both w/o a full strip down of the major league roster. For instance, I don’t think if Mark Cuban would have bought the team, with or without Theo, that this is the direction we would have taken

                • BT

                  yeah, we should have extended Zambrano’s contract, given Dempster some more money, and kept Reed Johnson. The Reds would be changing their underwear in fear right now, I bet.

                  • Rebuilding

                    The usual straw men. You just forgot to throw Fielder and Pujols out there. A number of people have pointed out many moves that could have been made with a modest bump in payroll to make this team a WC contender

                    • BT

                      A number of people are wrong. You can’t put Fielder and Pujols in the same conversation as “modest bump in payroll” and expect to be taken seriously. I don’t have time to check baseball reference right now, but do either of those guys pitch? Plus I find it amazing you want to drop 200-250 million on the ONE spot in the lineup we have that produces and is offensively cost controlled for at least a few years.

                      I’d also add that you and a number of people continue to use a payroll figure inflated by an ownership group about to sell the team as the baseline going forward. Even though the Trib payrolls were backloaded and they themselves weren’t going to pay those numbers either.

                    • wvcubsfan

                      Granted the “throwing big money at big time old free agents isn’t a good strategy” argument is tiresome and over used.
                      However, cherry picking a few mid range free agents that had good years and saying if the Cubs would have had them they would be contenders is almost as bad.
                      First there is no way of knowing is any of them much less all of them would have wanted to play for the Cubs. Second, there is no way to know if they would have had the same season on a different team in a different stadium. I know most of the argument comes for WAR, what I’m not sure of is what all stats go into that calculation. Are RBI considered? If so that’s somewhat a team stat. I know SLG is in there but is it park adjusted?

                      Bottom line is none of those things happened and we are where we are, so lets’ hope it doesn’t last much longer.

                    • Rebuilding

                      Not sure what you mean. I’ve never advocated signing Pujols or Fielder or anyone of that caliber. Someone asked last week and I replied that if you didn’t sign “flippable assets” (Baker, Villanueva, Stewart, Feldman and others) you could have re-signed/signed Aramis Ramirez and Michael Bourn – which would have made this team a WC contender. Add in a Kyle Lohse, Brandon McCarthy or any of the other cheap options out there and it’s a $110 mil payroll w/o losing anything significant on the farm other than Pierce Johnson and draft picks

                • Jono

                  All Cubs fans I know expected this slash. I actually thought it would’ve happened earlier than it did. And yes, we disagree about their ability to rebuild their organization and put a contender on the field. I think that even this article supports my opinion that they can’t afford to buy a contender. Even without the information from this article, I still think it would be an awful idea. What’s the point in rebuilding their front office if they’re going to simply make the same mistakes from the past?

                  • Rebuilding

                    Like I’ve said, I hope it turns out that way. But if Baez, Soler and/or Almora don’t pan out then we aren’t competing for a long time if the FO isn’t willing/able to invest in the big league club. There doesn’t seem to be a Plan B if that happens

                    • Jono

                      yea. If your farm system doesn’t produce, you’re stuck with buying free agents. That’s baseball. That’s why they’re trying to build a farm system that produces so they don’t have to buy their teams like they’ve done in the past. If buying success worked, they’d still have hendry and probably a world series title

                    • Rebuilding

                      Obviously. But can’t you do both? I just don’t understand this thought that to have a good farm system we can’t get any usable pieces or try and be competitive (other than Edwin Jackson whose signing I liked). Those things are not mutually exclusive

                    • Jono

                      you can do both if you’re getting sustained production out of your farm system. You can do that when all you have to do in free agency is fill a couple holes, like the cardinals. But the Cubs farm system isn’t healthy enough yet where they can simply fill in one or two holes with free agency and be a contender. But that’s where they’re going. They’re trying to build an organization that can do both.

            • aCubsFan

              Rebuilding you are naive. Home mortgages. Business loans. Car loans. Any type of loan the first half of the loan is all interest. It’s not until the very end that you begin paying the principal.

              And, there are covenants to the loan as well. If you don’t abide by the covenants the lender takes over the collateral and the borrower loses the property.

              So where do you think the $30-$40 million in interest payments that must be paid annually is going to come from? Either you have to reduce spending, increase income or both.

              • Rebuilding

                Yes, I know how it works. I was a finance attorney for a long time. Again, my point is that it has never been sold that way by this ownership. They have acted as though this strip down has been totally baseball related and has nothing to do with finances. Very smart, plugged in people such as Brett weren’t even sure how the debt was being paid. When you make a statement like all money is going back into baseball operations you might know what it means, I might know what it means, but I guarantee most Cubs fans think that means the team itself. I think it’s deliberately ambiguous in order to shield the slashing of payroll

                • aCubsFan

                  Wittenmeyer wrote in a Feb 13 article, “Ricketts has long said all money taken in by the operation goes back into the team.” Some people like you are thinking that means to player salaries. But part of the team and baseball operations is building and renovating facilities and servicing debt.

                  • Rebuilding

                    You are putting words in my mouth. I have said since the start that “baseball operations” included the debt. It is my opinion that most Cubs fans don’t understand that and that the ownership is being deliberately vague on the topic. I also believe that they have peddled their master plan as strictly a baseball decision when I don’t think that is entirely the case

                  • Rebuilding

                    You are putting words in my mouth. I have said since the start that “baseball operations” included the debt. It is my opinion that most Cubs fans don’t understand that and that the ownership is being deliberately vague on the topic. I also believe that they have peddled their master plan as strictly a baseball decision when I don’t think that is entirely the case. You can call that good business – if I was Ricketts I probably wouldn’t have announced that I was going to cut payroll by 40 million to pay down debt, I probably would have hired a rock star GM and pursued a grand rebuilding plan while slashing payroll

            • BT

              Oooooh, so the obvious “plan” would be to sign a 35, 34 and 30 year old to a combined 35-40 million a year, for the next 3-4 years, when all 3 are coming off career years (always the best time to throw money at a mid 30 year old!), to make us good enough to maybe become WC contenders. Then, if we don’t make the playoffs, we get the added bonus of picking in the mid teens in the draft. Where do I sign up?

              • Rebuilding

                Lohse signed for 1/4, Ramirez is in the 2nd year of 3/39 and earned most of that contract with a 6.1 WAR last year and Bourn at 4/40 will prob earn his contract in 2 years (he had a 6+ WAR last year). If you aren’t ever willing to sign those contracts then we are in trouble. Given the money coming into the game those contracts are peanuts

              • BT

                You’re right. That’s why it took until the week Spring Training ended for Lohse to sign. Because he was such a clear bargain. And Aramis will certain keep putting up career WAR’s and OPS at age 36. These are things you can count on.

                • Rebuilding

                  And your point is what? I would be willing to bet that Ramirez puts up 2+ WAR combined over the next two seasons making his contract a bargain (assuming $5 mil per WAR). I’ll venture to guess that Lohse is worth more than $4 million this year – if you didn’t want to give up the second round pick that’s fine. Bourn is worth 2-3 WAR just on defense. My only point is that were we trying to be competitive then there were moves to be made. I listed 20 or so players I listed last week signed in the last 2 years that would have made this team better on less than 3 year contracts (meshing when our prospects will start arriving).

                  Obviously you and the front office agree that tearing it down completely instead of trying to compete the last 2 years was the better approach. I linked an article last week that tried to show it is much better to do a partial rebuild. Lets hope our guys are smart enough to be the exception. But articles such as this suggest those decisions might not be being made simply for baseball considerations. It’s my opinion that this is not what Ricketts has led the fans to believe. We can just agree to disagree

                • aCubsFan

                  Add to that, A-Ram stated in a March 22nd Wittenmeyer article

                  “It would have made no sense for them to re-sign me long-term,” Ramirez, 34, said. “They’re doing what they have to do. They’re going young. And they’re paying the price. They lost 100 games last year, and that’s what happens when you’re trying to rebuild.

                  “But you’ve got to start over at some point. Obviously, what we were doing wasn’t working.”

                  Note the very last sentence…so true.

                  • Rebuilding

                    That quote has already been discussed. Yes, when a 36 yo is told flat out they are going full rebuild that’s what he’s going to say. Doesn’t mean he wouldn’t have re-signed if he was told they were going to try and be competitive. Milwaukee is projected to win 82-83 games this year and we are projected to win 76. That difference was his WAR last year while we have a veritable black hole at 3b

  • itzscott

    >> the falloff in attendance might be a little bit more than last year. <<

    Attendance declines are offset by lowering operating costs resulting in the same profit.

    So long as top line revenues are greater than expenses, the bottom line (profits) can be maintained and many times increased.

    Read Michael McCaskey's piece from years ago…. a losing team tends to financially outperform a winning team because costs can be managed more effectively while demand (fan interest) remains constant and costs can be more easily trimmed to offset the erosion of demand.

    The bottom line in all this is IF Ricketts/Epstein/Hoyer can build a very young, very exciting and winning team that has a $50 million payroll, increased revenues up the ying-yang from new advertising, a more advantageous TV/radio deal, raising ticket prices, concerts and all the bells & whistles from his vision of Wrigleyville….. none of us are going to care if the Cubs have the lowest payroll in baseball and everyone, including Ricketts, will be happy.

    • aCubsFan

      The baseball season is 81 home games without playoffs.

      An idol building makes no money so the Ricketts have to have as many events as possible to generate revenue from the building while the Cubs are out of town or during the ‘off season’. So you hold soccer, lacrosse, football, concerts, and fan tours. You have minor league games in the stadium. You have street facing signage to hold advertising.

      You build a hotel and offer the rooms at a discount to your opponents when they come to town. Instead of paying your players to live in hotels downtown, you can give them rooms at no cost across the street. You develop a partnership with a health club and create revenue from the neighborhood residents.

  • Andy

    Interesting stuff. I will say I don’t agree with your statement that the Ricketts would be crazy to pay off debt early. I don’t care what the interest rate or inflation rate is…It is NEVER crazy to pay off debt. Debt comes with risk, not to mention sometimes crippling covenants. Many of our nation’s wealthy are fundamentally against debt in any way, shape or form. It is possible the Ricketts just want to get rid of the debt, and I wouldn’t blame them.

    Also, saying the inflation rate is greater than 3% is a stretch to say the least. 2012 inflation was 2.1% and historically it has been closer to 2%, especially in the past 15 years or so. Less debt on the books would absolutely be a good thing financially.

  • http://ehanauer.com clark addison

    I could pay off my mortgage today if I wanted to. But I won’t because of tax advantages and the low interest rate I’m paying.

    The Rickettses could no doubt pay off their debt on the Cubs purchase today if they wanted to, but won’t for the same reasons.

    • Andy

      So if you were sitting in a paid off home, would you go borrow a bunch of money against it?

      • http://www.bleachernation.com Brett

        At, say, 2%? I might.

        • Andy

          You’d be the first. And if we are holding onto debt for tax benefits, why not go ask the bank for a HIGHER interest rate? Gotta optimize those tax breaks afterall.

          I guess I’m just the minority in our debt-loving culture so I’ll stop.

    • Rebuilding

      No amount of that debt will be paid out of the Ricketts pockets. It will be paid out of Cubs revenues

      • wvcubsfan

        Are you seriously implying that the debt should be paid from sources other than Cubs revenue?

        • Rebuilding

          Nope. I’ve been one of the few on here saying unequivocally that it was just the opposite

          • wvcubsfan

            That’s what I thought, just read the comment the wrong way.

  • DarthHater

    Even if the interest rate on the Cubs debt is so low that they should carry it on the books as long as possible, isn’t it still possible that current spending on baseball operations could be hamstrung by bank covenants that dictate revenue-to-spending and profit-to-cost ratios?

    • Rebuilding

      Yes

    • hansman1982

      [img]http://25.media.tumblr.com/tumblr_m26sw7I2R31qh3ybjo1_400.jpg[/img]

      • DarthHater

        This meme thing is really getting out of hand. :-P

    • http://www.bleachernation.com Brett

      Yes – but that’s why I said they would carry it as long as possible. Now we can debate when it becomes “not possible.”

      • http://401klogic.net Westbound Willie

        Gordon w is one of the cubs biggest lapdogs. If he writes something that doesn’t praise the cubs I would definitely believe him.

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