Welcome to the Cubs TheoChicago Cubs President of Baseball Operations Theo Epstein was on The Score yesterday to discuss a variety of things, including the Cubs’ exceedingly poor start to the 2013 season. You can listen to the audio of his appearance with McNeil and Speigel here – it’s always useful to hear from Theo. Among the topics: the amplified feel of April (even if it’s unreasonable, given the sample sizes), Dale’s comments about demoting players, the problem with fundamentals (incidentally, Theo said one way to address the problem is to bring in fundamentally sound players, identifying David DeJesus, Nate Schierholtz, and Luis Valbuena by name (interesting choices, eh? especially that last one … is Theo sending a message?)), and more.

The conversation, though, turned to the financial side of things – as it always does these days – and Epstein had some interesting things to say. None of it deviated too substantially from what he’s said before, but there was an additional sense of … I don’t know what exactly … urgency? Frustration? It certainly sounded like frustration. Whether he’s frustrated by the questions or by the financial constraints he’s finding, I don’t know. But his comments stuck in my craw since I first heard them yesterday, and it wasn’t until I sat down to write this that my thoughts finally crystalized.

Specifically, Epstein was asked why, in a market like Chicago and with the theoretical revenue advantage available to the Cubs, the Cubs couldn’t focus on rebuilding but also “try just a little bit harder” to put a non-laugher on the field.* After emphasizing that this cuts to the very heart of why the Wrigley renovation and new TV deal are so important, Epstein sounded a bit annoyed.

“It’s not a choice,” Epstein said of the build-for-the-future/win-in-the-present dichotomy in his interview with The Score. “We are not making a fundamental choice to only focus on the future. We’re not withholding dollars from this year’s team. We are spending every dollar that we have on this baseball team. We maxed out our payroll last year and we maxed out our payroll this year. It’s not a choice. It’s not like we’re making a conscious decision to say, ‘Hey, let’s withhold $15-20 million from the 2012 or 2013 payroll because we don’t think we’re quite good enough or it’s not worth it to spend it there. Let’s save it for a rainy day. Or let’s save it so we can get that free agent in 2016.’”

“The baseball department is spending every dollar that is allocated to baseball operations,” Epstein continued. “Yeah, we’re spending it in the draft and we’re spending it in the minor leagues. There’s only so much you can spend there. We’re also spending every dollar we have available on the Major League payroll. We need a renovated Wrigley Field to produce more revenue. We need new TV deals so we can generate significant local revenue that way.”

Epstein then pointed out the inherent disadvantage the Cubs face in the newly-devised draft, in which each of the other four teams in the NL Central are getting competitive balance picks after the first round, because of their market size. The Cubs don’t get such picks. At the same time, Epstein said, those teams have escalating payrolls, and two have passed the Cubs. That is why, he underscored, the renovation and the TV deal are so important.

I don’t quite know how to take these comments. Epstein is clearly frustrated, but I can’t tell whether he’s frustrated by the media’s repeated questions that (he believes) unfairly paints the Cubs’ financial situation, or whether he’s frustrated by a lack of resources. If it’s the latter, I can’t tell whether he’s frustrated by a city that has been so intransigent in allowing the Cubs to generate the revenue that they could be generating, or whether he’s frustrated by (what he perceives to be) a tight-fisted owner. I suspect that folks will take Epstein’s comments to support whatever pre-existing beliefs they already held.

To me, it sounded a bit like Epstein was doing some selling. Let us get the renovation done the way we want. Let us shop around for the biggest, best TV deal. That’s how we return to competitiveness financially.

Is it legitimate? Is it plausible that the Cubs’ revenues allow them to have just the third largest payroll in the NL Central, even if every dollar available is being spent on the Cubs’ product? I don’t expect the Cubs to open their books, and I found the Forbes estimations to be far from reliable, but I think, in light of these comments, it’s fair to start wondering where all the money is going.

Contrary to Epstein’s comments here, we had been led to believe that current revenues were potentially being rolled over into future years. From Jed Hoyer, last September: “All the money [that comes in the door] will go back into the team in some form or another whether it’s things that can help us in the future, whether it’s free agents or keeping money aside for the next free agent class. All the money baseball operations is given will always go back to the club.”

If that isn’t true, and if the Cubs’ revenues justify a mere $100 million payroll with no rollovers from year to year, it becomes very difficult, as an outsider, to discern what is happening to the rest of the Cubs’ revenues. Sure, I can piecemeal parts of it with amateur spending, Dominican facilities, and Wrigley upkeep, but I’m not sure I can get from $100 million to the realistic level of Cubs revenues. I’m sure a large portion of that difference comes in the form of debt service payments, about which I’ve previously expressed my frustration. (In short: using Cubs revenues to make Ricketts Family debt payments is not putting that money back into the Cubs organization, it is putting the money, essentially, into the Ricketts Family’s pockets. I don’t blame them for doing it – they own the team, and this is their revenue – but I’d at least like to see an acknowledgement that, because of these debt service payments, not every single dollar that comes in the door is going back into the Cubs product.)

Ultimately, fairness dictates that I concede that which I do not know. When it comes to the Cubs’ finances, I – like you – know virtually nothing. It’s entirely possible that, if the Cubs did open their books and show us their financial statements, we’d all go, “Oh, they really are spending all that they can. How about that.” We just don’t know. So I’m in no position to cast aspersions.

But, with every Epstein statement that is more difficult to square with what we previously believed to be true, I have to watch the financial story more closely.

*I have to wonder to what extent Epstein would love to answer this question with something he’s said before: if you’re not going to make the playoffs anyway, there’s no value in winning 75 games as opposed to 65 games. Indeed, it’s actually worse for you long-term to win 75 rather than 65, because it affects your draft position and international spending. I suppose he felt he could say that in response to this particular question, however, because then you’re essentially admitting that this team was built to be a loser. I can understand why he can’t admit that, even if I do believe that the team was built with sellable assets (and the attending losses) and 2014 in mind, rather than 2013. I also think that was the right approach all along, but I’m getting off point. Sort of.

  • Stu

    The problem with needing more revenue is that, in general, you have to have a winning team.

    I was looking at attendance and it is averaging around 31K for 8 games. Last year they were drawing around 34K/game over the entire season.

    If it goes down to about 26K/game and that is not beyond possibility if they gut the team, it might get a little ugly for the budget. Theo might know this and is setting the stage for damage control.

    To see how fans can turn off a team, look at the dropoff in attendance for Miami. Below 20K/game.

    • BT

      That can’t happen here, not for a while. The season ticket base will keep it at 27-28k or so for quite some time. Bear in mind that 31K a game is inflated though (as will the 27-28K figure be), as they are counting tickets sold, not butts in the seats.

  • Yoga Master

    The Ricketts are making money off our Cubs and not telling us.

    Brett, how much money do you make off Bleacher Nation?

    • http://www.bleachernation.com Brett

      I’ve never told you that every dollar that comes in the door at BN is spent on making BN better.

      No one – at least not me – is criticizing the Ricketts for making money off the Cubs. That’s their business. The only criticism I’ll make (and I’m not even making it yet, because we don’t know the facts) is that the “every dollar goes back into the org” statements may have been disingenuous.

      • baseballet

        I would criticize him for buying a major market team if he can’t (or won’t) spend enough to have a major market payroll. He should have bought a midmarket or a low market team if that’s all he can handle.

    • Kyle

      Ricketts bought a franchise in a spectator sport. His entire business model is based on us caring about how and how well he does his job.

  • Indy57

    Gonna speculate here and probably too much. Brett has done a very good job of capturing the issues here. The one thing that has changed dramatically since Theo arrived is the fact that the Ricketts are going to pay for the Wrigley renovation and building/office expansion themselves. $500 million is a huge chunk of change. We have to assume a sizable portion of this (over 50% or motre) of this is going to be borrowed money. So, there is the need to retire debt from the purchase, a sizable capital outlay plus the need need to finance debt for the renovations and probably some debt on the new DR facility.

    The point with the team and the strategy is to bring up players out of our own system. As has been pointed out several times on BN, this accomplishes several things: 1. Allows you to control the skill set of the player. 2. Allows you to potentially have a much less expensive player in their most productive years. 3. Allows you to spend selectively to fill in the gaps that your system is unable to fill effectively. In other words, you use your cash as effectively and as efficiently as possible.

    Your CapEx can clearly deplete your cash reserves. If your P&L is not generating cash, then you are in a downward spiral. My take on this is that they renovation was the wild card now requiring the Cubs to spend more capital and pay more debt service. Now the stadium re-build and TV contracts get them back on par or slightly ahead of past payrolls depending on the outcome of those two revenue generating deals.

    This is where you realize it is not only a sport but also an entertainment business. Someone has to pay for this and the family is not a bottomless pit of money. I believe them when they say they are putting everything back into the business to build a winner. What they have not said is that they will tap into their own reserves now that costs have changed and who can blame them. At some point, if the City and community can’t come to quick agreement, they will be forced to leave Wrigley to build a winner.

  • Die hard

    Theo just invited an IRS audit with those incredible comments — wonder if he had time to run those by the CEO ahead of time as it doesn’t seem like opening the books in public is wise

  • jt

    Numbers round to $0.5M
    Arbitration guys are a very rough estimate
    18 Soriano
    11 Jackson
    05 Castro
    05 Villanueva
    04 Fujikawa
    06.5 DeJesus
    05 Samardzija
    02.5 Hairston
    01 Soler
    03 Russell
    02 Valbuena
    01 Barney
    01 Wood
    00.5 Bowden
    00.5 Castillo
    00.5 Rizzo
    00.5 Clevenger
    00.5 Vizcaino
    67.5M for 27 MLB players + Soler
    1 SP’er, 3 RP’ers, 1 RF’er, 5th OF’er, UIF’er
    Say the budget for 2014 is $110M
    Say Rondo and a current farm-hand win 2 of the RP’ing jobs at $0.5M each
    67.5M + 1M = $68M
    I believe they have control over Schierholz in arb 3 year.
    Say they sign him for $4M
    $68M + $4M = $72M
    $110M – $72M = $28M
    That leaves $28M for 1 SP’er, 1 RP’er, 1 5th OF’er, 1 UIF’er
    Of course there are the wheels and deals of the trade deadline and the hot stove. But as is, there should be enough for a very good SP’er, a setup quality RP’er and 2 good position role players + an upgrade at 3B.
    As a base line, that is to say a starting point before deals are made, this doesn’t seem a bad place to be as viewed from 2014.

  • Pat

    Brett, wasn’t the team flagged last year for exceeding the MLB debt to value thresholds? That would seem to indicate that they somehow structured it so the purchase debt does belong to the team.

    • http://www.bleachernation.com Brett

      Yes, they were (but Bud Selig subsequently said he has no concerns about the structure of the deal or the debt).

      We’ve done this dance before – to me, it matters not which technical entity holds the debt. The debt arose because it allowed the Ricketts Family to buy the Cubs. They now own the Cubs as a benefit of that debt. To keep the Cubs, they have to pay to service that debt (and keep their benefit). If they use Cubs revenues to service that debt, then they are not – in spirit – putting every dollar of organizational revenue back into the organization. They are putting some of it into the service of debt that benefits the Ricketts, not the Cubs.

      • pete

        Brett, quick question because this is beyond my grasp. To what extent is the debt issue ameliorated by the significant increase in the value of the club since the purchase? Or is that a red herring?

        • bbmoney

          Not Brett, but it’s a matter of cash flows. The increase in the team’s value doesn’t increase the Cubs actual on hand to spend.

          Nice for Rickett’s balance sheet, not helpful in day to day operations.

          • bbmoney

            *actual ‘cash’ on hand to spend.

            • pete

              So if the Ricketts are in it for the long haul (which they clearly are), until the debt is either paid off (or the payments are somehow lessened), this is basically an annual budgeted item. I had never thought of this before but for the time being, the Ricketts kids are the equivalent of house rich, cash poor.

              • bbmoney

                Yeah. I mean we don’t have access to the debt agreement or their actual financials to know for sure.

                But rich people sometimes have cash flow issues too. Even if their balance sheet looks ok, sometimes it’s just tied up in non-liquid assets….like the value of an MLB team. Brett makes a good point below though. The team being worth more could help, but it’s just like your house that you’re making mortgage payments on going up in value. It’s great, but it doesn’t give you money each month.

          • http://www.bleachernation.com Brett

            I don’t want to go too far afield here, but a better-looking balance sheet can help your credit situation, right? So, indirectly, the massive jump in franchise value could impact the cash situation in a variety of ways.

            (Including a simple willingness to spend more out of your pocket when you know that the asset on which you’re spending is far more valuable today than it was three years ago.)

            • bbmoney

              Sure. But as of today the potential values jump the Cubs have seen since the acquisition doesn’t put cash in their hands to spend. In theory they could borrow more when the team is worth more and/or it puts them in a better position to get better terms on any future debt/refinancing. And certainly that increased value might loosen their pockets a bit knowing they can maybe spend more now and if and when they sell the team they’ll get it all back and more.

              So you’re right, but as a matter of cash flows today and for the immediate future it doesn’t help much. Certainly not directly at least.

      • jt

        If a guy buys a business, say a store, using the business itself as collateral to, in effect, establish mortgage or “dept to be serviced” you are saying that he should not be allowed to pay off that dept with the profits he is making on that business?
        There is a supply/demand thing. Ricketts obligation is to supply that which is demanded such that he makes a profit and increases the value of his team. OK, TV revenues have screwed that up. No question! But to expect these guys to act out of altruism or luv of the team…..

        • Rebuilding

          I surely didn’t say he shouldn’t be allowed to do it. I’m just saying that I’m one of the few who has consistently saying he IS doing it and because of that the Cubs can only support a $100-110 million dollar payroll. That’s all

        • Kyle

          OK, let’s take this analogy at face value.

          Ricketts bought a store on a mortgage and is using the profits to pay back the mortgage.

          But the problem is, in order to reach those profits, he’s hacking into his product. He’s buying his wholesale goods cheaper and of inferior quality, and that’s causing him to lose customers and sales. So in order to reach the profits he needs to pay back the loan, he has to cut costs even more, which results in even lower sales. It’s a death spiral.

          I don’t expect him to keep payroll up out of altruism. I expect him to keep it up out of basic business acumen.

          • jt

            Gotten your car fixed recently?
            That guy is going to size you up to consider which part to sell you. If he thinks you’re the guy who will buy the part that will make something else go wrong… buy beware. That is how the real world works.
            Ricketts is in a gamble. He is betting that the team will be real good in a year or two and that folks will forget. I like his odds.

            • Kyle

              Your analogies are getting worse and less coherent the further we get along.

              If the guy sizes me up and tries to sell me an inferior part, and I walk away, he’s failed.

              He’s already gambled and lost. He’s betting he can stem the losses in the near future.

        • http://www.bleachernation.com Brett

          “If a guy buys a business, say a store, using the business itself as collateral to, in effect, establish mortgage or “dept to be serviced” you are saying that he should not be allowed to pay off that dept with the profits he is making on that business?”

          I don’t know how many times I can say that I am NOT saying that. Again and again and again: I’m not making any kind of value judgement. It’s Ricketts’ business. He/they can do what they want. (MERICA!)

          The only – ***ONLY*** – point I’m making is that profiting off of the Cubs right now in this manner would be contrary to the mantra Ricketts has said over and over: every dollar in the door is going back into the organization.

          • jt

            True story:
            A woman starts an insurance agency that services a particular industry. She has a contract with a particular company. Makes a huge killing the first year and takes her family and employees to Disney World and, in general, lives high. The next year another insurance company undercuts the company she has a contract with and….
            Her overhead didn’t go down but her sales did.
            Paying off the dept is part of the companies obligation. If he loses money in his other dealings he is still in a position to handle the obligations of the team.
            Cases in point over the last few years are The Dodgers and The Mets.

      • Pat

        “To me, it matters not which technical entity holds the debt”

        But your entire argument is based on who holds the debt. If the debt belongs to the organization, then what Ricketts said is absolutely, 100% true. All dollars are going back into the organization.

        Now, if you are instead arguing that he implied differently and shouldn’t have done so, you, as a lawyer, should know better. Less than literal interpretations lead to disappointment. I know you are a fan of Ricketts. For me, the jury is still out.

  • Eric

    You guys have to remember, Theo signed BEFORE the draft changed and they couldn’t just spend a dozen million more than everyone else on the draft, and BEFORE the owners had to agree to pay for $500 million worth of stadium revitalizing out of their own pocket. BEFORE Selig decided to award a free sandwich round pick to every division rival except the Cubs. It’s not so much as Ricketts lying to Theo, it’s that the original plan has been shit on so much, now they actually have to be smart instead of buying their way to a championship team.

    • Kyle

      All of those things were heavily telegraphed before they happened. If Ricketts’ plan required them not to happen, Ricketts had a bad plan.

      Except for the sandwich pick, which is really a piddling thing in the scheme of things and just a PR move by Epstein to focus on it.

      • pete

        Amen. Hendry told Ricketts in 2011 that year’s draft was the last he would probably be able to spend in an unbridled fashion. I am presuming that was hardly a secret among MLB FO’s so I am sure whatever plan Theo had in mind took that into account. Thus, the only inate organizational advantage built into any plan Theo envisioned, other than his faculties and boyish charm, would be the organization’s deep pockets. And now Theo seems genuinely surprised at the shallowness of said pockets. Assuming, arguendo, that he is genuinely surprised, there are only two inferences to draw: (1) Theo really miscalculated when he came aboard; or (2) he did not receive the straight poop. I am inclined to give Theo’s IQ the benefit of the doubt and think it is much more (2) than (1). And then, what can be done other than to take this plodding and pondering path of prospect production?

      • Bea Arthur’s Husband

        This is an excellent thread. You guys make some outstanding points. if indeed Theo is adjusting to a new reality in MLB overall and this is a PR move?

        I will sleep much better.

  • Bea Arthur’s Husband

    Wow…I’m quite troubled. Let’s adjust for the awful rooftops and the even worse new demands by the neighbors group. That would drive anyone to distraction. However, wow. You can’t blame this on Crane.

    In Gordon Wittenmyer’s seemingly vicious and bizarre attacks on the Cubs, I held many reasons why he wrote such things (from bitterness to selling papers to being right). My main argument always was–“why would Theo come here–one of the brightest sports executives in sports” if he didn’t know the score and the revenue picture. No way Tom Ricketts is talented enough to fool Theo. He might know his way around spread sheets, but managing people and lying. No way. Theo is too smart.


    Could Gordon be right? I’m sickened to think that the Ricketts could be behind this. Gordon argued that Joe Ricketts (no political comments please) dictated the budgets. Papa Joe would want the debt paid off. Makes sense.

    Is that possible? no other reporter to my knowledge has said that.

    Could Theo feel cheated and lied to? Could we? Should we?

    Brett? Help!

    • http://www.bleachernation.com Brett

      I still find many of the particulars of Gordon’s pieces on this topic to be unsupportable, but it’s always been fair to ask the questions. These things are always gray. Gordon probably always had some bits that were spot on, and some bits that are way off.

      • Bea Arthur’s husband.

        I just the Papa Ricketts dictating payroll is wrong. Again, put aside politics. It is an open secret that Joe didn’t even want or understand why they wanted
        To by the team. If he is in charge, it would make me long for the Trib days.

  • Rebuilding

    Well, well, well. Color me as the least surprised person to hear this news. For the last 6 months I have been saying this exact same thing and called “not a Cubs fan” “in over my head” “a purely negative poster”. The fact of the matter is that this team is completely hamstrung by debt the Ricketts took on to buy the team. Previously the payroll was $145 million and now it’s approximately $35 mil less than that. We have a report that debt service is approx $30 million a year (easy to back out – $500 mil at 3% interest = $15 mil a year + $500 mil principal amortized over 30 years = $17 mil a year). WE ARE PAYING FOR THE RICKETTS PURCHASE

    Do not expect any increase in payroll unless there are true revenue gains from the renovations, but guess what – those revenues are probably going to be eaten up by the ADDITIONAL $500 million they are about to borrow for those renovations. I bet Epstein is pissed

    • Rebuilding

      Btw, I don’t necessarily think Ricketts “lied” to Theo. I think he fully expected the city/state to pay for the renovations and then the additional revenues to pay for the debt. I think that fits in with the original competitive by 2014 timeline for competitiveness because then those additional revenues could pay down the debt and allowing the payroll to expand by another $30 million or so. Now that’s shot to shit. As a matter of fact they are about to double their debt. This is not good news

  • Eric T

    Im just shaking my head reading this im wondering how we became the third highest payroll in baseball and now were the kc royals having to bank on prospects in order to win ino its a different sport but the Blackhawks admitted to taking a finacial loss the year they won the cup why did they do it cuz winning teams are more profitable they took a hit knowing the team would gain more popularity which equals more merchandise concessions etc making them eventually profitable finances are only going to get worse the more they lose sometimes you gotta take a hit to make a profit

  • Eric T

    Also dont tell me the tribune inflated their payroll to make the team more attracting any busniess owner looking to buy a team wouldnt buy it if the payroll was unrealistic think aboit it who would want to buy a team and immediately lower payroll what a great first impression that owner would make with fans

    • Rebuilding

      Nope. I think $145 million is realistically the payroll the Cubs *could* have if not for the debt. Whatever the Tribune Co was it wasn’t about losing money. That number is probably about Breakeven with our current revenues. But now we are paying $30 million + in debt service = current and future payroll

  • Eric T

    Just amazing MLB would allow anyone buy a major market team like this especially when you had a guy in mark Cuban willing to spend like a major market owner Jerry reinsdorf would never vote for his approval but I also question why a owner in the same competing market is allowed to vote for ownership of course he wouldnt want an owner with deeper pockets hed put him out of busniess

  • (Original) JR

    I think you hit the nail on the head, Kyle: Ricketts probably had a bad plan. I think he genuinely thought he could both get a good return for his investment and build a winner since the Cubs had failed to exploit how well you could build a farm system by overspending on the amateur side, as well as through implementing a system to use all the advanced statistics out there. He recognized that those improvements required capital and other expenditures that were modest compared to dumping $$ into big free agents. And he was willing to go out and get Theo to implement these changes, widely perceived as the best guy for the job, who would then establish a sound management team.

    Ricketts then moved to cut costs, letting the payroll run down and simultaneously opening up lots of seats to fans on the season ticket waiting list. He probably recognized that there might be some lean years coming and those tickets would not be otherwise sold.

    His PR on all this was so effective probably because he believed it all: that he had a long term strategy to build a winner year in and year out. He figured he’s be rolling in the revenue, which he would then use to buy some free agents to complement the home grown talent. He probably regrets making the comment about the revenue going into the team. As Brett and Forbes and others have figured out, that money is likely going into the Ricketts pocket via debt service.

    That plan is not likely to work. First, it’s premised on gaining a competitive advantage that’s no longer there, based on the old agreement. That was most effective years ago anyway, when other teams hadn’t yet caught on to the value to be gained by paying over slot. Second, all teams use advanced metrics so that competitive advantage is mostly gone too. If every team is using the same strategies the Cubs are using it does not make sense to believe that the Cubs will somehow have a better farm team than those teams.

    Worse, it’s looking like the competitive advantage now comes from overpaying free agents since the $$ cannot be used elsewhere. It would not surprise me if Theo has explained to Ricketts that the rules have changed and Ricketts, in turn, has said that he’s sorry but any $$ for free agents has to be generated by revenues after payment of debt service.

    What I don’t understand is why Theo bought into the plan knowing what was coming down the pipeline and not getting assurances that the $$ would be there to spend. I think he’s done a tremendous job with very little leeway to spend it.

    I hope Ricketts (or his family if they have the final say) will reconsider the plan and come up with a one that works under the current circumstances. It is, in my opinion, very short sighted if he does not. If Theo was smart enough to figure out a way to game the old system, Ricketts should trust his instincts on how to game this one – even if it costs money coming out of his own pocket. The Cubs didn’t always sell out Wrigley – not even close. It was a combination of those winning teams in the early 2000s and some marketing genius (John McDonough?) that capitalized on everything that made them unique: the neighborhood, Wrigley Field, WGN’s national audience and yes, even the rooftops. He’s diluting the brand that he wants to pay for everything instead of ensuring that it stays viable. And he wouldn’t even need to do that much, just put a .500 product on the field.

    (Note: I used the name “Original JR” because other people have used the name JR (usually with an avatar) and I want to make clear that was not me. This is my first post in about a year.)

    • Rebuilding

      Good post. I think the only component you’re missing is that Ricketts probably believed the city/state would foot the bill for the renovations. He probably thought that they could focus on the farm and cut payroll in 2012-13 and let the increased revenues come online in 2014. Then you have a strong farm and can now expand payroll in 2014. That plan is busted. Unfortunately I don’t think there is a Plan B – Joe Ricketts is never coming out of pocket for his son’s toy. For all of those dreaming that “we’ll spend when we’re competitive” I think this is a big wake up call

      • (Original) JR

        I agree with you, Rebuilding, on the renovation project. That seems like another issue that Ricketts should have seen coming. The overall trend was against public financing and certainly here, after Reinsdorf scored his stadium on the taxpayer dime, it was not likely to happen. If Ricketts counted on that – and I’m not sure he did or else he wouldn’t have backed down so quickly – it was foolhardy or at least wishful thinking.

      • Bea Arthur’s husband.

        Well said guys and anyone who insults you is wrong. I hope the analysis is wrong as a blindly loyal fan, but I tend to think the vast majority of this is super and smarter than anything beat writers are doing.

        I don’t think they are diluting the brand–I think every part of Wrigleyville and many fans are “rebelling” in a way. Rooftops and neighborhoods. Empty seats. To me? New renovations–all win except rooftops. No matter. That’s a quibble.

        Here’s the only question I have. Anibal Sanchez got a $76 million offer. Where did that dough come from? Would they have cut elsewhwre?

    • Still Love the Cubs

      “it’s looking like the competitive advantage now comes from overpaying free agents since the $$ cannot be used elsewhere”

      I don’t think that you could define this as true competitive advantage. I definitely think that, for a variety of reasons (new CBA, tv money, Dodgers) there is a shift in what “value” in the FA market is going forward. But that doesn’t mean its a competitive advantage since in reality it is not available to all teams.

      I believe that Theo has said it before, the new way to gain the advantage will be through better scouting and finding ways to keep pitchers healthy.

      I think that the one thing you can *maybe* accuse this FO of is not properly evaluating what the new values of FA’s and high priced international signings are. They did not value Anibal Sanchez at $80m, they did not value Puig at $42m, they did not value Darvish at $52m bid for rights to negotiate. That doesn’t mean that the money wasn’t there if they had decided that the value was. But to me, you cannot say that they don’t have the money that they need when they deem it the proper value IMO and no one has made an argument that contradicts that yet.

  • Dynastyin2016

    Brett, I have a question. Theo has stated an age range that corresponds to what he thinks is a players prime years. Do you know what it is? I bored today and want to figure out what year the Cubs will have the most players in their prime.

    • Dynastyin2016

      I thought it was something like 26/27 to 32/33.

  • jt

    Don’t blame Ricketts if Yuppies have pushed up ticket and concession prices for an inferior product. I applaud him for trying to build a team in a financially responsible way that can be sustained over a long period of time. The guy didn’t buy the team to dole out his money to make us happy. He wants to make money and build a legacy. He doesn’t want one or the other, he wants both. To expect anything else would be just silly. He seems to be trying to do it The Cardinals than either Yanks or The Twins. Though it may not be what I want, it seems pretty smart to me.

    • Rebuilding

      @JT – No one is arguing about whether we want Ricketts/Theo to spend the money wisely or whether we want a quality organization with a great farm system. Everyone wants that. The gist of this article is that even if Theo/Jedd think someone is an absolute steal and incredible value they couldn’t AFFORD to get him. He is saying they are using all of the payroll they have. That is troubling when it’s $110 million

      • jt

        Who are getting the big bucks?
        1B’s and SP’ers.
        Cubs now have control over Rizzo, Shark, Wood, Jackson and Villinueva. The total cost of that quintet for 2014 will be less than $25M.
        Their catcher, SS and RF’er, all good players, will be less than $10M.
        Brett just posted the in-house options for 2B so that should be $1M or less.
        That leaves a lot of room to bend.
        IMHO, they are grabbing that which they can afford and are being adroitly selective about it.
        I’m having fun watching the process unfold.

      • Still Love the Cubs

        “The gist of this article is that even if Theo/Jedd think someone is an absolute steal and incredible value they couldn’t AFFORD to get him.”

        And that Rebuilding is where I do not agree. I don’t think that they have found anyone that they think is the right price. What Ricketts has said is that when they deem it necessary that the money will be there.

        • Rebuilding

          Maybe. What else would he say? His own GM just contradicted him

          • Still Love the Cubs


            Kap just put up this article and I find it very interesting.

            Basically says that the Tribune and Zell forced Cubs to take on more debt as part of purchase of team for their own tax purposes. Ricketts along with many other potential buyers wanted to come in with more cash.

            So where did all that extra cash go? I’m sure a good bit of it will be used for $300m renovations but what I’m saying that it is AVAILABLE for Jed and Theo when (as the article puts it) they want to go full throttle ahead as they deem it is time to supplement the core with FA’s. On top of extra cash Ricketts have, they will be getting new TV deal kicking in and new revenue streams coming in from renovation.

            The money is there when it is needed, but that time is not yet.

            • Matty Ice

              So Theo is a liar.

              • FFP

                “posturing” when deeking enemy front offices we call it “posturing”

                • Matty Ice

                  He’s not talking to other FO’s, he’s speaking to fans.

                  • FFP

                    Oh. Then none of us should tell other teams what we hear him say, K? It’s our secret, Matty.

                • jt

                  I mean….. yeah;
                  you make the moves that move you forward.
                  deeking the enemy…. yeah!
                  And all those who are not friends are potential enemies and friends are not that easy to come by.
                  You got it down in a single line…

              • Edwin

                And a bit of tramp, if you ask me.

            • Rebuilding

              You do realize that if all that were true then Ricketts could have just taken the cash he wanted to spend instead of taking on debt and paid down the debt the day after the purchase closed (or if there was a prepayment penalty or time limit, put that money in an interest bearing escrow). Yes, new revenues will come online next year, but now they will be taking on ANOTHER $500 million in debt to pay for renovations. This team will be $1 BILLION dollars in debt in 2014. Think about that. Do you really think we are going to be increasing payroll?

              • Still Love the Cubs

                Two things:

                1) They are not going $500m more into debt the way I understand it. $200m is for hotel and development and they will only be paying the $300m for the stadium upgrades.

                2) Who knows what he did with that extra money. Maybe they decided that (as has been reported) the interest on the debt load was so low (reported ~3% or same as inflation) that they don’t mind carrying the debt since it is not really losing them any money due to inflation being equal to their interest rate. Then they have the money to pay for renovations, which will not be an up front check all at once, but progressively done.

                Again, I am not saying that there is enough money there to be the Dodgers. I believe they are maxed out for this year on the proposed budget. All I am trying to say is that if there was a deal to be made where the FO thought there was good value there, Ricketts would not say no. Theo never said that wasn’t the case, so he is not a liar.

                • Rebuilding

                  Why are you separating out the hotel? I don’t believe the Ricketts are going to be going out of pocket for that. They will be borrowing money under a different entity name in all likelihood, but it will still be paid for from “increased revenues”. But even if you separate that out there will still be $800 million dollars in debt. I hope you’re right, but hearing this from Epstein I fear you’re wrong. I guess we’ll see

                  • Still Love the Cubs

                    I thought I remember reading that the family was only paying for the actual Wrigley renovations and that the rest was coming from other sources but I could be wrong. I just did a quick search and couldn’t find that.

                    Either way, I hope I am right too.

  • jt

    Recently Wood, Villinueva, Schierholz, Castillo, DeJesus and Valbuena have been pretty good. Will we be able to say that at the AS break?
    Rizzo seems in search of his way and Castro’s game could use a little discipline. Again, by the AS break we expect these guys to look differently.
    How good is Shark going to be?
    Is Fuji going to recover and, if so, is he going to be good?
    Prospective production of MLB players is always in doubt but it is even more so with these guys. I don’t think it would be smart to throw money around until there is a good feel as to how good, or bad, these guys really are.

  • Jp3

    Please nobody kick me in the preverbal nuts for starting this when I’m sure it’s already been beaten to death before BUT…. I have dreams about how Mark Cuban would be throwing money at every big free agent… I would def like a happy medium between the 2 ownership styles

    • Edwin

      I dreamed that my brother couldn’t find a job, and in the meantime invested in a store that looked like K-mart but wasn’t, and had groceries. Then I was attacked by assassains from the Wheel of Time novels. Dreams are weird sometimes.

  • Bric

    Wow- I wish I hadn’t read this article. I was so-so on Theo’s hiring but these comments are suddenly turning my stomach. There’s a time and a place for everyone addressing money issues. But 20 games into the season isn’t one of them. I know I hated Hendry’s BS explanations on how good his farm system was but this isn’t the time to start crying about how broke you are. You’re basically telling us that there ain’t no money left so enjoy what you got…

    The problem is unless you’re homeless, indicted or for some reason or have all of your assets frozen no one is ever broke. You might not want to use that credit card with 30% interest, but you’re not broke. No one is. What he’s trying to say is his boss(es?) don’t want to spend any more money than they already have. This is a problem in itself but he’s also talking about a terrible team. What about rebuilding? How are you going to rebuild a team with no money? Hope all the other teams’ planes crash? Doesn’t make sense. Something is seriously wrong here…The FO isn’t even reading the same book, let alone being in the same chapter or on the same page.

  • Coal

    This is a pretty fascinating thread. One thing to consider in all of this is the possibility that Theo really wanted out of Boston much more than previously contemplated. If that were the case, he might have more patience for the way things are playing out.

  • Reality Check

    diehard fan for almost 40 years, 22 year banker as well. time for a banker’s perspective on what we know regarding the financing from kaps’ article to wittenmeyer to other articles I’ve read.

    1st, monies for down pymt came from a papa joe trust fund. not the ricketts kids.
    2nd, the original tribune company bought the cubs for 20 or 30M; so no debt on this team for a long time.
    3rd, the Zell tribune company was highly leveraged; to the hilt; which is why it went bankrupt. zell had billions; did not use his own money to buy the trib.
    4th, as a result of being highly leveraged, the Zell trib had a lot of debt; BUT supported a 145M payroll.
    5th, the Zell trib was BK and like the McCourt’s of LA, the BK court would of eventually forced a sale; one they may not of allowed the 5% ownership.
    6th, Selig wanted the rickets, not John Canning or Cuban. canning or Cuban would not put up with the zell “strings”.
    7th, rickets was not forced; he chose this plan, instead of waiting out the cubs being sold thru BK.
    8th, if the ricketts wanted a large down pymt on the team; lets assume a debt of only 290M; well within the MLB guidelines; there is 290M somewhere.
    9th, commercial loans are not 30 year loans like mortgages typically banks keep these on balloon terms so they can adjust with prime.
    10th, from various articles including wittenmeyer; the cubs financing is from banks and private investors and others that are deemed complicated. no one knows what the “others” are.
    11th, a good borrower for commercial loans would get prime rate. at 3.25, prime rate since dec 2008, ricketts may have a 10 yr balloon, 30 yr amortz loan. payments of 30,300,000 per year.
    12th, remember the idea of 290M debt; so there is 290M around which pays almost 10 years of debt. SO, the debt really isn’t an issue.
    OR 13th, the cubs are using the monies for the original purchase to fund the 500M renovation. it’s been reported a trust fund will pay this.
    14th, all 500M won’t be used right away; it will take 5 years to finish renovation, so about 100M per year.
    15th,the cubs could not borrow 500M plus the 580M on a team worth 850M; WAY over MLB debt guidelines so the trust concept must be true.
    16th, so if the trust fund pays the renovation, not the debt, the cubs are paying it, BUT next year every MLB team gets 25M from the new national TV contract SO
    17th, cubs could increase payroll next year to 135M
    18th, cubs made 32M last year per Forbes. no one has proven otherwise; just comments from this site that “it may not be right” w/o any proof. w/o seeing tax records no one knows.
    19th, cubs will probably renovate the areas to make money 1st, to either paydown the debt or repay the trust; either way, payroll could go up with extra revenue.
    20th, new WGN contract will also allow for increase payroll starting in 2015. impossible to know how much as TV deal is split between WGN and Comcast and unlike dodgers deal that was only with Fox, not split.
    21st, what questions did theo ask in interview. did ricketts lie? did Kenny crane lie or get involved? no one knows.
    22nd, theo had 175M payroll in boston, 93 win team and 2 ‘roids cheaters in oritz and Ramirez plus all the international and overbudget draft money to spend.
    23rd, with cubs he has NONE of items in 22nd.
    24th, instead of the goat curse, perhaps now we have the Zell curse OR
    25th, anyone thinking MLB would not allow bad deals; look at McCourt who was highly leveraged when he bought dodgers, the madoof Ponzi scheme poor wilpon family in new York with a low payroll in largest market in baseball and NEW stadium, selig allowed loria to buy marlins after paying a very generous 130M for the expos, the a’s have been waiting FOUR years for the “study” to be done allowing them to move to san jose, and Cuban or canning would not of been approved as THEY had money, would of told Zell to screw off and selig’s buddy reinsdorf surely did not want an owner in town WITH money when the sux cannot draw even after winning a WS.
    26th, isn’t this so Cub like………….even the finances have to be “screwy”; so we wait with the 3rd highest tix in baseball and the only team ever to draw 2.8M fans with 101 losses; as the owner does NOT have enough money…………105 yrs and counting………all so frustrating for such a loyal fan base.

    • Die hard

      So would you recommend George Soros take a 8% stake in Cubs like he did with JCPenney or would you short the Cubs if a public company?

      • Reality Check

        at 580M the cubs are a good loan “risk”. if sold at 850M 4 years ago, and valued at 1B now, with 25M more in TV money, more in WGN potential TV money and an approval from the city of renovation plans with more revenue, selling the cubs in a foreclosure for 580M easily done.
        plus papa joe is an owner so their is money to cover the loan as guarantor in some format.
        if a public company, now would be time to buy low, as more revenue coming and if the team gets better, despite Rizzo looking like the padre Rizzo, higher attendance coming, team will be worth a lot more in 5 years…….
        BUT I just want a WS championship……………

        • http://401klogic.net Westbound Willie

          There is not higher attendance coming. Where do you get that from?

    • Timmy

      Great post, nice research.

  • Coal

    He means when they are good.

    • Reality Check

      yes…….assuming they are good; they’ll draw 3M plus again………..2016 we hope.

      • http://401klogic.net Westbound Willie

        I doubt they’ll draw 3 million again. They’ll be lucky to get 2.4 m this year. The trend that was up for so many years is now pointed downward. They’ll be closing the upper deck on weekdays just like they used to do back in the 70’s. tv ratings are way down as well. It’s over.

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  • Billy

    If you look back at the Ricketts operating methods and dealings over the last decade before the Cubs, patterns emerge. A couple of facts enter into this too. There is no doubt in my mind that there is a lot of money going into debt service. Selig even talked about “not worrying about the Cubs debt load” a few weeks ago.

    First, the debt to buy the team (one number I heard in more than one place) of $750 million plus would have to be repaid at about 10% of the total per year. So the principal alone would be in the seventy million range assuming the banks would let them fund some of the debt on a longer term basis (but not much). Interest rates are extremely low, but none the less, there is moremoney needed to cover interest each year. Annual interest in the range of $15 to $20 million would be reasonable for the Ricketts and this kind of deal. There is no way it could be much less than these numbers given the price of the team. They probably can refinance in later years and reduce the annual debt service, but probably not yet. Imagine the Dodgers debt load! There was more equity by that group but the prices of each progressive sale are pushing the leagues ideas about debt loads around.

    I can imagine continual conversations in the board room where the baseball guys are reminded that there can be little in the way of spending largess (defined only by the Ricketts) until the debt is substantially reduced. The only defense Jed an Theo have is “if we do not do something, attendance and TV ratings will suffer”. If you look back, they have been trading salary away and not replacing the spending (good business in many cases) but driven more to free up cash flow to repay debt as fast as possible.

    In negotiating with lenders, the only way to gain longer term leverage is to repay fast and reduce the risk for the lender. As one’s history becomes obvious, other lenders will come in to put their money to work and offer better terms and provisions. I am sure the Ricketts have many options for borrowing but their history says they like to get rid of the debt fast and as easy as possible.

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  • http://www.youtube.com/watch?v=9UJYK06himw Jim

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