Quantcast

masahiro tanakaThe world of Major League Baseball awaits a decision on the currently-non-existent posting system between MLB and Nippon Professional Baseball, which would provide for Japanese teams to sell their players’ rights to MLB teams. The two sides have been negotiating for weeks, and Jon Morosi says a deal isn’t close.

Among the proposals on the table, there is the possibility that posting bids – historically, the blind bid for the rights to negotiate with the Japanese player – will be capped. In such a system, there would be a pre-arranged maximum bid, and several teams could agree to meet that maximum bid. How the rights would then be sorted out is a matter of continued discussion. Tim Brown reports that, if that system takes hold, the winning teams (i.e., the teams that agreed to meet the maximum bid) would “vie in negotiations for [the] player.” I take that to mean that, if six teams won the post, then those six teams could make offers to the player, who would choose from among them (that would certainly have the effect of transferring way more of the dollars committed in this process to the player). Presumably, then, only the team that actually signs the player would be obligated to pay the posting fee to the Japanese team. Under a system like this, it is reasonable to assume that the Cubs would be one of the teams meeting the maximum bid (unless it was insanely high, but odds are that it would be fairly reasonable) for Masahiro Tanaka. From there, they’d have to out-negotiate the other involved teams – a tall order, given the financial depths of the Yankees, Dodgers, Red Sox, et al – but at least they’d have a seat at the table.

A separate maximum bid proposal (per a report out of Japan) would award the rights – in the event of multiple max bidders – to the team with the worst record in the previous season. Brown says this proposal isn’t going to fly, but you can see the obvious appeal there for the Cubs. They would get Tanaka if the Astros (money troubles tied to flailing network), Marlins (poor fit for a number of reasons), and White Sox (debatable) refused to meet the maximum bid. Heck, I wouldn’t be surprised to learn that the Cubs are aggressively pushing for that proposal (which, in terms of precedent-setting, would be about competitive balance, not rewarding the Cubs – for that reason, in the long term, maybe the Cubs actually wouldn’t want to support that proposal).

Hopefully a system is in place within a couple weeks, because it is possible that, if the process drags on too long, Tanaka’s team will decide there won’t be enough value in posting him this year (because a number of MLB teams will have moved on to other options).

As for the Cubs’ involvement in the Tanaka process, something Cubs GM Jed Hoyer has repeatedly confirmed will be a thing, Joel Sherman reports that the Cubs are viewed by other teams as a serious contender to land Tanaka. Although the Yankees and Dodgers remain the favorites to win the rights to Tanaka once a posting system is put in place, executives from two involved teams told Sherman to “keep an eye out for the Cubs.”

More importantly, Sherman includes this bit: “But there are officials who say the sale contains provisions that financially handcuff Ricketts that would not be a factor for a posted player.” If I’m reading that correctly – and, with all appropriate love to Sherman, it’s an ill-written sentence surrounded by context that makes its meaning a little unclear – Sherman is saying that he’s heard whatever financial limitations the Cubs currently operate under would not apply in this situation. Those financial limitations, in short, are believed to be loan covenants that restrict the Ricketts Family’s ability to spend more than a certain percentage of Cubs revenues on the Cubs in any given year, so it’s hard to see how a posting price wouldn’t have the precise opposite effect (i.e., having to outlay a huge amount of cash in a single year would violate those covenants unless the Cubs’ other spending dropped dramatically for the year).

But Sherman has clearly heard something, and I’m intrigued. I don’t really want to speculate (the obligatory precursor to speculation), but maybe the Ricketts Family (as Cubs owners) could borrow the posting price from the Ricketts Family Trust (at a reasonable interest rate), and then pay it back out of Cubs revenues over the life of the contract Tanaka actually signs? Seems like that would avoid any single year budgetary concerns, and would allow the Cubs to land Tanaka even if the Ricketts Family didn’t want to go out of pocket to get him. I’m just spit-ballin’.

Circling back …

If there is a maximum bid put in place for Tanaka – something in the $20 million (the low end of the proposal, according to Sherman) to $50 million range – I fully expect the Cubs to meet that maximum bid. A 25-year-old pitcher with the potential to be a top-of-the-rotation guy that you can get for only money? It’s a perfect fit for the Cubs, and, with a capped posting system, there should be no reason they can’t dig deep enough to be involved. If, however, the system remains a blind bid with no maximum (and if the posting price is still not applied against the luxury tax cap), I’m just not sure I see the Cubs mustering the resources to win, particularly with the Yankees and Dodgers involved.

In the end, even in this market, and even at his age, you’d not like to see the total commitment to Tanaka exceeding six years and $120 million. There’s a ton of risk involved, and, at that price point, not a ton of upside. If Tanaka will insist on a contract in the Yu Darvish range – approximately six years and $60 million – that puts a reasonable top posting bid at about $60 million. I tend to think Tanaka’s post will be higher, making the total final financial commitment a possible albatross. Remember: most scouts do not believe Tanaka is quite as good as Yu Darvish. Although Tanaka’s total commitment will probably be higher, thanks to market forces, there still must be a limit.

  • Kyle

    obligatory skeptical comment with vaguely funny riff

    • Cerambam

      Hah

  • Blackhawks1963

    I think it is very wrong of MLB to continue to subsidize the small market teams and make things “fair.” I just do. If some team wants to submit an insane bid for Tanaka, or dish out an insane contract to somebody like Cano, they should be able to do so. The market corrects stupidity. Look at the Angels…they gave insane money to Pujols and are now paying the price for that stupidity.

    And get rid of the luxury tax too. Seriously. It’s one thing to move to a salary cap in this sport, but the luxury tax thing is idiotic. Install a salary cap of $200 M PLUS a salary FLOOR of say, $75 M.

    • http://www.bleachernation.com Brett

      The market corrects stupidity only if all of the participants are on even footing. In MLB, for obviously reasons, they are not. MLB has an interest in evening the playing field as much as possible to keep the overall product compelling in the very long-term.

      • Blackhawks1963

        Disagree respectfully. Look at the teams who are consistently winning of late. They all aren’t big payroll teams. Look at Oakland, Tampa Bay, San Francisco, heck even Cincinnati and St. Louis. A strong baseball operation trumps simply throwing mega-money at things.

        • Jono

          I agree with you. Throwing money at problems doesn’t go very far. Money is only as good as the people in control of it. Sure, if a team spends wisely and conservatively, then it’ll help. But if not, then it’ll actually hurt the organization. So it’s not about whether a team has the money or not, it’s about the people in charge of the organization. I’d rather have a competent FO without a ton of money than a liberally spending FO with lots of money

        • GoCubs

          You just made Brett’s point.

        • Kyle

          Some of those teams have pretty big payrolls.

        • hansman

          So what you are saying is that what the MLB has been doing to level the playing field has worked?

          • Jay

            I just don’t want to see us stuck paying this idiotic posting fee AND his salary and then have the FO turn around and say, oh wait, remember–we’re poor now, so we can’t sign anybody else……like an actual PROVEN MLB player.

        • FullCountTommy

          Cardinals, Reds, and Giants are consistently in the top third of the MLB in payroll

          • DocPeterWimsey

            pah! The narrative is more fun if we alter the facts to our choosing. Also, ignoring the fact that the Sox, Yanks, Dodgers, Phils, Braves & Angels all have been frequent post-season teams the last few years also helps push the argument that the teams who have been consistently winning are small budget teams, too.

            (Moreover, the big payrolls on down years of late have been because of what they spent to compete all of those seasons.)

            • TOOT

              Don’t get it Doc. That one made me dizzy.

    • Kevin B

      If they do not make things “fair” then what is the point? Look at the NFL. Its called parity and that is the biggest reason they are the biggest money making sport.

      But I do agree with you on the luxury tax v. salary cap.

      • JulioZuleta

        Yeah, I’m sort of okay with luxury taxes, but not salary caps. Salary caps are communist. You say the cap has created parity in the NFL, but it has also ruined the NBA. Also, NFL parity is largely a product of injuries as well as a function of the salary cap. And there’s less parity than meets the eye. A huge reason it is such a money maker is the gambling/fantasy football aspect, both of which are much more prevalent in football than any other sport. I’m not sure how much the cap has to do with that.

  • caryatid62

    6 years and $150 million would not even be an albatross, considering the current financial commitments of this team, assumed cheap contributions they will be receiving from players as the farm comes to fruition, and the revenue they claim will be coming with the renovations.

    This is a team that currently has a $50 million payroll, with arbitration rulings that might send it up to $70 million. They’re likely $50 million under a sustainable payroll point right now, with a significantly higher sustainable payroll number once the renovations are complete. There is little reason to consider anything to be a potential “albatross,” save a Pujols-like contract.

    • http://www.bleachernation.com Brett

      That’s kind of a strange argument. By that logic, the first crappy $150 million deal you sign isn’t an albatross, but the one you sign the next day or the day after might be.

      • caryatid62

        An albatross implies that you are unable to make moves later because of the weight of that contract on your payroll. If your major league budget is expected to dramatically expand in the coming years, the amount of risk you should be willing to take should be higher, as that contract will become less of a weight on your payroll in coming seasons.

        To put it simply: if your budget is $100 million for a season, a $20 million expenditure takes up a significant amount of payroll. If, hypothetically, that budget goes up to $175 million 4 years from now, that $20 million is significantly less of a burden, even if performance doesn’t match salary.

        • http://www.bleachernation.com Brett

          If we’re playing with the semantics of the word “albatross,” swap it out for “horrible contract that limits future flexibility in some way.”

          Whatever dance you want to do, it’s absurd to pretend that there isn’t risk associated with any nine-figure investment.

          • caryatid62

            It’s just as absurd to pretend that anything over $120 million is a risk that isn’t worth taking.

            • http://www.bleachernation.com Brett

              On this particular player? That’s the discussion. You don’t think six years and $120 million is a reasonable cap for a guy who hasn’t pitched in MLB, isn’t an ace, and has been worked to the bone over the last five years?

              Don’t paint me as something I’m not. This is a very reasonable discussion.

              • caryatid62

                No, I don’t. The discussion is not only this particular player, but also this particular franchise. And this franchise can and should be willing to take on more risk than other franchises, given their financial situation and dearth of upside pitching prospects.

              • caryatid62

                “Whatever dance you want to do, it’s absurd to pretend that there isn’t risk associated with any nine-figure investment.”

                I never once wrote this. I would also prefer to not be painted as something I’m not, too.

              • Jay

                Brett you just made my point. I just don’t like handing this kind of money to ANYBODY who hasn’t already proven themselves over here. For every Yu Darvish or Matsui there’s also an Irabu or Fukodome.

                • http://www.bleachernation.com Brett

                  But that doesn’t mean you don’t try. It just means you do your best to take a reasonable risk.

                • Rebuilding

                  Japanese and Cuban stats are fairly projectable. Tanaka projects to be a 4-5 WAR player who is in his prime. 6/120 doesn’t seem unreasonable to me at all.

                  http://nomprojections.com/2013/10/29/2013-pitcher-projections-are-live-featuring-masahiro-tanaka/

                  • ssckelley

                    Would be a steal at 6 years for 60 million if you look at the contract without looking at the posting fee.

          • Kevin B

            Well said Brett!

      • Kyle

        The $150m contract is never an albatross, it only appears that way if you manage your finances and farm system poorly.

        • http://www.bleachernation.com Brett

          You are also apparently missing the point. A shitty $150 million contract can and would hurt *every* team in MLB.

          • Jon

            Dodgers could roll up a bad 150 million dollar contract into a joint, smoke it, and laugh the whole time.

            • http://www.bleachernation.com Brett

              And they’d still be worse off than if they hadn’t signed it in the first place. However small we may perceive the “worse” to be.

              • Jono

                normally i’d heavily agree with this point. But no one can be worse off after smoking a $150 million joint.

                Wow, that’s two stoner references in 12 hours.

                Note to the youngsters: stay away from the marijuana. It just makes you lazy and dumb.

          • caryatid62

            But it doesn’t hurt every team to the same degree, and if this team is as well run on the baseball side as many claim it is, they should be in a position to take on a higher amount of risk than other, more limited front offices.

            • http://www.bleachernation.com Brett

              That is a separate point, and I agree.

              But there’s a budget, and every dollar must be considered wisely. That’s all I’m saying.

              • caryatid62

                Of course, but that’s not really a point at all. We all agree on that. The debate is about the degree to which that risk is manageable, which is exponentially more interesting.

                • http://www.bleachernation.com Brett

                  Eh. Not to me. The most interesting piece to me is “what level of risk is Tanaka, specifically, worth?” I get that, for you, the answer to that is informed by a belief that the Cubs should be willing to take on more risk than other teams. I get it, and agree.

                  For me, the net of all of that is about six years and $120 million.

                  • Mike F

                    I have to ask, given as an example, what makes Tanaka worth so much more than Garza, Jeff or another starter? Is it the fact he’s 25. To me if there’s a consensus from scouts it is that he’s not a 1 and may not be anything more than a 3, so why is Tanaka worth even 120M given that they can lose 100 plus and have their pick of the best young in baseball at less than a tenth of that/

                    I think it is right to limit themselves on Tanaka, but I see no evidence that the Yankees or Dodgers will place any limits whatsoever on themselves. An to me the disturbing thing, is they seem content to do nothing and be as bad as they can.

          • Kyle

            Hurt? Yes

            But not to the degree that many people seem to think these days if the rest of the franchise is well-run.

            But bad decisions at any point in the chain can hurt you.

            Bad draft picks can hurt you, but you still make draft picks.
            Bad trades can hurt you, but you still make trades.
            Bad major FA signings can hurt you, but you still make them if you can.

            Risk-averse is not a way to run a championship franchise.

            • Mike F

              Of all the criticism this hurts the most. If you are right and I confess I am increasingly concerned you are, it is indeed damning. It increasingly looks like Theo is not the Theo of Boston and wants no part whatsoever of risk in general whether it is drafting pitchers high, or even someone like Ellsbury who is one of his biggest success stories.

    • Blackhawks1963

      But what is being completely lost is what the true baseball scouting evaluation of Tanaka is in the eyes of Theo/Jed/Jason. They had better believe Tanaka is the greatest thing next to Clayton Kershaw if they are going to pony up a massive posting fee PLUS a big contract for Tanaka. What I worry about most is that we fall into the trap of rolling the dice on Tanaka with mega-money. It CANNOT be a role of the dice, but rather MUST be a sound baseball decision based on scouting assessment, determination of value relative to the marketplace for pitchers, etc.

      Everybody on here is obsessed with winning the bid on Tanaka. It’s a lot more than that for the Cubs. We don’t have the luxury of Theo/Jed/Jason messing this one up. There is a crap ton of investment dollars and hard money at stake.

      • Jon

        Stop acting like the Ricketts are poor. I’m so sick of that line. They are billionaires that are still making massive profits on a bad team.

        • Blackhawks1963

          Where did I say the Ricketts are poor? And their personal family wealth has NOTHING to do with the proper financial management of the Cubs. If they are good business people then they are running the Cubs like a business and expecting a return on investment, as opposed to subsidizing the operation with other family money.

          I don’t want us to spend wildly on Tanaka for the sake of spending wildly. That’s the trap I am concerned about. Acquiring Tanaka MUST be based on thorough scouting assessment of what he can bring to the table and what a “fair” market price for his services should be. This isn’t about throwing a crapload of money down on the table and spinning the wheel.

          • Jon

            Maybe someday they will award the world series trophy not based on 7 games series in the playoffs, but by who is the “most efficient team” .

            • Blackhawks1963

              If you want to close your eyes and “hope” a big money investment in Tanaka pays off, then so be it. I want smart baseball people in Theo Epstein, Jed Hoyer and Jason McLeod to let smart baseball sense and scouting to guide all decision-making. If they think Tanaka is worth a $125 M plus investment, then fine. But if they think he is not and there are other teams willing to out spend them to get Tanaka, then fine too.

              • Jay

                Rickett’s may not be poor, but they’re certainly running the team like they are in the short term, with what debt structure they’ve got strapped to their backs from acquiring the team in the first place.

                • TOOT

                  What debt structure would that be? Just curious.

                • Mike F

                  They have strong increased equity. Quit wording about artificial debt, what you should be worried about is the obvious temptation which is increasingly looks like a hell of a big profit flip. More and more the way this franchise is moving looks like a big time flip.

                  • TOOT

                    Not sure what you mean by a flip?

              • Kevin B

                Well said Blackhawk

        • roz

          “They are billionaires that are still making massive profits on a bad team.”

          Did you not read the article? There’s a ton of money coming in, but due to the structure of the sale of the Cubs, there are some restrictions on what they can do with it. I get the frustration with how long the rebuild is taking, but let’s at least try to understand what we can about the financials, and then recognize that even then, we don’t know much. You really can’t definitively say that the Ricketts are tanking just to make as much profit as they can.

      • ssckelley

        But what you keep assuming is that the entire amount of money is coming out of the Cubs budget, evidently the money for the posting fee is coming from another source.

        So take a way the posting fee, pretend like it does not exist, would you be on board for Tanaka if the only impact to the Cubs payroll is 6 years for 60 million? Easy math says that is only $10 million per year impact to the Cubs payroll, that amount has minimal financial impact to the Cubs payroll.

        • CubFan Paul

          “the entire amount of money is coming out of the Cubs budget, evidently the money for the posting fee is coming from another source”

          Pipe Dream.

          • ssckelley

            possibly, but might explain why the Cubs keep being connected to Tanaka. If Ricketts can bury the posting fee as an expense somewhere other than the Cubs revenue then it frees the FO hands to go after him.

            I keep going back to the Girardi rumors where it appeared Ricketts told Theo to do whatever to hire him. It was almost as if he told Theo “spend whatever it takes to land Girardi, I got this”. Perhaps he is saying the same thing about Tanaka, “Do not worry about the posting fees, I will cover it “.

            • CubFan Paul

              You’re comparing $5M a year for Girardi to a one time $60M posting fee…

              • ssckelley

                It was just an example. You have a gift of being able to pick out the negative out of anything. I can see why you are a Cub fan, you seem to enjoy the negative, it would probably drive you nuts if they ever won the World Series.

              • Rebuilding

                Do you not understand the distinction between not being able to spend money because your debt documents say you can’t and not being able to spend money because Ricketts says you can’t?

                As an example: The debt documents MIGHT say the Cubs payroll can’t exceed 1/3 of their revenue. In that case the banks are putting the restriction on. On the other hand Ricketts may have told Theo and Jed their payroll can’t exced $100 million. There is a big difference

                • Napercal

                  It is very difficult to believe that major league baseball would allow that kind of restriction to be placed on the purchase of a team – especially a big market team. If that restriction is in place, the Ricketts ought to fine another bank. Better yet, borrow the money from Dad.

                  • ssckelley

                    Perhaps Tanaka’s posting fee is on Tom’s Christmas list.

                    • Rebuilding

                      The Ricketts Ameritrade stock has likely made $50 million in a day a few times this year

  • Rebuilding

    It could be that the Ricketts restrictions are written in such a way that they only relate to “payroll” and that posting fees (and IFA money) don’t fall under that definition since they are one time outlays

    • Rebuilding

      You see that all of the time when companies report results. They move one time outlays to extraordinary one time expenses and don’t count them for regular EPS

      • http://www.bleachernation.com Brett

        Thank you for that. I tried to wrap my head around the distinction in the baseball context, but it still doesn’t really make sense to me (because the Ricketts Family could just as easily imperil the collateral through extraordinary one-time expenses as they could through high annual payroll).

        … except that maybe that’s what happens when you have bankers and lawyers writing covenants about baseball spending decisions.

        (Obligatory caveat: I don’t know anything about the specific covenants at issue here, assuming they exist.)

        • Rebuilding

          Yeah. Even in loans to corporations or banks they usually have these kind of carve outs (think JPMorgans’s $13 billion settlement with the gov which won’t trip any of its financial covenants). The resin being is that the covenants are there to ensure the company is performing as an ongoing concern. One time items are viewed as anomolies that don’t give a true look at the health of the business. It’s a hole you could drive a truck through and actually gives me hope we will be all in on Tanaka after what we did with IFA

          • Jono

            God Bless America

          • When the Music’s Over

            Anomalies/restructuring items/extraordinary items etc might impact adjusted EPS, but they certainly do impact the Balance Sheet (eg, cash balance), and in our case here with the Ricketts, perhaps cash flow is an important considertion with the debt structure.

            Firms play all sorts of above the line, below the line funny business, but smart analysts know where to look in order to make adjustments. The Cubs in general have been spinning all sorts of funny business like stuff to the media and fanbase, but the more people are able to dig into the financials, the clearer the true picture has become: within the constraints of the purchase debt structure, cash flow appears to be a pretty serious problem.

            (if you cannot tell, I come from the cash is king side of business health)

            • When the Music’s Over

              *sorry, might NOT impact adjusted EPS….

              • Rebuilding

                I agree with everything you just said. My only point was that as someone who has written those covenants for syndicated bank deals (like this one) oftentimes “one time” items aren’t counted when doing the covenant tests

                • When the Music’s Over

                  Yes, agreed. Hopefully that is the case here.

          • Kyle

            This is the first explanation/news combination that makes me believe getting Tanaka is plausible.

    • Greenroom

      Thanks so much for these posts.

  • North Side Irish

    I think the maximum bid would have to be higher than $20M for Tanaka to get to the Cubs. I’d love to see this system implemented with the max set at about $40M to increase the chances he gets to the Cubs. And then have them change the system again in a few years when the Cubs are (theoretically) better.

    • http://www.bleachernation.com Brett

      Heh.

  • Blackhawks1963

    So it’s been rumored that the Cubs will carry a $100 M or so payroll in 2014. Right now their current commitments with estimated salary increases comes in at $70 M or so. That means there is presumably $25 M to spend on new things. So if we don’t get Tanaka (because we lose the bid or Theo/Jed/Jason determine he isn’t worth the price) then WHERE are we spending that money if we aren’t going to trade top prospects to acquire veterans already making good money or going out and signing Ellsbury, Choo, Cano, etc.???

    I don’t get it. I really don’t.

    • D-Rock

      We went from being a large market team in a big city to a small market team in a big city…

      • http://vdcinc.biz 70’scub

        Small market? TV contract small market, revenue (Wrigley) after local taxes small market, Formal owner not reinvesting back into the business.

  • T-Bone

    I have a big problem with this perceived notion that we have to go all in on Tanaka. Do we really need to committ 25 to 30 million a year on 1 guy? A guy that hasnt proven himself in the MLB? Were all sitting here balking at the idea that Cano is asking for 25 million plus, but yet we want to go all in on Tanaka. I just dont get it. This money can be spent on proven assets that are here now or that will be free agents. Count me out if the bidding system isnt fixed to avoid these “albatross” contracts

    • Blackhawks1963

      Exactly.

      AGAIN, our going after Tanaka must be based on sound baseball assessment. This cannot be a spin of the roulette wheel… not at the levels of dollars we are talking about.

    • Brains

      agreed – if we’re going to spend pujols dollars, it should be on a proven winner like cano who can help the young guys mature and show some clubhouse leadership, one of the two or three biggest clubhouse problems, and a very difficult one to fix. tanaka would be great though. it’s never a bad thing to have a great pitcher.

    • Jon

      Why spend 25 million on a very good player when we can spend 5 million on 4 crappy ones right?

      • Brains

        lol – i think there’s a bleacher nation tendency to have buyer’s remorse for getting free porsches. “it might explode if we crash into a tree like the fast and furious guy, right? better drive that yugo.”

      • ssckelley

        But this is what has made the small market teams successful and right now it appears the Cubs are no more than a mid market team.

    • hansman

      The difference is that Tanaka has ALL of his prime years left. Cano has none.

      • Jono

        This just saved everyone a Jono paragraph or two

      • T-Bone

        Yeah i get that. A guy coming in that is 24 years old that throws heat. But I do not want to give a pitcher 30 million a year. Im sorry but i don’t. There are so many risks with pitchers. There are more Mark Priors out there than there are Greg Maddux’s. Were talking about a guy that pitched an a average of almost 8 innings a game in the NPB. Im worried about his arm. If were talking 20 a year that is closer to my max for this guy. Not 30.

    • Cubbie in NC

      I think the great desire for Tanaka is from the other moves that have not been made. The Cubs don’t want to sign a big name free agent because that would take away from their building the farm system. (losing draft pick compensation)

      They do not want to bundle a bunch of the farm system for a proven MLB player.

      If you are buying into the other things that are going on, then this is the only way the Cubs can stick to their plan and acquire talent.

    • http://bleachernation.com woody

      It’s crazy that they are bickering over 10 million dollars or so to come to terms with Samardzija and on the other hand looking to throw 150 million into a Tanaka deal. Personally I hope they don’t come to terms on the posting process and he stays in Japan for another year.

  • CubFan Paul

    Sherman is confusing. For a couple years now there’s been reports that the Cubs can’t spend more than their revenue generates ($300M), meaning the posting fee would have to come out of the revenue pie

    With Ricketts crying poor (“we need more than $300M annually to have a payroll higher than $105M” (and trying to hide the additional national tv money from the public/fans as if it doesn’t exist)) I just don’t see Theo&Co getting that big of a bump in baseball spending to afford the posting fee plus the normal 2014 payroll.

    Theo&Co can’t send all the “involved in the process smoke signals” they want, but it ain’t happenin’

    • http://www.bleachernation.com Brett

      That’s the financial discussion in the post. There is an implication that the posting fee would not be included as part of those restrictive covenants.

      • CubFan Paul

        I doubt it and even so, I still don’t see Ricketts loosening the purse strings.

        The next time will be the first time.

        • Rebuilding

          Well, the only real evidence we have is what we did in IFA where we went hog wild. That leads me to believe that the covenants don’t include expenses like IFA and/or posting fees. We are reading tea leaves, but if you think about where they have spent their money it points to that being the case

          • hansman

            The hog wild IFA spending may have been what tipped the scales in dumping DeJesus.

            • caryatid62

              Oh man, if $7 million in expenditures caused the team to have to trade a major league player, they’re in much worse shape than we could imagine.

              • hansman

                Not really,

                That spending spree may have tipped them over a point that Rebuilding is referring to. If they were planning on trading DeJesus anyway but now couldn’t eat salary, they took what they could get.

                It doesn’t mean they are in worse shape than we thought, just watching every dollar.

                They are, very much so, acting like a mid-market team. Mid-market teams, occasionally, have to pinch pennies

            • Rebuilding

              Could be. I’m just basing my guess on how I’ve seen these covenants generally written and what we’ve done. No inside info

          • CubFan Paul

            “what we did in IFA where we went hog wild…leads me to believe that the covenants don’t include expenses like IFA”

            You’re so off base and wrong that I don’t know where to begin

            • Rebuilding

              Huh? We outspent everyone in IFA by a wide margin. Not something you are likely to do if you are pinching pennies for the sake of pinching pennies. But please start my re-education

              • Jono

                Rebuilding, you’re doing it again. You’re letting facts get in the way of someone’s narrative. Stop it

                • On The Farm

                  I hate it when people use stats or known facts to justify their arguments!

              • JB88

                I’m not buying into Paul’s overall narrative, but outspending the competition on IFA, where there was a $7M cap, isn’t really an apples-to-apples comparison with respect to the posting system and doesn’t really support an argument that the Cubs can or will spend big in the Tanaka sweepstakes.

                • Rebuilding

                  But it is a piece of eveidence that possibly the financial restrictions don’t apply to certain expenditures. Is it certain? No. It’s just a data point

                  • JB88

                    I think it is a very, very narrow data point though. That the Cubs’ excess expenditures in IFA is about the cost that they saved by trading Feldman midseason shows just how limited that excess expediture was.

                    Signing Tanaka with an upfront commitment of $50 or $60MM versus overspending the IFA limit by a million or two is really not even the same game, let alone the same ballpark.

                    As an aside, why is everyone assuming as gospel that there are some sort of spending restrictions included in one of the purchase or loan agreements? Just trying to get an idea why this narrative is being advanced like it is gospel in this thread.

                    • JB88

                      And to be clear, I’m very much in favor of spending a large chunk of money to land Tanaka. I’m just not sure that the evidence is that the Cubs will spend that money and I don’t think that the IFA expenditures really offer much support for those thinking that the Cubs will or can spend that sort of money.

                    • Rebuilding

                      Because any syndicated bank loan is likely to have them. Most especially one of this size. It’s quite possible that they relax as time goes on and the debt gets paid down

                    • JB88

                      Rebuilding – I’m sure that you are correct that a “syndicated bank loan is likely to have them.” What I find curious is that if these type of loans frequently have these type of provisions, why is this only now being discussed some 5 years after Ricketts and Family bought the team? The timing just seems odd that suddenly this is the narrative being advanced as to why the Cubs aren’t spending money.

                    • Rebuilding

                      Well, no one outside of the banks and the Cubs have seen the documents so no one knows for sure. It’s been alluded to several times, but at this point it is unclear whether the reduction is (1) just part of the plan, (2) mandated by the Ricketts or (3) mandated by the loan documents

                    • JB88

                      I understand what you are saying, but again I’m curious in the timing. If, as you suggest, these sorts of payroll restrictions are fairly common, then they would have been known at the time that the sale closed. Loads of financial/business publications wrote about the sale/purchase, but none focused on how the loan structure might impact the Cubs’ ability to compete. It just seems odd—for a provision you offer as being commonplace—to only now start the discussion on how payroll may (or may not) be impacted by the financing of this deal.

              • CubFan Paul

                “But please start my re-education”

                Spending money on International Free Agents has *nothing* to do with the sale provisions that financially handcuff the Ricketts

                • JB88

                  Out of curiosity, is the Sherman piece the first piece that has mentioned a covenant contained in the sales contract that limits the Cubs’ spending? I consider myself fairly well-read on all things Cub and I can’t, for the life of me, remember this conversation before or anyone speaking this definitively on this topic as people are in this thread.

                  • CubFan Paul

                    Wittenmyer, Levine, Forbes and the Tribune have all mentioned it

                    • JB88

                      Hmm. I’m generally familiar with all of those articles, but I don’t remember Wittenmyer’s piece ever talking about a spending restriction on payroll. Rather, I thought his point was that the debt service on the deal required that the Cubs pay down a large part of the debt each year. This seems to be something different from what any of Wittenmyer, Levine or Forbes said.

                      But I don’t claim to have perfect recall on those articles, so I could be wrong.

                • Rebuilding

                  Ummmmm…..that’s what I’m saying as well. My guess is that the financial restrictions don’t apply to IFA or posting fees which are viewed as one time expenses. Not sure why you think we disagree?

                  • CubFan Paul

                    We ‘disagree’ because you keep bringing up International Free Agency as if it has anything to do with outspending the baseball budget.

                    It doesn’t. IFA spending is built into the Theo&Co’s normal baseball spending *no matter* how much they spend on the July 2nd international free agency players.

                    • Rebuilding

                      I think we are talking past each other here. I personaly have no idea what is Theo and Jed’s budget and likely neither do you. My point is that we seem to be acting awfully cheap right now, although in IFA we were very aggressive. To me, IMHO, that suggests the possibility that we are constrained when it comes to “payroll” (and when I say constrained I’m talking about covenants relating to the debt) whereas we might not be similarly constrained in other forms of spending such as IFA and posting fees. Otherwise we likely would have just done what the Astros did and not spend our IFA allowance. Not sure how much clearer I can be

                    • CubFan Paul

                      Rebuilding, you’re clear. I understand you.

                      But you’re going to need someone with more patience to explain why July 2nd signings has nothing to do with the original topic

                    • Rebuilding

                      I guess that assumes someone else knows what the heck you are talking about. Sorry I wasn’t a better student

                    • CubFan Paul

                      “that assumes someone else knows what the heck you are talking about”

                      I assume they do since you’re the only one mis-understanding the rules, budget, and CBA.

                    • Rebuilding

                      And you do understand that our IFA “budget” was just an allowance up to where we wouldnt have to pay a penalty right? We didn’t have to spend that money, yet we aggressively did

                    • CubFan Paul

                      “..just an allowance…didn’t have to spend that money, yet we aggressively did”

                      So?

                      Aggressively spending on July 2nd has nothing to do with the kind of offseason spending I was talking about (Tanaka’s posting fee) but you’re confused on that because you also said:

                      “That leads me to believe that the covenants don’t include expenses like IFA..”

                      This is what I meant by mis-understanding the rules, budget, and CBA.

                    • Rebuilding

                      One last time. IF, and it’s a big IF, the loan documents put a restriction on how much the Cubs can spend on “payroll”, our agressive spending on IFA MAY point to the fact that those covenants don’t apply to such expenditures.

                      Neither IFA spending, nor posting fees count against the salary cap or are listed when talking about a teams “payroll” so it is reasonable to conclude that they may be treated differently elsewhere.

                    • CubFan Paul

                      …The money spent on IFAs/July 2nd do count because it’s payroll too,

                    • Rebuilding

                      It’s not counted as payroll for salary cap purposes, nor is it counted anywhere where payroll figures are tabulated. Payroll is generally considered the amount you are spending on guaranteed, MLB contracts

                    • JB88

                      It seems like you two are talking past each other. Rebuilding’s point is that the loan documents may define payroll in one way, allowing the Cubs to put together an aggressive post that doesn’t violate the loan requirements.

                      Paul seems to be saying that all of this (i.e., the IFA spending and the Tanaka bid) is part of payroll.

                      You both might be correct. The Cubs might be able to spend a large amount on the Tanaka bid without implicating any theoretical restrictive payroll covenants. And they may include such spending on the payroll side of things (or distribute it over the life of the contract for internal accounting purposes).

                    • Rebuilding

                      Exactly

                    • CubFan Paul

                      The money spent on IFAs/July 2nd do count because it’s payroll too, as in:

                      The Cubs can’t outspend their revenue ($300Mish). Everything that revenue pays for (front offc salaries, mlb payroll, scouts, computers, pencils etc) is what i’m talking about.

                      From what I understand, the posting fee would have to come out of the revenue pie ($300Mish) and be counted as an expense like all the office papers, salaries, and replacement grass/maintenance.

  • Rebuilding

    Here is a site that translates Japanese stats and projects what Japanese players are likely to do based on historical precedent. They project Tanaka being tied with David Price as the 10th best pitcher in baseball and being comparable to Mat Latos or Kris Medlen as a 3.00 FIP and 3-4 WAR pitcher:

    http://nomprojections.com/2013/10/29/2013-pitcher-projections-are-live-featuring-masahiro-tanaka/

    • Rebuilding

      Actually they said a 4-5 WAR pitcher. So we’re talking around $20 million+ per year value

      • Jono

        you really have to stop making sound arguments with evidence to back them up. It’s not fair.

        • MichiganGoat

          Stoopid facts

  • Senor Cub

    The Rickets are Billionaires for a reason, they are great business people! They will not spend a penny more on Tanaka or any other player if they don’t deem it worthy. It doesn’t matter if the payroll is $70M or $100M. We’ve discussed this a Billion times here (pun intended). This team will not be competitive in 2014 or 2015. Spending more for the sake of spending( or to appease) more would not make any financial sense. So why not maximize your ROI, just like any other business does. You weigh your opportunity cost and your risk vs. reward. Let’s all face it, spending millions of dollars on a non-proven MLB player is INSANELY risky. These people have made billions by taking risks, they are not going to piss it away by taking on stupid risks. This should make sense to anyone here. If you feel compelled to spend $100M plus on players, there are proven ready players that can be had for that amount. Look at what the Tigers are doing with trading away a great pitcher, a great hitter, and in return reducing payroll for future flexibility to sign even better players. Let me know if I need to teach a Finance course, not that I have an advanced degree in the subject or anything.

  • bobk

    The first posting option seems like the most ideal for the current and future state of the Cubs. Max bid allows you to negotiate. Chicago should have the funds and the appeal to make a deal from there. While the second option seems great for our current position I dont think it benefits us for future postings. Chicago should be a highly coveted city to play for in an Asian market. 1st option is what we should be looking for.

    • Rebuilding

      I think that is likely what we are going to get. The 2nd option sems like a non-starter for big market clubs

  • Jono

    Rebuilding- are you the guy who worked with Brett before BN?

    • Rebuilding

      Nope. I never had the pleasure of seeing Brett’s lawyer skills

  • Die hard

    Cubs need hitting not pitching and when Jumbotron goes up so will home runs to left by every opponent which requires Cubs to keep up or fold up. Pujols for Jackson and Angels pay difference helps each team make best of bad deals

    • DarthHater

      [img]http://farm4.staticflickr.com/3747/9179773544_c6c9157f29_n.jpg[/img]

    • ssckelley

      Can we get Josh Hamilton as well?

      • DarthHater

        No, he would not be a good role model for our youngsters. :-P

  • baseballet

    “you’d not like to see the total commitment to Tanaka exceeding six years and $120 million”

    Just wondering how you came up with the $120M/6 year max value. I don’t know what pitchers of his age/skill are going for. Is $20M the high side for a #2 pitcher?

  • http://BN Sacko

    This Tanaka talk has become to confusing as to the said interest we have in him for a very large amount of money. When at the same time for almost 2 months now the FO states we aren’t going to spend that kind of money, not going after high priced free agents, we don’t have the money right now and so on. What are they going to have to play around this guy after spending that much.
    Give Baker 2 years 10M (very unlikely) looks almost like a better risk.

    • Rebuilding

      When did the FO say we aren’t going to spend that kind of money for the “right” player?

      • http://BN Sacko

        What the correct verbiage was I’m not sure but Theo stated in the area of; not making a lot of sense spending big on free agents right now.

  • http://mccarronlegal.com jmc

    I’m getting a headache with all these numbers.

  • Jonathan

    I don’t know how realistic it is but I’m wondering if the posting holdup making it so Tanaka isn’t posted this year might be the best case scenario for the Cubs. I would think it makes Samardzija a whole lot more valueable this year since a big arm is off the market and, assuming he is posted next year, makes Tanaka available when the Cubs would likely be more inclined to go for him (another year for the minor leaguers to develop and all that).

    • http://bleachernation.com woody

      And the way they are using him in Japan might be the end of his arm. 150+ pitches in one game? I don’t see why the FO just doesn’t pony up a little more cash to sign Jeff. Fool around with a guy over ten of fifteen million dollars and then go spend a fortune on a guy that may not perform to the level that Samardzija will in the next 5 years is insane.

      • Rebuilding

        That is just how pitchers are treated in Japan. Darvish was used the same way. I agree with you that it’s a risk. The problem with Samardzija is that he has performed as a mid-tier starter and is seemingly asking for top-tier money. Tanaka projects to be a much better pitcher likely asking for the same

  • MattM

    Ok guys! I hate to throw cold water on this conversation but just seeing that pic up there gives me reason for concern. If you look at Tanaka’s throwing motion he is showing the classic “inverted L,” which in using a TON of emperical data is one of the major reasons for so many pitchers needing Tommy John Surgery.

    If when his foot hits the ground his and his arm is in that position. It means that the hand will have a much longer trip to get to release point. This in turn will create a massive amount of uneeded additional stress on the shoulder and elbow and will set him up for needing surgery on both parts of his arm at some point.

    I’m wondering if signing him to a big contract might not be a good idea after seeing that. P.S. both Kerry Wood and Mark Pryor as well as Steven Strasburg and Wayneright and Carpenter have the inverted L. They all needed some type of arm surgery……

  • ssckelley

    Another idea to toss out, if what Paul is saying is true that Tanaka’s posting fee will count against the Cubs revenue, then perhaps that is why the Cubs have been doing nothing but dumpster diving up to this point. Yesterday I shot out the idea that since the Cubs are not looking to win in 2014 that they might front load a contract to spend the payroll today and have a less impact on the payroll in the future. You all pretty much shot that down stating that would be dumb from an accounting stand point with inflation, obviously I am no accountant. But could this be the strategy they are using to acquire Tanaka? If the Cubs have a budget of $125 million (again just tossing out numbers), BR has the estimated payroll at $73.5 million perhaps this is where the $50 million is coming from.

    I am just trying to wrap my mind on how the Cubs could be in on Tanaka. Without being able to explain that posting fee I lean towards Blackhawks argument that 6 years for $120 million is to much to spend on an unproven arm and I would rather see the Cubs invest it somewhere else. But if the posting fee is accounted for, say embedding it into either next years payroll where they are not going to spend the money anyway or being able to expense it somewhere else then it seems reasonable. If Tanaka ultimately signs for 6 years for $60 million that $10 million per year hit is going to seem very small even if Tanaka turns into another Hideki Irabu but it will look like a bargain if he is close to being as good as Yu Darvish.

    • CubFan Paul

      $125M may not be enough. Posting fee included, the payroll would have to be $140M-$160M

      • ssckelley

        Well what is the magic number, do we know what the number was this year? Obviously the Cubs will not be overspending on IFA’s since they can’t and there is still the possibility they trim even more payroll (ie trading Samardzija). As recently as 2011 the payroll was at $136.5 million and they spent a healthy amount in that years draft. For all we know the total player payroll could be over $150 million.

  • The Logos

    I am going to take Theo at his word, and assume the Cubs are going hard at Tanaka. Epstein is on record as saying that if there were a bunch of top-tier 24-25 year-old free agents coming into their prime, the Cubs would make a push for them. In my opinion, Tanaka fits the bill. So, I will assume the Cubs are going to be in big on Tanaka.

    I think it’s also fair to assume that if they are and do not get him, those details will probably come. You would think they would want the fans to know they were major players, at the least.

  • Matt

    I feel like the Cubs’ best chance of landing Tanaka would be to allow negotiations with the winning bidder only. Perhaps the Yankees’ payroll constraints could help if the posting fee is lower and the contract is higher, but from Tanaka’s standpoint I see the Yankees and Dodgers and being more appealing teams than the Cubs. The money is there, winning history is there, strong Japanese cultures in both of those cities, etc.

    • http://www.bleachernation.com Brett

      You’re not wrong. If it was Cubs/Dodgers/Yankees, the Cubs would probably have to outbid the other two (in terms of the contract, itself).

  • Nick

    I think in a system where the worst record wins with multiple max bidders – it would be cool to see that winning bid as a trade-able asset. I think that would have a better chance of ‘leveling the playing field’ since a small market team could still win the bid and trade the rights to someone for the full posting price plus some decent prospects.

    There would be less risk in a couple decent prospects than having to shell out 100mil for 1 unknown quantity. The upside would be debatable and something that would alter the trade components, but it would be interesting for sure.

  • Pingback: Asian Players in the 2014 MLB Free Agent MarketGlobal Sporting Integration

  • steve r.

    Ive been on board with this rebuilding plan, however I just find it hard to understand why we can’t spend money on the major league team enough to make us competitive. The Ricketts have had our cubs for about 5 years now I believe, and it seems that each year that goes by, the payroll gets smaller, and the talent on the field gets more and more inept. Maybe we don’t wanna spend on the big time names, but at least bring in some guys that can actually contribute, and give us a better chance to compete. I keep hearing about restrictions because of whatever loan they took out to buy the cubs. Well I cannot see how MLB would allow someone to buy a team under such restriction, it makes no sense. I would think MLB would want someone in chicago that will field a very competitive team, in a very large market. I love the prospects we are gettingm dont get me wrong, but to me in year 5 or 6 of the Ricketts regime, we should be better than where we are. You dont hire a Theo Epstein and Jed Hoyer to give then pennies on the dollar to work with. I think Ricketts is tanking seasons to try to force their stadium renovations and the jumbotron thru the city council. Obviously the cubs being a competitive team would only help the city revenues some as well, so maybe Ricketts believes dwindling money for the city will scare them into giving in already.

    I just cannot fathom loan restrictions limiting how we operate and field a MLB quality team would be allowed. I maintain that Ricketts is tanking on purpose to get what they want in the end. Either that or they are pocketing a lot of money, and are gonna do it as long as they can get away with it. Jesus I wish Mark Cuban would have been allowed to buy the team, I can’t see anyway he wouldve sat back and tanked seasons, to supposedly build up a farm system and loan restrictions. The ricketts are after one thing only, cash, they care nothing about bringing a winner to chicago. They want to get their renovations, cheap players, hence the heavy push into player development, so they can continue to pocket as =much money as they can without putting much of it back into the team. I’m betting Theo and company know this, and are regretting the day they allowed Ricketts to speak to them. I agree we needed to rebuild this thing, but spend a few more bucks and field a team that isn’t an embarrassment for crying out loud. I’m not expecting us to be like the dodgers, but damn, spend at least like the actual small market reds for crying out loud.

    • papabear

      When they went into the 4 or 5 year plan the statement was Cubs fans couldn’t handle a rebuild. Your going to have to be patient. Next year should be the start of their spending. Problems they inheretade were these.

      1} One of the highest payrolls in baseball – losing team with lots of bad contracts

      2} One of the bottom minor leagues in baseball with very few prospects and no upper end prospects.

      3} Hendry just tanked the draft – I have to believe he did it on purpose as bad as it was – When he made the first round pick the anouncer said the player would have been around in round 6 probably in round 10.

      4} They were Forced to buy the team with a ton of debt.

      5} TV contracts were terrible – small market money at best.

      It will take at least next year if not the following to take care of these problems

      • Brains

        we don’t have much choice but to ‘wait for next year’ at this point, if by next year you mean 2018. time for a few old styles.

    • Chad

      I find it hard to understand how people still find it hard to understand this process. Money won’t be there until the signage/jumbotron goes up. Does everyone really want to spend 153 million on Ellsbury or 200 on Cano? I don’t understand the love for these contracts. The FO is smart, they are doing what they can, turning ML assets into prospects and actually doing a rebuild. Yes they could probably sign a guy like Cano, but is that going to make them competitive? No, they can’t sign Ellsbury, Cano and McCann in the same off season, that is not how the cubs are built. People need to wait until ST starts to judge the offseason. The winter meetings haven’t even begun and people are claiming this was a fail. What if the cubs trade for Anderson and get Tanaka? Would that be a good off season? I’d be happy with that. Or somehow traded for Matt Kemp? (don’t get your hopes up, I”m sure that would cost way too much) or trade Samardzija for Archie Bradley? Hold judgement on this off-season for a while, and hold judgement on the rebuild until some of the youngsters make it to Chicago.

      • Rebuilding

        I don’t think the Cubs HAVE to wait for the Jumbotron to spend. It’s relative peanuts in the grand scheme of things. And yes I think Tanaka + Anderson would be a very good offseason. Throw a Samardzija for Bradley in there and it’s a great one

        • Chad

          I think they have to wait for more revenue (advertising) to spend like everyone wants them to spend. I don’t think there is ever a good time for a 7/153 contract for a 30 year old speed reliant oft injured outfielder though.

          • Rebuilding

            Totally agree about Ellsbury and everyone else that has signed so far. I wouldn’t want any of those contracts. I’m just of the mind that IF we would have wanted Ellsbury then we wouldn’t have to wait for the Jumbotron to spen on him

  • Pingback: Tanaka Update: NPB Willing to Accept Maximum Bid Structure, and Posting Fee Might Not Be Issue for Cubs | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

  • Pingback: Theo Epstein Speaks: Tanaka, Samardzija, Rebuilding Timeline, TV Deal, Organizational Health, More | Bleacher Nation | Chicago Cubs News, Rumors, and Commentary

Bleacher Nation Privacy Policy and Terms of Use. Bleacher Nation is a private media site, and it is not affiliated in any way with Major League Baseball or the Chicago Cubs. Neither MLB nor the Chicago Cubs have endorsed, supported, directed, or participated in the creation of the content at this site, or in the creation of the site itself. It's just a media site that happens to cover the Chicago Cubs.

Bleacher Nation is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Google+