NEWSLETTER
Chicago Cubs Owner and Chairman Tom Ricketts spoke to ESPN today about the nature of the financial issues facing MLB teams this year, as that relates to trying to put a deal together with the players to stage a season (instead of forcing the sport to go dark for 18 months, absolutely crippling all of MLB for a decade to come … ).
I think some context is necessary to pair with Ricketts’ comments, but I also think it’s important to read and understand what he has to say as part of the bigger pictures at play right now:
Exclusive to ESPN: Cubs owner disputes idea MLB teams 'hoard' cash https://t.co/KiSW4fjrwi
— Jesse Rogers (@JesseRogersESPN) June 2, 2020
Ricketts, among other things, wants to make sure fans understand that MLB teams, in general, do not build up huge reserves of cash every year. Moreover, “most owners,” Ricketts said, do not take cash out of the team.
At the core of Ricketts’ comments is something he’s said since day one with the Cubs: the Ricketts Family does not take cash directly out of the Cubs operation. Instead, every bit of revenue that comes in the door, after expenses are paid, goes into baseball operations. That’s been the mantra since day one, and I believe it. Strictly speaking.
But here’s where the context is necessary. It’s that word “expenses.”
As raised by Scott Boras recently, and as we’ve discussed before, part of the “expense” of owning an MLB team (and RSN and ballpark) these days is paying down the financing that purchased the team (and/or RSN and/or ballpark) in the first place. As that financing is paid down, more of the equity value in owning the team is transferred to the owners (to say nothing of the massive appreciation in the asset(s), themselves). I believe this is how most MLB (or other major sport) teams and owners operate.
So, then, while it is literally true that every dollar that comes into the organization, after expenses, goes into baseball operations, it is not practically true that MLB owners like the Ricketts are not accumulating additional wealth from the effective “profits” of the team. Owning an MLB is still a good business to be in.
Do with that whatever you will from a moral/fandom perspective. As I’ve said, it’s not really something I get too upset about – it’s just the way these large operations are purchased and financed – but I do think it’s important to make sure we’re all on the same page.
So, then, we kinda have to hold multiple things in our heads at the same time. It may well be the case, as Ricketts discusses in the article, that the Cubs entity does not have huge reserves of cash to cover the losses this year, and indeed the Ricketts Family, themselves, probably also don’t have sufficient cash flow emanating out of their business operations (most things remotely attached to the Cubs are going to get crushed this year). More financing and/or selling some equity is probably going to be necessary. But it’s also the case that the many good years that came before this one did ultimately benefit the Ricketts Family, as owners of the Cubs, even if they did not directly put cash profits into their pockets.
What does that mean for how we should think about negotiations with the players and the Cubs’ losses this year? Or about payroll going forward? Again, your mileage may vary. So long as the Cubs continue to spend at or near the top of the market on baseball operations, as they have the last five years, I will have a hard time being too perturbed by any of this. I think the financial disruptions hitting the industry are very real, and very significant. But the players deserve to be treated fairly this year, as do league and team employees.
The extent to which MLB owners “need” to reduce player compensation this year is ultimately at the heart of the sides’ negotiations to get a season underway. From what information I have available, through both public sources and private conversations, I feel confident in what I’ve said all along: (1) yes, it is true that MLB owners will in fact lose significant dollars this year no matter what happens with player compensation, (2) yes, all businesses can seek to reduce losses where possible, but (3) MLB teams are not entitled to $X in profit or revenues in a given year, and if a pandemic means they take a bath, then that’s the nature of ownership.
Read the ESPN piece for much more from Ricketts, including his optimism that a deal will get done to bring baseball back, his thoughts on Boras’s comments, and how he could see a revenue-sharing approach work in a future CBA. Of particular note, Ricketts is adamant that the Cubs do want to see a season played this year. That should be no surprise, given the launch of Marquee, among many other reasons, but it’s pretty important to point out, given the rumors that SOME owners would rather torch this season and save cash, despite the hellacious and obvious long-term risks.
