Reader Post: Cubs TV deal and how it can impact spending

Reader Post: Cubs TV deal and how it can impact spending

This blog has always been about different opinions and the friendly, respectful debate/discussion that it creates.  You've heard my opinion on rebuilding/spending, so I wanted to give voice to a different point of view.  SFToby is a long time Cubs Den reader/contributor and he has emailed me some thoughts on the Cubs TV deal and what it could mean for rebuilding.  His opinion is that the Cubs can and should spend, and it can get a boost with a buyout of their current sweetheart TV deal.  He had a lot of ideas, so I asked him to put it together in a post.

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A Glimpse at 2015

by SF Toby

News item:  Dodgers are reported to be offered a six billion dollar/25 year contract from Fox Sports to broadcast all of their games.  This works out to $240 million a year or nearly 1.5 million bucks per game.

Related: The Texas Rangers and the Angels each have broadcast agreements of $150 million or more a year.

Our Cubs meanwhile make $45 million combined from the WGN and Comcast television deals.

Tom Ricketts is on record saying that he intends to reinvest all the profit from the team back into the team.  Let’s look at some of those projected profits. With the premium seats figured in, the average ticket price will be $49.00 next year. If the Cubs draw 3 million in attendance next year then $49 x 3,000,000 totals $147 million. Subtract the estimated payroll of 90 million and you have $57 million remaining from ticket sales alone in 2013. Remember that 57 million.

Then you have maintenance, front office salaries, taxes, minor league expenditures, etc. to pay.  The new facility in Mesa is expected to cost $84 million and the Cubs are on the hook for whatever goes over budget and last I saw it is running 1 million under budget, so the cost right now is nada. Those TV deals that total $45 million a year I mentioned earlier are about the cost of 1 premium starting pitcher away from covering the $59 million in taxes the Cubs pay every year.  I realize there are quite a few costs associated to running a ball club like minor league expenditures, front office salaries, maintenance,  advertising, and those costs combined are considerable, but let’s assume they are offset by concessions, the MLB television contract, signage, the WGN deal, rooftop neighbors and revenue on sales involving the Cubs logo on caps, shirts and whatnot. The baseball academy in La Gina, DR is nearly complete and should be considered paid in full.

Once the WGN TV contract runs out, let’s say it’s at only $5 million per year because it’s always been a sweetheart deal, that will leave $40 million per year income from Comcast, so that leaves 5 years remaining at $200 million expected income, give or take. Remember that $57 million? If the Cubs bank that this year and next, that’s $114 million by 2015 toward a buyout. Now a buyout for an additional $86 million or so suddenly appears to be reasonable. I would think coming up with that amount of cash would be a simple thing for Ricketts and family, especially considering the increase possible with a new TV deal.

I sincerely hope Crane Kenney is working toward a buyout plan as well as an improvement plan for Wrigley. He needs to get a guy with TV startup experience on board, like Reinsdorf did with Eddie Einhorn. Kenney should be able to easily top the $150 million per year that Texas and the Angels currently have, and considering the broad national appeal the Cubs enjoy and with the rising costs of sports, the deal could conceivably begin to approach the $240 million dollar figure the Dodgers appear to have. This is the project that will leave Kenney’s mark on the legacy of the team.

The year 2015 is shaping up to be a banner year for the Cubs and this new deal should put the team way over the top of any of our expectations. Waves of talent from the minors should be ready to help the team if they weren’t there already. Theo and Jed should easily be able to fill any needs with nearly any available free agent and to acquire quality depth in pitching if needed. If the club somehow happens to end up with a huge payroll and a luxury tax the Cubs could simply consider it the price of doing business and laugh all the way to the bank. Ricketts also could easily leverage all that extra money and threaten the city to build a new ball park elsewhere in order to get the landmark status removed from Wrigley and do a good renovation or a total rebuild at Addison and Clark at the team’s expense.  The money a new contract could provide should be enough to change the shape of the neighborhood, rerouting streets if necessary and building parking garages or even underground parking beneath Wrigley.

2015 should be a year to remember for us all.

 

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  • So John, which side are you taking? Your original article on rebuilding/spending was very clear... Then we "almost" signed Anibal Sanchez and you seemed to change your tune? Personally I'm excited that we have a new TV contract coming in the future, but just because we have money to spend, does that mean we should spend it now on contracts that have the potential to greatly hurt us in the future? What happened to staying flexible?

  • In reply to Ibleedcubbieblue:

    If you go back on the rebuilding piece, I do say I'm good with signing a FA if he fits the long term plan.

    "You want to stick to the plan, but if you get a chance to get a young, impact veteran now at a reasonable cost, it has to be done. There are no set rules here, only guidelines..."

    Here's the link to that piece.

    If an opportunity is there to get a piece you like at a reasonable price then you don't necessarily have to wait. Sanchez to me was not a value signing, but he was seen as a long term piece and the Cubs liked him enough to see him as part of the plan.

    That said, there were only a couple of the major FAs who I thought might fit that possibility. Sanchez is one, Upton was another....Edwin Jackson is on the cusp for me, it would depend on the deal.

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    In reply to John Arguello:

    Zack Grienke is another, but not at that money

  • In reply to Jim Odirakallumkal:

    Greinke would be a great example, but yeah, with the teams expected to be involved the Cubs would have had to give him a contract which would go beyond reason

  • In reply to John Arguello:

    I guess that's where we disagree on Sanchez. I know you've said before he's a #2 starter. I think that's being generous. I view him as a #3. And I just think $15million/year on a #3 starter is going beyond reason. Had Sanchez not had the stretch run last season that made him all this money, I'd have loved him as a value signing. But he has since made a name for himself and I believe he was anything but a buy low candidate this offseason. I had a huge sigh of relief when the Tigers ultimately got him. The time will come to overspend on select free agents. That time is not now.

  • In reply to Ibleedcubbieblue:

    I think you can make an argument he's a #2 starter. I don't think it's necessarily wrong to call him a #3. I've even spoken to respected people in the industry who think he's a #4 or even a #5. It really comes down to what the Cubs think and my guess is that they feel he is a solid #2 to offer that kind of money.

    I did say that I wasn't thrilled with the money from the start and that it was not a value signing, but I understand the Cubs paying even value or perhaps above value if it's a guy they think fits their long term plan.

  • In reply to John Arguello:

    I could live with 4 and 40 for Jackson. I'm sure he'll get more. Also, Lannan just signed with the Phillies.

  • Thanks, so did Mike Adams. Two guys on the Cubs radar.

  • In reply to John Arguello:

    You're welcome, John. I believe the Phils paid too much for Adams, Lannan's deal is OK.

  • Adams deal is ridiculous in my opinion. Reminds me of those Hendry deals to Howry, Eyre, Grabow...

    Adams is good, but this is potentially $18M to 34 year old RP with an injury history.

  • In reply to John Arguello:

    I agree. At MLBTR, Philly fans think it's a good deal.

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    In reply to John Arguello:

    If they were considering making him the closer, I could maybe as a desperate move see it, but w Papelbon, this makes no sense.

    And to think Philly fans think 5 million a yr for Soriano is too much.

    Ignorance sure is bliss

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    It's a nice thought, but you have a lot of unknowns and way too many assumptions.

    This is something we couldn't even talk about seriously without looking at actual numbers.

    Did you take interest into account? How about appreciation of the McDonalds land across the street? Etc...

    Nice thought though.

  • In reply to mblum876:

    I do think Toby meant to be this as a thought exercise more than a precise accounting of figures.

  • In reply to mblum876:

    The numbers I used were what I found and the others just "ball park" estimates. Baseball owners don't even like the players union to know what they are making.

  • Leave Wrigley alone. Improve it, but don't change the way it looks.

  • I agree that there are too many assumptions. We have a couple good players in the minors that may make it to the majors, but I don't see "waves of talent" down there ready to make a major impact in 2015. The best thing we have going for us is we'll have another 90-100 loss season which will land us another top 5 pick in the draft.

  • In reply to INSaluki:

    You're right. It took the Nationals 6 seasons of being bad, really bad, number one pick in the the draft bad after 4 years of rebuilding throught the draft bad. That would put the cubs rebuilding via the draft on track for 5 or 6 more years, assuming they get a couple of number one picks and there is a franchise player there for them to chose. This is unlikely to be given the time to happen, cubs fans are patient souls, but they want to when why while still embodied souls. That is why the sanchez signing was significant, it was top down rebuilding, buying another team (the red sox) prior farm system output to substitute for the cubs dismal production of players from their own system for that time period. It will take more of these type of deals to back fill the lack of talent in the top levels of the cubs system to speed things up, while still rebuilding the farm system. One approach or another won't work as well as a targeted combination.

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    In reply to eddie35:

    I think you're seriously misjudging what Sanchez was. If that signing was about "win now," other deals would have been different. Jed and Theo kept talking about not paying for past performance -- but with Sanchez's age, they were paying for future performance. Probably overpaying a bit, but it was future performance. And they were paying for 4 years of his prime. Yes, it definitely would have made them better next season -- but it isn't like they were adding Melky Cabrera, Michael Bourn, and Josh Hamilton to supplement him. They were adding a guy to be part of a long term core who -- as almost a side effect -- would have driven up wins next year. But that wasn't close to the main point of that signing -- any more than trading for Rizzo was primarily about winning last year.

  • Not all the money in the world will get rid of the curse.

  • In reply to Aquinas wired:

    There is no curse. The Tribune and Mr. Wrigley before them were not trying very hard. That is why the Cubs did not win much.

  • In reply to Aquinas wired:

    do you mean white sox fans?

  • Those are good figures, but they don't match with what I remember being posted several years ago.

    I can not find any public record of them, but as I recall, the Cubs under Ricketts would receive 60 million per year in TV and radio income, consisting of 30 million from WGN, 20 million from comcast and 10 million as their share of the Saturday Game of the Week.

    I do not remember how long the contract was to run, but I would be willing to bet that once it expires, the Cubs will be moving to some sort of "pay per view" type of product.

  • In reply to DaveP:

    The numbers I used for the combined contracts were from February posting by Tom:

    http://www.chicagonow.com/cubs-den/2012/02/reality-tv-cubs-current-deal-is-bad/

    Nobody wants a pay per view, I think he Cubs would prefer a steady revenue stream that could count on.

    I live in the bay area, and I watch a lot of Giants and A's. The Giants post game press conferences are (nearly) always shown, and their games are rerun in case you missed it live. We should expect that as well as all front office pressers and maybe reruns of significant games from the past. I'd also love to see some minor league games on as well, but that might not be possible due to existing contracts.

  • In reply to SFToby:

    Great post Toby. I have never seen any $30 Million dollar figure attached to WGN, so I found a post from 2009 regarding Cubs revenues. That shows the Cubs make around $14 Million per year from WGN, which I think is a bit on the high side. The TV contracts are still in place so the dollar amounts should still be very close.

    http://sports.yahoo.com/mlb/news?slug=jo-cubsanalysis091609

    I've gone back and forth on a Cubs TV network vs bringing all their games to CSN. I think the biggest issue for their own network is programming. Even with most of the games, pre and post game broadcasts, nightly news shows, replays and even minor league games, there would still be huge gaps in programming. There are a lot of dollars spent in production costs associated with programming around the live events not to mention satellite costs.

    Bringing the majority of games to Comcast wouldn't be a good idea. The Dodgers and Angels share the LA market and even they don't share a network. The Cubs will never get a fair shake in the network of Corno and Reinsdorf (with his 40% stake). If The Cubs move to another cable network (like the Dodgers and Angels have) they need to be the top bill and have the programming revolve around them.

    I've heard suggestions that the Cubs buy WGN TV since the Tribune is still going through financial issues, to starting up their own network, to getting in another cable outlet. The Cubs have a team of people in place to figure it out and I'm sure they have a plan in place. But whatever the plan is, the Cubs will see a nice hike in TV revenue in the next couple of years.

  • In reply to Alex:

    Thnaks Alex.
    The Dodger's offer is simply to broadcast their games on Fox, its not a dedicated channel for the team.

  • In reply to SFToby:

    Wow.. Did I ever make an error. I guess I should have checked my facts before I posted. I did know that Fox was only broadcasting the Dodgers games. I thought that the Dodgers and Angels were on different networks. As it turns out, they are both on Fox Sports West.

    http://www.fangraphs.com/blogs/index.php/dodgers-send-shock-waves-through-local-tv-landscape/

    I guess that's why I never would make it as a journalist.

    If the Cubs stay on Comcast Sports Network, I still think they are at a disadvantage to the White Sox in the network of Reinsdorf and Corno.

  • But that is only part of the equation. The Yankees have shown us that spending on large dollar free agents has probably been the least efficient way to build a team that there is. With the resources that are at their disposal, they should have been in the World Series every year since 1980.

    In mentioning the Yankees, i remember the report that provided the above numbers. It was comparing Yankee income to that of the Cubs, and said that while the Cubs got 60 million per year in TV/radio income, the Yankees got 60 million for radio income ALONE, and almost triple that for TV.

    I love what the current administration is doing. They are building a base in the most efficient and effective way possible, and Ricketts is on record as saying that when the time is right, they will add large dollar free agents to the mix as appropriate.

    And speaking of Ricketts, I belief that the bulk of the accolades for what the Cubs are doing should be given to him, rather than to Epstein. Right from the beginning, he said that this was the way to build the club, and he then went out and secured the type of employees that seem to be best able to implement those policies and methods. If the Cubs succeed, Epstein will get most of the glory, but it has been Ricketts that has been the architect.

  • I thought the Cubs were talking about starting their own network like the Yankees.

  • Cubs can make over $300 million per year based on their fan base around the world.....

    Can't do too much to rebuild Wrigley due it is protected under Historical Preservation statues......

    Forget about digging under the stadium for parking.....cheaper to build a new stadium.

    Padres going after Jackson & Porcello.....

    Any Cubs tryouts for Webb or Garland ?....those two had arm issues sometime ago.

  • In reply to CubsTalk:

    The plan I saw awhile back had new clubhouses under the field.

    Once the Cubs get their money, I don't expect it to stop there.
    IMO, there will be a huge subterrainean complex under Wrigley.
    The entire playing field will have structures beneath it.

    Why? They can do anything they want because you can't see it.

  • In reply to CubsTalk:

    "Can't do too much to rebuild Wrigley due it is protected under Historical Preservation statues......"
    Such as the statues of Harry Caray, Ernie Banks, Ron Santo, et al.?

  • I have confidence in the Ricketts and Epstein/Hoyer to fix the financial missteps of the previous owners just like they are fixing the player acquisition and development process. There were less than ideal financial deals in place that are going to take time to clear up just as there were bad player contracts that have to be cleared out. It is going to take some time. I am going to sit back and enjoy watching the transformation of the Cubs to a dominant team. And this site keeps me informed on every step of the transformation.

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    We have nothing but a loosing culture in this stadium. Let's just move out of Wrigley and build a new stadium where the Lincoln park zoo is.

  • Nice post. No doubt that the undermarket TV deal the Cubs currently have was one of the main reason the Ricketts family felt they were getting a good deal when they purchased the Cubs. I think there is no doubt that the Cubs could negotiate a new TV deal that will generate annual revenue that is 4-5x their current deal. The one aspect you are neglecting is debt service. Ricketts acquired the Cubs using a significant amount of debt. There are meaningful annual interest and principal payments that need to be covered by the Cubs. That will impact how much free cash flow there is to invest elsewhere, even when a new TV deal is negotiated.

  • In reply to Corbi296:

    Thanks. I know I've omitted more things than not, and thanks for pointing out the debt. If the Cubs were to get even a third of the Dodgers money, that debt would be retired quickly.

  • I would like to offer that once the Cubs are armed with a better source of tv money, they could leverage that to either build anew at another location, or use that very real threat to force the elimination of landmark status and to force more night games. They will have crazy money if they are able to buy themselves out of their current contract.

    I believe that keeping the faith in a farm based system is best for any club, but they could also follow a parallel path by putting out a purse driven, competitive club at the same time. I can see all that money being a factor on acquiring more land around Wrigley to build a modern sized park with wide concourses, indoor batting cages, state of the art clubhouses for both teams, etc. If Kenney does his job the Cubs will no longer be accused of being cheap again.

    Ricketts has shown that he wants to do the right thing for the cubs by hiring Epstein and doing things Wrigley and the Trib never have done before, and hopefully he'll see the light and force the issue on a new tv contract of a channel of his own.

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    This makes a lot of sense, given your numbers. But I think there's a pretty major problem: you're low on what it's going to take to do the buyout. The reason to do it is so that you can turn around and sell the broadcast rights for a full season of Cubs games to one company -- at roughly the Dodgers $280 million per season. The logical buyer is Comcast. Using a simple 5% discount rate, the present value of the money they would spend on that contract is a little $1.3 billion. They have, right now, half of those games for your assumed $40 million/year. We're probably talking about $600 million as a starting point for negotiations.

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    In reply to Mike Moody:

    *a little *under* $1.3 billion.

  • In reply to Mike Moody:

    If that's what they would want for a buyout rather than a straight amount that remains on the contract, they would be admitting the contract is woefully undervalued and the team could perhaps lawyer up and use that fact to break or renegotiate the contract.

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    In reply to SFToby:

    Two things:
    (1) To my knowledge, there is not a precedent for a judge stepping in and voiding a contract between two corporations just because one did a woeful just negotiating it. As a concrete example: if the recession is prolonged and ad revenue dries up (not at all an impossible situation), that Dodgers contract is going to be incredibly overvalued. No judge will help them.
    (2) The Trib could just as easily argue that the contract was built into the sales price, and therefore the *team* was woefully undervalued, ergo the Ricketts own the Tribune a couple hundred million.

  • In reply to Mike Moody:

    Mike, I'm not an attorney and you make good points, but this recession has already been prolonged and sports dollars are going up every year in spite of it as the Dodgers and the Angel's recent contract have shown. I would think that if Comcast wants to televise any Cub game after this contract runs out they would allow the Cubs to get out of the contract for what's remaining on it, or with a modest penalty added.

    This post was not intended to be a roadmap for the club's future but more of a "what if". Something this complicated cannot be covered in an article.

  • City Politics plays a big part with the Cubs.....cost Billions to buy the land and build a new stadium......I would rather invest the revenue in players, scouting, farm system, interior renovations and maybe, build a facility next to Wrigley that can benefit the organization.......so lets forget about this talk of a new Cubs stadium.....not going to happen.

  • In reply to CubsTalk:

    Sooner or later the Cubs will move to a new ballpark. It could be 10, 15 or 20 years down the road, maybe a few more, but I'll bet they will either have to completely rebuild at Clark & Addison or move to another site. The increasing cost of maintenance every year will guarantee that fact.

    The concourses are too small for fans to grab a beer or a hot dog between innings without missing more an more of the game from their expensive seats. When I see a game at AT&T, I can get an order of garlic fries at one stand and a craft beer at another and not miss too much. At Wrigley you'll miss at least a half inning, and that stops people from either going to the games or spending money once they are there.

    To get wider concourses you'll need to rebuild completely, which will be extremely disruptive to the neighborhood. I can see the city eventually buying Wrigley and turning it into a Chicago sports HOF and the team relocating elsewhere.

  • In the future we should start signing our top core players to long
    term contracts after their 2nd year if they are that good. With
    more teams doing this there will be less good young FA's in
    the future. No 4 or 5 year contract for middle age players

  • Good ideas tobysf, a few additional things. Tribune corp is being subsidized by the cubs like they have for the last twenty years. Now bankrupt, the trib is trying to sell their broadcast tv and radio branches. If the main value in these tribune broadcast entities is their cubs deals and that is the only thing that will give a high value in the sale of these tv and radio groups, then a buyout becomes impossible since it would reduce the price of the tv and radio assets too much. Ricketts would be better off just buying the stations, which is probably what the tribune is hoping, or waiting until the wgn tv and radio deals run out and then buying the tribune stations sans cubs, for what they are really worth, which isn't much without the cubs deals.

    Second, if Crane Kenny has anything to do with the new tv and radio deals they will be a continued screwing of the cubs and cubs fans. Just look at how ham handed he has led the tv color analyst search. First he rushes the final pool of talent to the owners for a final choice, with most of that pool either unwilling, unable or un palatable choices. Then in true Kenny/hendry/tribune fashion he does a do over and broadens his final pool and tries to bring in other candidates to what is now a publicly degraded position and process. Who is going to want to work for this guy now? No one with a strong career and bright future going. Maybe an old timer or retread will take it as a bridge to new tv network, someone like Don Zimmer..

    Last, the cubs team rebuilding, stadium restoration or relocation, and new tv deals and networks are all going to be done concurrently. Ricketts is going to need to get a team of Theo's to pull this off. It will be interesting to see how it all works out, but for Cubs fans it will be seasons of great change for years to come.

  • The WGN tv contract expires after the 2014 season, Comcast after 2019. That's why I'm advocating an early buyout from Comcast.

  • You've got a pretty good handle on the "what ifs" SFT as far as I'm concerned, without being a corporate/businesss lawyer, having a M.B.A. and knowing Chicago politics inside and out( if you dare to ). It's going to be a very interesting and fun next few years watching the whole organization turn into a, a, an organization! Ricketts I do belive has gotten the right guys to get his vision if you will to fruition, I personally would have "run" Kenney, just can't see where he's an asset, but what do I know I guess about the pompous ASSet. Got to believe like earlier stated by a few others that Ricketts is feeling really good about the tv contracts, knowing the best is coming soon, which in turn will get him and his Cubs much more in the drvers seat as far as whats going on with Wrigley in the immediate future and get some clout about saying where his guys are going to play ball 'cos Wrigley is no longer playable and or feaseable, and I use the term loosely... Mr. Mayor..... and the rest of "them" all the way up and down the ladder

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    What People are forgetting is Ricketts lied to all of us..He is not spending every dollar back into the Cubs..What this article is forgetting is ever team just got 100 Million gave to them from the Fox Network Deal and they get 50 Million every year from the MLB head office from the MLB TV Deal.......lets not forget what Joe Ricketts said

    “My son Tom called me and said ‘Dad, the Tribune has just changed hands. They own the Cubs, and they’re going to be selling the Cubs, so we ought to get ready to buy them.’” He went on to detail his relative lack of interest in sports, but described how Tom convinced him that the Cubs were a good bet, since they would sell out every game, regardless of wins and losses.

    This clearly states the truth about the Ricketts and they don't care if the cubs win..They knew that Theo's dream will never work but the fans have been osing so long they will believe in anything...No Big League stars will sign here and the cubs will not sin a series in Theo's 5 ys and ricketts will claim to have tried and the idiots that just show up to drink at wrigley....So quit dreaming of ever seeing a series here....Wll maybe if the cubs put a Jumbo tron and let the fans come in to watch a Real Team play in one you will see a series at wrigley........Dodgers will win a series because they understand that the Players Union has made it the facts that you have to pay to win a series in this era of the MLB

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    In reply to Henry Jannenga:

    See: Hendry, Jim

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