On Wednesday afternoon, Twitter’s favorite Cubs reporter Gordon Wittenmyer took another swing at the Ricketts family in his article “Ricketts’ answers don’t explain Cubs’ lower payroll spending”.
Wittenmyer took a skin-deep look at the Cubs’ spending trends under Ricketts, bemoaning the fact that Cubs payroll is $60 million lower in 2014 than it was in 2010. This, quite obviously, does not begin to tell the whole story.
The Cubs’ payroll under Ricketts' ownership hit a maximum of over $145 million in 2010. At the time, Tom Ricketts was quoted as saying such spending was “unsustainable.”
Payroll has come down significantly since then, as has attendance, but spending on the team has increased in other areas. In fact, the money being put into others areas has increased enough to largely erase the spending gap between 2010 and the years since.
Before we get to the numbers, I’d like to share the assumptions I’ve made to do this mini-study.
First off, I am not with Forbes and I am not privy to the Chicago Cubs’ financial books, so I’ve had to simplify some things. I’ve calculated ticket revenue based off of total attendance and average ticket costs (according to Forbes).
This is an incomplete method, but the Fan Cost Index is a little difficult to apply to the Cubs because the Cubs make very little off of parking sales, which are factored into the FCI.
Secondly, I’m assuming that the largest changes in Cubs revenue have been from changes in attendance. This might not be totally true, but the Cubs do not have the types of revenue streams other large market teams do.
While teams like the Dodgers pull in upwards of $200 million from their new TV deal alone, the Cubs local media deals come to about $50 million. With MLBAM revenue sharing coming in around $24 million prior to 2014, the Cubs pulled in roughly $74 million in media money.
If Cubs debt services are indeed $35 million, as Wittenmyer claims, a lot of the Cubs media revenue is going straight to debt service, and has been since Ricketts bought the team. More still will be lost to MLB’s revenue sharing programs, which costs large-market teams like the Cubs a lot money. This is all pre-tax, too.
Altogether, the Cubs non-attendance revenue has been largely stagnant and much of it is being canceled out by a variety of non-salary costs. As such, we’ll be looking at team spending through the lens of how it compares to estimated gate receipts.
How Has Attendance Changed?
As attendance and gate receipts are likely the most important part of Cubs income, it’d be wise to look at the attendance trends first. And man, are they ugly. For two seasons now, the Cubs have seen their revenue from paid attendance fall.
This trend is expected to continue, as Wittenmyer reports the Cubs think they may be losing another $22 million in attendance-related revenue this coming season.
It's tough to believe that so few fans showed up to Wrigley in 2013, but this may be the beginning of a new reality for the Cubs, or at least for the next few years. With an economy that is still down and a team that is still quite bad, it's tough to imagine the days of 3 million fans coming back any time soon.
How Has Spending Changed?
There is a famous Tom Ricketts quote that essentially states that all revenue will be reinvested in the team. Some took this to mean MLB payroll, but it was generally agreed upon that this would cover all facets of the organization.
If you take this broader definition, Ricketts has actually spent quite a bit of money as the owner of the Cubs.
Since 2010, the Cubs have greatly increased their non-salary spending. They’ve stepped up their spending in the draft (though only 2011 was truly of their own volition) as well as their international free agency spending.
The Cubs have also greatly beefed up their front office, spending just under $4 million a year on Theo Epstein and presumably near $2 million a year on Jed Hoyer (which probably cancels out what Jim Hendry was making).
In addition to the two head honchos, they’ve nearly tripled their front office staff and have hired Bloomberg Sports to create a custom statistical analysis program. I’ve estimate new, non-Thoyer front office spending at $3 million/year. Also included in the “other” column below is the $8 million Dominican baseball academy.
How Has Spending Changed in Relation to Attendance Revenue?
Simply put, it has changed by relatively little. The difference in total team spending and estimated ticket revenue compared to peak 2010 values has never been greater than $16.4 million, and has been as low as $3.7 million. In other words, team spending has fallen at a rate quite similar to ticket revenue.
This, to me, looks like evidence that the Cubs actually have reinvested as much revenue into the team as they can. As public confidence that the Cubs will eventually spend money with the creation of new revenue streams dwindles, this is the table that gives me hope.
Furthermore, if you look at the total team spending charts and think, “but what if they’d signed Anibal Sanchez in 2012?” like I do, then the chart looks like this:
Yes, that’s the Cubs actually spending more than what they spent in 2010. In the face of declining attendance, Ricketts was still willing to spend more than what he’d deemed “unsustainable” in 2010.
This may be because this was the exact type of pitcher the front office wanted to spend on, so we don’t know if Ricketts was willing to spend that money elsewhere (given that they barely spent on any other players outside of Jackson, this seems likely).
The Cubs have been handicapped by the Tribune Company’s failures to maximize TV and radio deals in the past, their failures to modernize Wrigley Field, and their failures to construct a team built for long term success.
If they can generate as much revenue through renovations and new TV deals as we all hope, I believe the Cubs will be spending quite a bit of money to place proven players around their home-grown talent.
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