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Monday, April 21, 2008

Ownership of Cubs: Just a Few Good Men

When local Real Estate Magnate Samuel Zell acquired the Tribune Company (and the Chicago Cubs) at the insistence of the Chandler Family, many thought Zell’s overly cozy relationship to the financiers of the deal, Merrill Lynch and CitiGroup, was a bad omen of things to come on Wall Street. Both Citi and Merrill were advising the Tribune Company on the viability of the prospective bidders, termed “staple financing”, as in Staples, “we got that, too.” (In actuality it is called staple financing because paperwork is often stapled onto the deal’s term sheet to help a seller develop a robust auction by offering on-the-spot financing to all “potential” suitors. Wall Street speak…)
The fact Zell had Merrill Lynch represent him in a $39 billion sale of Equity Office Properties to the Blackstone Group likely meant that any bid made on the Tribune Company by Zell was going to be promoted over the other candidates. (Viagranaires Eli Broad and Ronald W. Burkle also submitted an exact dollar amount bid of $8.2 billion.)

So, in April 2007, Zell became commander-in-chief of the most woe-begotten baseball franchise, the lovable losers, the Chicago Cubs.

The Cubs in the 2006-2007 Hot Stove cooked up an entire pot of free agents signings to the tune of “Hey, Hey, Holy Mackerel!”, posting over $300 million in contracts. The Cubs replaced two-fifths of their starting rotation, signed the premier LF on the market in Alfonso Soriano to a 8-year, $136-million contract and resigned 3B Aramis Ramirez for over $70 million. With additional backup players the money spent amounted to 3 seasons worth of salaries for a top-10 payroll in the 2007 season. (But barely more than A-Rod’s contract.)

Primarily, this was due to the expectant sale of the Tribune Company, with the new owners on the hook for the ballplayer’s salaries. Long-time marketing guru John McDonough acquired the reins from ex-team president Andy MacPhail, who had not spent with the dangerous abandon of a drunken sailor on liberty in Thailand. (Is there any other kind…of sailor?)

McDonough would resign his commission after only one season at the top, heading to the moribund Chicago Blackhawks as their new field commander.

“Slow, steady and unspectacular success,” was often attributed to MacPhail’s rotation as Cubs’ OIC. The Cubs managed to reach the playoffs in 1998 and 2003 with him heading the chain of command. Yet, while the Cubs put meat in the seats, racking up over 3 million yearly visits at the 2nd highest average ticket price (via the 2007 Team Marketing Report), the financial success rarely translated to consistent winning.

Injuries to star players, poor drafting of everyday players and anti-sabermetric philosophies plagued the Cubs, more than anything else. (Franchise Success Theory Here)

As 2008 unfolds with a 12-6 start, while hot imports RF Kosuke Fukudome and CF Reed Johnson bringing sparks to an all ready talented lineup, a new man stands atop that ivy-covered wall: Generalissimo Sam Zell.

His Tribune acquisition has gone south – as various reports have judged this deal negatively, and the ad revenue analysis of newspaper/media conglomerates falter quarterly – and thus, the Chicago Cubs might find Sam Zell meddling in their baseball affairs if the future finds no one will buy the team.

But why?

Zell has decided on a 3-pronged attack in selling off of the Chicago Cubs entity: The landmark stadium, the naming rights of the facility, and the Chicago National League ball club. Wrigley Field is being shopped to an Illinois-controlled agency – with the payment to be made in noncash assets, possibly deferred, likely a real estate swap of some sort. This arrangement is needed to avoid capital gains taxes that Wrigley’s outright sale would incur. This proposal has been unsuccessful, as Zell backtracks like a Bush, to a new offering plan for the ball team: with and without the stadium.

(Picture from http://wrigley-field-pictures-photos.blogspot.com/)

A more confusing (and disturbing) tactic is the naming rights idea – to rename the ballpark in some corporate phallic term – just to generate more cash. However, no true Cubs fan would ever call Wrigley Field, “Google Park” or “Amazon Stadium” or “Microsoft Field.” But somehow, Herr Zell hopes a marketing dunce will get his bosses to pony up $100-300 million for a mediocre tagline to an all ready historic name and place.

Lastly, the ball team would be sold. Tribune brass had estimated $1 billion for the entire lot, but given the stipulations and separate deals, what once was a hot commodity with Chicago Wolves owner Don Levin, Phoenix Suns CEO Jerry Colangelo, Dallas Mavericks impresario Mark Cuban among others submitting bids or inquiring about purchase, has grown silent as the Wrigley grass in a bitter cold November.
More importantly, to theatre commander Zell, is that this deal must be made to generate the requisite cash to keep his private corporation credit worthy as debt obligations threaten to choke his fledgling entity later on this year. Layoffs of over 400 journalists, pressmen and middle managers at the LA Times, Chicago Tribune, Orlando Sentinel, Newsday and others, to go along with the $125-million dollar liquidation of real estate in Hollywood is only the beginning of whatever General Zell envisions as necessary.
Last year, Zell said, “We didn’t do this deal to figure out what to get rid of,” but that has become the focus, as Newsday is being added to the list of things to sell with an estimated $500 million price tag. But once again, Zell has convoluted that deal. (The Truth: You can’t handle the truth!)
The Cubs might become an Oakland A’s, no frills – styled franchise, if Zell gets stuck with the ownership of the team too long. Making drastic cuts, selling off players for mediocre minor league prospects, reducing payroll while keeping ticket prices constant, all in the name of a buck to run his horse-and-buggy newspaper concerns.
With a successful 2008 season, resulting in a World Series title? , don’t be too surprised if the Cubs are still in “ownership limbo” that a “Zell Hell” begins, and high-priced players are jettisoned.
Hopefully, a few, good baseball-minded men will step in to buy the Cubs away from Colonel “Samuel Zell” Jessup. Because, I don’t want him on that wall, nor do I need him on that ivy-kissed wall.

“You’re dismissed, private Zell.”

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