The Present and Past: The Minor Model to World Series Success
The model Theo Epstein and Jed Hoyer have sold the
last two seasons to the faithful Cubs fan is one of small and varied
investments and flipping short-term assets to achieve a top-notch minor
league system. Every now, and again, mentioning
the Cardinals, almost harkening the ghost of
Branch Rickey,
when he too built the Cardinals from a derelict franchise to the World
Champions of the NL in 1926. Then Branch moved on to the Dodgers in 1942
– creating the Jackie Robinson-led
Dodger way – and then, Pittsburgh and their rebirth in the late 1950s to league prominence with the likes of
Mazeroski,
Groat, and
Clemente.
It took Branch approximately seven seasons to build the Cardinals to
champions. After World War I ended in November 1918, he came back to the
struggling and financially troubled National League team. First, he
tried his hand at field management, primarily, to only middling success.
But it was his destined role as a general manager that help the
Cardinals the most as he bought out low level minor league teams and
installed new methods (or revived old ones) to get more quality from
that new found and harnessed quantity in farm systems. By 1939, his
Cardinals had
28 affiliated teams. 1940: 30 teams. 1940 Cubs: 6 including the LA Angels and the Milwaukee Brewers (
soon to be owned by William Veeck for $25,000.)
This model does have the long-term result of working. Others have
tried this…some better than others, as at some point, money has to be
employed, large trades, better scouting, and revenues increase to make a
final push to the top of the league.
Baltimore Orioles: Paul Richards & Jim McLaughlin
The defunct Browns/new Baltimore Orioles succeeded with GM/field manager
Paul Richards took the reins,
but only after he built them up through various trades, better
evaluation and a new stadium produced good attendance. From SABR
Bioproject:
He traded the Orioles’ lone star, fireballer Bob Turley,
to the Yankees in a seventeen-player deal that was the largest in big
league history. The trade brought the Orioles an eventual all-star
catcher in Gus Triandos, while Turley helped the Yankees win the 1955
pennant and won the first Cy Young Award three years later. When local
sportswriters and fans complained that Richards had handed the Yankees
another pennant, he responded, “What concern is it of mine who wins the
pennant? I need to get the Orioles out of seventh place.”
It took him six years to lift the Orioles above .500, but he
stuck to his plan: build through the farm system, concentrating on
young pitchers. He kept the scouting and farm director he inherited, Jim
McLaughlin. Although the two arrogant, stubborn men squabbled
constantly, it was the best decision Richards ever made. McLaughlin
believed in a scientific approach to appraising young players.
He was one of the first to use cross-checkers to put a second pair of
eyes on every prospect. One of his scouts, Jim Russo, said McLaughlin
was “years ahead of his time.”
Richards moved on Houston before the Baby Birds flew; his prospects
and bonus babies landed their 1st big league championship in 1966. From
1964-1983, the Orioles won 90+ games 16 times.
Montreal Expos: John McHale, Jim Fanning, Mel Didier
While Richards took over Bill Veeck’s first defeat in ownership,
McHale came from the commissioner’s office to Canada as lead executive to billionaire Charles Bronfrom to build a franchise from scratch.
Like Richards, McHale had to find money when and where available and
make trades to go with likely the best decade of drafting seen at the
outset of a franchise. Their first star, Rusty Staub, came to Montreal
through a trade controversy that stirred around
Donn Clendenon, who refused to report to New York Mets in what would be their championship year.
Thereafter,
McHale, general manager Fanning and director of scouting Mel Didier found the likes of Steve Rogers,
Gary Carter, Warren Cromartie,
Andre Dawson, Tim Wallach, and Ellis Valentine, and Tim Raines to name the well known names of 1970s.
With enormous stadium issues at the outset, and mediocre attendance due to those struggles and sterility,
it took Montreal 11 seasons to crack into the top tier of the National
League. And then, they fell short in 1981 in game five of the NLCS to
the LA Dodgers.
Cubs Finances: Baseball LBO
Is the model for success a
one-route only plan?
In the prior examples, all during very different financial times
(Pre-free agency), making a successful team hinged on judicious use of
resources, expert and differentiating scouting, and signing players more
as prospects than ever as finished products. An incubation period of
5-7 years was a given; no matter how much a team wanted to
win now, that could not happen. That said, the 2014
Cubs are not
that destitute. Or a
t least, they should not be.
But when the ownership changed hands from Sam Zell to
Tom Ricketts, and his family of board directors, a substantial debt load too was placed on the team, by business reports
$674 million in notes. In 2010, in their first season, as full owners, they reduced payroll by $10 million, overcame some bad press about their
Dominican Republic facilities (and thus put a $7 million investment into that area), and then put together a future plan to succeed at baseball. Their private investors likely
required that
– due to their heavy backing of the team, which was just in the
playoffs two straight seasons. (But likely no nothing of the game…)
From Crane’s Chicago Business, January 4, 2010, calling this Creative Debt:
Mr. Ricketts and his financial advisers brought in
institutional investors — such as insurance companies, pension funds and
banks — to refinance $250 million in short-term debt provided by three
banks, according to a Ricketts family spokesman….
Documents related to the deal, reviewed by Crain’s, provide a
glimpse into how Mr. Ricketts, an investment banker who specializes in
debt markets, orchestrated the highly complex deal, creating an unusual
structure at a time when credit markets were nearly inert.
So, to make this leverage work, the Chicago Cubs needed to follow a
plan that maximized returns to the investors in their debt. In 2012
payroll paid dropped to $80.4M from $136M. In 2013, the amount dropped
to $61.6M. Added up from the 2011 near peak: 56 + 75 = $131 million in
saved monies to meet $175million term loan in October 2013. The plan
revised further with Theo Epstein’s arrival to be:
The Steps (in no particular order):
- Cut payroll – and stop large investments in top-tier FA contracts as debt service was needed first
- Find the right baseball man to rebuild the team (Theo Epstein & Jed Hoyer)
- Draft in top 5-10 for several seasons. This after making only half-hearted attempts to win
- Secure low-risk FAs that could be traded mid-season
- Trade away any high priced assets for younger controllable talent
- Renovate Wrigley Field for $300-500M- amenities to ballpark functionality for ballplayers once revenues are in place
- Renegotiate local TV contracts on the level of the Rangers, Dodgers, Angels deals
- Remove obstacles to revenues – Rooftop ownerships cutting into their business
- Add new revenue streams – advertising, signage, hotel operations
- Build up minor league scouting and development system
- Build up front office staffing well versed in business analytical techniques and sabermetrics
- Install a field manager that operates well with the leadership at the top
- Never pay out long-term deals (4+ years) to free agents over 30
- Sign young talent (22-24) to longer-term deals (5-7 years) once they are proven capable
- Draft top bats – less risk; add quantity of pitching in drafting
- Trade for top-tier pitching when timing suits the plan
A big chunk of that debt came due in October 2013, $
175 million. It is likely was paid down via
sinking funds to retire debt in short order.
$13.65 million of payroll savings in 2013 season made its way back to
the Cubs as they did a massive sell off mid-season when they were no
worse record wise than the National West champion Dodgers in just early
June.
The Sun-Times quoted Andrew Zimbalist, an expert on baseball economics:
“He’s behaving like he’s a mid-market team,” famed sports
economist Andrew Zimbalist said of Cubs chairman Tom Ricketts, whose
family owns the most profitable team in the majors in the third-largest
market in the country.
In terms of their timeline to be competitive, the Cubs could have a
problem because their mid-market behavior appears to be caused as much
by the debt left from the Ricketts’ highly leveraged purchase of the
team as any premeditated rebuilding process.
Zimbalist, an economics professor at Smith College in Northampton,
Mass., cautions against using baseball spending levels as a basis for
criticizing ownership, pointing out the light correlation between
performance and payroll and what might be nothing more than a function
of a longer-range business plan.
A Minor Setback: FO Change of Managerial Direction
So, after two completely disastrous seasons of 197 defeats, resulting
in the firing manager Dale Sveum, one can expect that new manager
Rick Renteria will have
at least two more seasons before
their substantially promoted crop of minor talent comes to change the
106-107 year old curse. Renteria’s seemingly first duty is to reverse
the regressions of Anthony Rizzo and Starlin Castro from their quite
disappointing 2013 seasons for Cubs faithful. He will have also set out
to install a winning approach, with a team lacking vets, aside from Jeff
Samardzija, the lone holdover from the 2008 97-win Cubs, or Edwin
Jackson, coming off a sabermetrically decent, but traditionally bad
season. The new manager may find Samardzija gone, as the Notre Dame
grad wants to a pricier extension, and to cash in on his first 200-IP
season at two years before free agency. His demands may drive him out of
a Chicago job; or the front office might find prospects more appealing
than keeping a nearing thirty #2 pitcher with #1 velocity. Even
Jackson’s 4yr-$52 million FA contract has resulted in some backtracking
too from the GM Jed Hoyer, saying, “we got a bit ahead of ourselves.” At
the end of the day, newbie manager Renteria has his work cut out for
him.
Yet, these installers of this
Minor Model want to keep Cubs fans interested and thinking they will be competitive going forward. This after losing about
650,000 fans in 2013 from their peak at 3.3 million in 2008. At $50 per head, this is
$32.5 million in revenues lost.
But, never fear, the new MLB TV deal(s) will add over $25-75 million
(depending on source of income) to the coffers starting in 2014. But
then, the Cubs still kick in approximately $39 million to revenue
sharing. And then more importantly, only insiders know the actual size
of debt repayments (installments) and
if the ghost of Sam Zell is floating around in the books too.
Sidetracking the critics, are reports of interest in uber pitching
free agent Masahiro Tanaka, at least a 100-plus million dollar
investment in just ONE arm, seem overblown, given the cost structures in
place. Jacoby Ellsbury, a Theo draftee, would be another high price
add, that the checking account is unlikely to pry open so wide that
Scott Boras and Ellsbury are ever seen in Wrigley proper. But “interest”
can be had at the low price of
free. And it keeps fans hoping one day will be today.
The 7-Year Wait: Adds to the 106 Year Old Cubs Tradition
So, what should be next? From history, it takes 5-7 years,
at minimum,
to reach critical mass for a successful baseball build. The 1962 Mets
did it in seven seasons; the Toronto Blue Jays reach playoffs in nine
seasons, World Series, 15. Florida Marlins only five, then a
massive sell off
of assets. The Montreal Expos were a decade plus, but had Olympic
Stadium and Canadian monetary issues to boot. Tampa Bay Rays made it to a
World Series in a decade. Baltimore took a decade. Rickey, the absolute
master, took five years with a team that had just visited the World
Series in Brooklyn (1941). (But he had the misfortune of trying to usurp
his former employer.)
So, Cubs faithful, this
Minor Model will require much more
sacrifice. Much more time. 2017 is, at best, the first window. The
revenues will come on line. Financing will be redone again by the expert
investment banker. The prospects named Javier Baez, Kris Bryant, Albert
Almora, and C.J. Edwards will make their presence felt. Maybe a couple
of trades in late 2013/early 2014 will land catcher Kevin Plawecki, RHP
Rafael Montero, LHP Tyler Skaggs, or RHP Archie Bradley, or RHP Kyler
Zimmer. Or some other interesting names in the top 50 of Baseball
America’s ranking.
No one outside the minor plan in place can estimate who else is
available for trade exodus – but the Cubs team is leaned out because the
finances are at the very heart of it. So, patience is a virtue Cubs
faithful. It has to be.
