Make Risk Their Business

Now that even the kind, but mislead, souls over at the Pollyanna sites have given up on this season, it’s time to discuss what we can do to prevent the Cubs from doing this poorly again. It all comes down to something called Subscription Risk.

Back in the mid 90’s, while working for the world’s second largest bank, there was a meeting to discuss Midwest-area large construction projects that might need financing. The bank was looking for more loan opportunities similar to its successful investment in the United Center.

What about DePaul? They’ve been trying to build a new stadium at Fullerton and Sheffield for a while, I piped up.

"How many skyboxes do you think it will have?" asked the project finance manager.

"Probably none." I said.

"Then we aren't interested," he replied. "Too much subscription risk."

What banks look for in any loan, is ability to repay the loan. The funds to repay the loan come from ongoing cash flow from operations. And those cash flows need to be stable over a number of years to repay a long loan like a mortgage.

Now, a bus parts manufacturer with long term clients, can safely rely on a high percentage of those clients still buying from them several years later. Not so for sports teams. The need for replacement bus parts is steady from year to year. With sports team, interest in the team, and the associated ticket sales, can wax and wane from year to year. With the majority of teams, ticket sales are not easily predictable over a long number of years.

Breaking it down, there are really two kinds of ticket sales:

1) Season
2) Individual Game

Individual game tickets are clearly the most suspect in terms of sustained sales. There are so many factors that can limit ticket sales: Weather, opponent, and team quality to name a few.

Season ticket sales eliminate individual game risk and lock in revenues for a single year. A team can now accurately project a large part of a year's revenues, but also benefits by receiving a large portion of the revenue in cash before a single game is played. But annual subscriptions may not be sustainable over the long term. Team quality can have a large effect on season ticket renewals.

Now, let's look at the Cubs. How much subscription risk do they really face? Today was Mother's Day, cold, gray, temperatures in the 50's, and the team tumbling so bad Jesse White was scouting them. Today's attendance?

39,570.

Today, people are more in love with Cubs games than Cubs wins. That means they buy tickets not caring (primarily) about the outcome. And that means one on the main drivers of subscription risk is negated.

So long as this team does not have significant risk for revenues, why should they place a more entertaining product on the field? We who care primarily about wins over asthetics owe it to ourselves to stop buying more tickets. Make the Cubs and the Trib compete for your dollars.

Make playing baseball at Wrigley Field as risky a proposition for the proprietors as it is for the customers.