Sale is Now Imperative

There's been a lot of "so what" among some Cubs fans with yesterday’s announcement of the Trib’s asset sales. There’s another part of the story that needs to concern Cub fans even more. Denis FitzSimons made some comments about the Trib’s Food Netowork investment:

The TV Food Network, which Tribune co-owns, is also not at the top of the list (of assets for sale). “We feel it’s more valuable to keep the cash flow,” Mr. FitzSimons said.

So, we conclude from this that cash flow from non-core subsidiaries is key. That makes sense with the Trib increasing their debt load. Quite simply, the way you pay back borrowings is with cash flow. More debt means a need for safe, steady cash flows.

But, there is another, possibly darker side to what was announced yesterday:

Tribune also plans to shave $200 million in costs over the next two years, which Mr. FitzSimons said would achieve by consolidating advertising and Internet services, greater collaboration, outsourcing and significant cuts in headcount.

So, cost cutting is also a large part of this. And when they say headcount reductions, what that really means is that management is trying to increase cash flows by reducing salary expense.

See where this is going?

If the Cubs are a non-core asset (Ariel Capital, a large Trib stockholder, says that they are non-core), and steady cash flows from non-core assets are needed, but overall cash flows will be enhanced by salary reductions, isn’t it logical to assume that some of those salary cuts will come from non-core assets?

Doesn’t that mean it’s more likely now than it was two days ago that the Trib could CUT the Cubs payroll in an effort to enhance cash flows to service debt? Of course it does.

This already seems to be happening with payroll lower than it was a year ago. And with Grag Maddux and Kerry Wood slated to leave at the end of the year, does anyone doubt payroll will go lower in 2007? And is this a reason Dusty Baker hasn’t had his contract extended? He makes close to $4 million per year. Ironically, that’s just about the amount of additional interest expense the Trib will incur on their newly issued debt from just the downgrade.

The Tribune Company is in a fight for its life. We Cub fans may be financing that fight and getting repaid with a further reduction in the quality of the product.

This team must be sold if we Cub fans are to get a decent return on our investment of money and level of interest (pun not intended).