Thursday, January 07, 2010

The Plan

There's been a lot of bitching among Cub fans and the professional media about the Ricketts approach to owning the team. Why aren't they spending more? Why buy the team if you can't afford to spend on it? Let's go already!

Well, there is a plan and it's pretty clear what it is. And some fans aren't going to like it. The key point is understanding what the plan does include and what it doesn't include. Let's start with what it doesn't include:

The plan does not include an all out effort to win in 2010.

Deal with it, Cub fans. Barring some sort of unnatural intervention, 2010 will not be the year we make contact with a pennant. The team isn't good enough as it stands and there weren't / aren't enough good players available to make the team better enough to win.

Here's what the plan the Ricketts have does include:

1) Multi-generational ownership
2) Winning many times during those many generations

Make no mistake, point #1 is their primary goal. How do we know this? Well, they said so at their opening press conference.

Then, there is their approach to finance. Crain's has the details:

Let's summarize. At the time of acquisition, the Ricketts took on $425 million in bank debt and put up another $249 million in subordinated debt. The subordinated debt is money that really is equity put in by the Ricketts, but is structured like a loan to allow the Tribune to get better tax treatment of the "transfer" (don't call it a sale!).

The terms of the bank debt are now a little more clear. The debt had a floating rate and a 4 year maturity. That placed the Ricketts at substantial risk in 2013 to the whim of their bank syndicate.

What they have done now is start to retire that short term, floating rate debt with long term, fixed rate debt.

There is a term for what they have done.


According to Crain's, the Ricketts have already reduced the bank debt from $425 million down to $125 million and replaced it with $250 million in other debt that is due in various dates through 2022.

What the Ricketts family has done is locked in the capital structure for the next 13 years. This will allow them to set proper long term budgets and invest back into the team without worrying that changes in interest rates, or banks being unwilling to refinance, would put the product on the field at risk.

Next, they are trying to raise another $100 million for working capital, capital improvements, and cash reserve to cover the remaining short term debt.

And to watch over all this? They are hiring a CFO.

The Ricketts have a plan and they are executing it smartly.

The plan just doesn't include major on-field improvements.

In 2010.

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