Wednesday, January 27, 2010

She Went into The Light

Didn't I die in a freezer?
Zelda Rubinstein (1933-2010)

Last Expo In The Hall

Andre Dawson, Hall of Famer. Expo.

That's the right decision. For those of you "annoyed" by this, get over yourselves.

Tuesday, January 26, 2010

Managing Ambiguity

As we bide our time between the end of the Bears season and the start of the Cubs season (wouldn’t now be the perfect time for the Stanley Cup?), there's very little activity for us to follow.

That's why small issues get magnified. Issues like the Bears Dave McGinnis-like search for an offensive coordinator.

The latest is that Baltimore Ravens quarterbacks coach Hue Jackson changed his mind and canceled his interview today. Why? Well, one Brad Biggs suggests that Jackson wants nothing to do with Lovie Smith’s death march. Biggs also suggests that Jackson may not want anything to do with Jay Cutler, either.

What are the chances that the team ends up unable to hire a coordinator for a few weeks. Lovie goes back to Jerry Angelo and says, "I've interviewed everyone. Only Mike Martz will do."

Jerry says back to Lovie, "I told you 'No,' on him already." (as reported by Terry Boers)

The two of them get into a pissing match and Jerry fires Lovie.

Now, that would be a fun to fill the gap between sport seasons.

Oh, to have a copy of Michael McCaskey's book.

Wednesday, January 13, 2010

A Mistake Has Been Made

The Ricketts family has done a very good job of setting the capital position of the Cubs for the long term. They will have the ability to set both capital construction and payroll budgets going forward for the next 13 years due to the actions they have taken during the past 10 weeks since taking over the club.

Reality check: The Ricketts have had control of the Cubs for 10 weeks. That's it. Before then, they had no decision power on club actions for multiple reasons, the biggest of which was that there was no lock guaranty that the deal would close.

Deals fall apart at the 11th hour all the time (and it's really ugly when that happens).

Without 100% certainty that a deal would close, there's no way that the Tribune would let a non-executive of their corporation have decision making power over any business transactions related to the team. If they had allowed a prospective owner such power, and the deal cratered, the Tribune could open themselves to major problems, not the least of which could be lawsuits from all sorts of sources.

All that changed on October 30, 2009.

So, why hasn't the prediction of this page, that Jim Hendry and Crane Kenney would be canned, occurred? Well, there are a couple of reasons.

First, Hendry and Kenney's multi-year contracts were transferred to the Ricketts along with every other contract that the Cubs have executed. Firing them and hiring replacements would be tantamount to creating additional debt in the form of paying their salaries for the next several years. The Ricketts are looking for less debt, not more.

Second, look at the sports world. No one is getting fired these days. The NFL saw 7 coaches change in 2008 and another 9 coaches change going into the 2009 season. Major League Baseball saw 8 managers change jobs in 2008 and 5 managers in 2009.

This year? Hardly any changes. Why? A big reason is the economy. Teams have seen their franchise values drop. In MLB, one third of teams saw enterprise values fall, while, in the NFL, 25% of teams saw their value fall.

With cash flows tightening, and economic uncertainty, professional sports teams are trying to save money.

How capitalistic of them!

Now, the finances of keeping Crane and Hendry makes sense, but does it from a business case?

Well, believe it or not, keeping Crane Kenney probably makes sense. The guy is a lawyer from a media company. He's probably very competent at negotiating media contracts, something the Cubs now have to do for themselves. He would be a good representative for the Cubs at league meetings. And, he could probably be a good sounding board for pending capital improvement projects (e.g. the Triangle Building project).

That said, the guy has no business being anywhere near a blade of Wrigley Field grass, much less attending the Winter Meetings as he did this year. It's up to the Ricketts to lay out a job description for Kenney that clearly defines limits to his role.

With well defined limits (which should be very limited), Kenney can be an effective member of Cubs management.

Which brings us to Jim Hendry.

The case for Jim Hendry's inability to create a major league roster and develop a strong minor league system has been well documented. Jim's only sustained success (sustained for 2 consecutive years) has been at the major league level, and that required an unlimited budget to cure team ills.

As we all well now know, that budget is no longer unlimited as cash flow is committed elsewhere.

Should Jim be fired? Certainly. But, he hasn't been so far. But, as they were joking around on WSCR this morning, it's not a secret that Jim has to "get it done" this year or he's out. So, it's in Jim's interest to place the 2010 on-field performance ahead of all other interests. Not a good idea. People who fear for their jobs have an incentive to make decisions that enhance the short term benefit at long term detriment. Strong business do not allowed decisions for an organization by people under duress.

Tom Ricketts can immediately fix this situation and not fire Jim at the same time. How?

Ricketts can hold a press conference and announce Jim Hendry's contract has been extended.

Such a move would give Jim a clear path to set a long term plan for the team on the field. This move would make the new manager brought in after Lou Piniella leaves at the end of the 2010 season certain who his boss would be. It give agents a signal that Hendry wasn't negotiating contracts out of desperation.

A lot of uncertainty about the Cubs would be removed.

This page does not endorse the return of Jim Hendry. But allowing Jim Hendry to make roster decisions for 2010 and beyond with the possibility that he could be fired very soon, is potentially a worse scenario than bringing him back.

Tom Ricketts has been a fan for at least 20 years, and has been doing due diligence on the team for the last three years. One hopes he already has a feeling for Jim Hendry's work.

Leaving Jim Hendry's status as uncertain beyond the 2010 season is the biggest mistake the new owners have made so far. They need to fix this very quickly.

Tuesday, January 12, 2010

The Real Payroll Number

Today, we're going to try to explain why the Cubs didn't do a lot so far this off season in terms of payroll additions. Hopefully, this will explain to many of you why players like Rich Harden, Matt Capps, and Curtis Granderson are not here.

First, you need to draw a circle around the date of October 20, 2009. That's the date the Ricketts closed on the purchase of the Cubs. That's also the date the Cubs took on $425 million in bank debt.

All transactions that happened before then need to be viewed through the lens of a team that was still under the delusion that it could compete for a divisional title. That's why guys like Rich Harden and Tom Gorzelany were not traded. Jim Hendry was unwilling to White Flag the 2009 season. The decision to offer arbitration after the season to these players was tabled until the season was over. It had to be. You can't offer a player arbitration until the World Series is over. On October 30th, the Yankees and Phillies were still engaged.

On October 30, the Cubs became the proud owners of $425 million in floating rate bank debt with a maturity date 48 months later. In other words, the Cubs had to be out of debt BEFORE Alfonso Soriano's contract was over.

How does $425 million in band debt affect the Cubs? Look at it like this: Before the debt, the Cubs were free to spend all their available cash on operations, payroll included. The team was saddled with no debt. All of it was on the books of the parent company, the Chicago Tribune. Yes, the Tribune could have forced the Cubs to upstream cash to support parent operations. But remember the Cubs free cash flow was a pimple on the behemoth that the Tribune once was.

After the debt came on? Imagine this. October 29, 2009. The Cubs have a payroll for 2010 of $140 million. The next day? The Cubs have a payroll for 2010 of at least $161 million. What's that $21 million bump?

Interest expense (assumes $425 million at a rate of 5%).

And, unlike a player contract, that number wasn't fixed. If interest rates rise (as expected), the "payroll" goes up by another $4.25 million for every 1% rates rise.

If the Federal Reserve Bank normalizes interest rates, the Cubs could have a "payroll" of over $170 million.

But wait, there's more.

Crain's characterized the $425 million in bank debt as a "term loan." Most term loans are like mortgages. They require you to pay not only the interest, but the principal as well. How much principal?

If the banks were requiring principal reductions in the debt over the life of the loan (4 years)m that could have bumped the "payroll" up to, get this, as high as $260 million to $270 million.

You read that right.

Do you now see why the Cubs didn't offer arbitration to Rich Harden? Do you now see why the Cubs didn't go after Aroldis Chapman?

Do you now see why the refinance of the debt last week was such a big, positive development? The interest rates are now mostly fixed. The principle repayments are now over a much longer period of time.

The Cubs are now stable financially from a capital structure perspective.

Yes, the sale screwed up this offseason and, quite probably, the 2010 season.

I'll sacrifice 2010 if it means the Cubs can set themselves up for long term success.

Yes, this sounds like the "Keep the faith" crap you hear elsewhere. That's not what this is trying to say. What is being said is to give the new ownership some patience. There's plenty of time to decide if they really know what they are doing.

In fact, they've only made one mistake so far.

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.

Wednesday, January 06, 2010

Hot Defense on a Cold Night

Where do you think you're going?

Georgia Tech had 14 three-and-outs this season before the Orange Bowl. They had 4 of them on each of their first four possessions last night.

A nice finish to Iowa's season. Too bad the Orange Bowl moved from New Year's Day, when everyone watched it, to a random Tuesday night. I'm sure the TV ratings were good in Atlanta and Des Moines, but why anyone else would watch, one wonders.

With so many players returning next year, Iowa is probably a lock to be a pre-season Top 5 pick.

If only Rick Stanzi hadn't hurt his ankle against Northwestern, they could have finished that high this year.

Monday, January 04, 2010

Easy Come, Easy Go

Regular posting returns tomorrow. Until then, an update to the start of Wayne's World by the Muppets.

Friday, January 01, 2010

Happy New Year / Decade - 2010


May your best day of 2009 be your worst day of 2010.

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