Friday, April 08, 2011

Small Attendance, Big Change

The Cubs season is off to a ho hum start. While .500 is about where many expect the Cubs to finish, there was certainly hope for a faster start given the Pirates and Diamondbacks as opponents. There has been some gnashing over the temporary loss of Andrew Cashner and Randy Wells, but that's really been a side story. With expectations already low for the team's win total, tertiary matters have been elevated to high profile status. What we're talking about here is the massive drop in the Cubs attendance.

Last year, the Cubs first 6 home games were against Milwaukee and Houston. Tickets sold for the 6 games totaled 236,165 or an average of 39,361 per game. That compares to this year versus Pittsburgh and Arizona of 193,600 or an average of 32,267 per game. Furthermore, last year saw the smallest crowd of over 37,000 and 2 crowds of over 40,000. This year has already seen 2 crowds UNDER 30,000 and only 1 crowd larger than any of last years.

It's also very important to note that these numbers represent tickets sold. Total people at the games have been far fewer. It’s been guestimated that the last three days, total in-the-house attendance was certainly under 15,000 and possibly below 10,000. God help newbie Keith Moreland in the Guess The Attendance Game.

Big deal, you say. This only matters to the Ricketts net worth! It has no bearing on the game on the field.

Hardly. The attendance drop, if sustained, could have huge ramifications on multiple aspects of the Cubs operations. This includes the current players, future players, the front office, and even the future of Wrigley Field itself. Why? Because the Ricketts are in this only because they convinced their father this this was a good business investment.

According to Papa Joe Ricketts himself, the way Tom convinced Dad to get into a business which dad knew nothing about was the point that the Cubs, “sell every ticket, every game, win or lose." Furthermore, Tom told Dad, "(Tom) does tell me that, 'We got the ingredients, Dad. We got the management and we got the players, so we've got the ingredients to win a World Series.'"

Well, the team has spent a grand total of 24 hours with a winning record since the Ricketts purchased the team. Tickets are not sold. $12 million is being sent to Carlos Silva to do nothing but sit on his duff. And Wrigley Field sill needs $250 million in renovations with the probability of getting tax money to pay for it somewhere between slim and none.

With all of this happening, it's not a stretch to think Dad will insist on a change in the status quo. The Cubs have cash flow needs. These are not the days of the Tribune where a massively profitable parent company was looking for cheap programming for two of its media outlets and some additional profits to send upstream. The Ricketts have debt to pay. Massive amounts of debt.

According to Forbes (, the Cubs have the highest debt-to-enterprise ratio of any team in baseball at 75%. This debt isn't that much of a problem so long as the team generates enough sales and ancillary revenues to service the debt. But, if cash flow becomes tight, the Ricketts will have to rely on personal net worth to pay back debt. That's easy, you think. They're billionaires. So were the Wilpons and McCourts.

The drop in attendance is only the latest sign that the Cubs brand is suffering through some serious attrition. We also know that the Cubs Convention didn't sell out and that TV ratings were off 39% last year. A deteriorating brand leads to deteriorating revenues which leads to the cash flow problems described above.

Which leads to the need for additional equity in the form of cash.

The Ricketts will certainly look to shield their personal balance sheets from the Cubs' corporate financials. Over the next few posts, we'll try to see how they might do this.

Stew, you can come back on two conditions:

1: You use a real e-mail address that goes to you.

2: You use your real name.
1. I already do, even though you don't (Take a look guy, your email is no longer on your site)
2. You don't use your real name (I know this for a fact) so why should anyone else? Besides, I am not looking for a date Chucky....sorry but I don't bat that way! :)
1) My e-mail is on the right where it says "me."

2) Chuck is my real name. Unless, you are being cute, and you mean my real name is "Charles." I have no idea what else you could possibly mean by "know this for a fact." But, then again, your facts are right up their with Jon Kyl's usually.

3) You do not post here with your e-mail address or your real name logged in and visible to everyone. You want to post here, you must do so from here on out or every subsequent post will be deleted.

My place, my rules. This isn't a "community."
Good--the obsessive abuse is tiresome. Looking forward to the discussion of the Cub financials...
Tomorrow morning, Michael.
Stewie should channel his energies into starting a blog where he does nothing but record Chuck's spelling and grammar errors.

Then you can start a blog collective with this guy:
I don't think the comparisons to the Wilpons or McCourts are relevant here. The former got caught up in the Madoff scandal and the latter in a messy divorce (and it looks like the McCourts weren't as rich as we thought, anyway).

If the Ricketts family is serious about multi-generational ownership, then an equity infusion is the most likely option, I'd think. When they bought the team, didn't they want to use more equity than they did but went along with the debt scheme for Zell's tax reasons?

Also, if Joe Ricketts did an iota of research into the team--and I suspect he did--he'd know that attendance at Wrigley fluctuated with the talent of the team. He wouldn't just take Tom's word that they sold every game whether they win or lose, and I doubt that Tom even said that to his father. I'm guessing that you're inferring all of that from the YouTube recording of a speech that Joe Ricketts gave shortly after the family purchased the team. That speech really isn't very surprising--a guy who purchased a really expensive asset is talking up its value.

Of course, I could be totally wrong: the Rickettses have no idea what they're doing on the business side of the team, they would never consider putting more of the family's money into the team, and they are content to field a ragtag group of bush leaguers year in, year out.

That just doesn't seem very likely.

Lack of sleep is causing me to have reading comprehension problems this afternoon. Are you saying that Team Ricketts actually knows what it is doing simply because they have invested their family fortune into the team? People, even rich people, make mistakes by buying something due to infatuation rather than logic.

No, that's not what I'm saying. I do think that the Ricketts family knows what it is doing in some respects--they will be embarking on two major real estate development projects that will produce a lot of new revenue in the long run, for example--but that has nothing to do with them being rich or investing money in the team.

I'm taking their word that they view this as a multi-generational investment (the RE development is indicative of that commitment). Hence, I think they'll put additional equity in the team over the next couple of years.

I'm also saying that no one would make an investment like that without doing due diligence. Everyone knew a drop in attendance was coming (though no one thought it would be this bad, I'd guess).

Emotions always come into play, but Joe's not a Cubs fan, to my knowledge.

Of course, I could be totally wrong and the family could have absolutely no idea what they're doing. However, I just don't think that's the more likely scenario.

After following this team for decades, I think we're quick to assume that ownership is stupid just because the Cubs have a history of awful owners, but I think it's premature to judge the Rickettses, especially since they ARE doing some things right that will help the long-term health of the business.
The Ricketts family actions thus far have been very tone deaf. I have no doubt Joe and Pete and Tom insisted on due diligence (I don't know enough about Laura's business acumen to comment, but I am unimpressed with Todd), but they projected earnings over several years. These were based on assumptions.

I wonder how good their assumptions were.

I think the reality is somewhere in the middle. I do take Joe at his word when he says he's not a fan of sports nor did he know anything about owning a team. It's possible he saw the drop in attendance in 2006 followed by the rebound and the winning years to think that the spending had shored up the brand.

He also could easily have been sold on the idea that Jim Hendry knows about minor league development and that the team was going to "get good and stay good."

I think they have a very good idea what they are doing from a financial standpoint, but no idea from a baseball standpoint.

My point in bring up the Wilpons and McCourts was that billionaires don't always stay billionaires for exogenous reasons. And if they have to put up more equity (as you suggest and I agree), there could be unseen reasons that might prevent that. And I think they are plenty smart enough to do whatever they can to avoid giving up more equity. They want to insulate themselves from the team's finances. And there are a few ways to do that.
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