Thursday, November 07, 2013

And…. We’re Back

No need to spend a lot of time explaining the lack of long form Cubs talk from this blog (let’s assume you spent a modicum of time watching the last season).  So, what’s got this site active again? An article in Crain’s Chicago Business by Danny Ecker.

It seems the Cubs had an opt-out clause in their TV contract with WGN.  The current contract pays the Cubs about $300,000 per game for 70 broadcasts per year.  That’s woefully below market. The Dodgers are set to earn close to $1.5 million per game (net of revenue sharing - $2.1 million before revenue sharing).  The Angels and Rangers get about $930,000 per game.

In short, the Cubs are due for a raise.

Now before people start screaming that the Trib screwed the Ricketts and foisted a below market contract on the team and shortchanged the team’s ability to compete, remember that the Ricketts knew what the payout from WGN was when they bought the team.  They paid $865 million to get that $300,000 per game for 70 games.  Had that number been $1,000,000 per game, the Ricketts would have paid far more than $865 million.

Others have been ranting and raving that the Ricketts are broke and no one will pay broadcast rates at Angels / Rangers / Dodgers prices to for a team that loses 90+ games per year.  First, the Cubs won’t be losing 90+ games much longer (or any longer as this site expects). Second, sports fees remain high as sports is about the only DVR proof broadcasts left. That commands higher advertising rates.

In short, those projecting doom for the Cubs TV contract negotiations are wrong.

Now, what does this all mean for the Cubs?  Well, going from $300,000 to $1 million per game for 70 games would generate $49 million per year in gross revenue and close to $34 million per year post-revenue sharing.

And that’s only for 70 games.  There’s another 85 games or so from which the Cubs can eventually get more revenue.  This revenue also comes without added expense so it can all be used for whatever the team wants to use it for.

Given the declining ticket sales and in-house attendance, there is one obvious thing to use it for that would both improve attendance and boost TV ratings: Payroll.

It’s certainly possible that the Ricketts will not use the money for payroll, but would use it to retire debt or support payments to rehab Wrigley Field and build a hotel.  But those projects require a strong brand to draw customers.  The Cubs brand right now is weaker than it’s been since 2006.

The Cubs have cleared out payroll (lowered costs) and are about to strike a new TV deal (raise revenue).  A smart businessman would use at least some of those monies to try to put more butts in the seats than just make the seats more comfortable.

It’s time to find out just how smart the Ricketts are.

Payroll in and of itself won't fix the Cubs. There's no point in overpaying for a player or players to come in and block somebody coming up through the minor league system over the next couple years.

When the Ricketts family hired Jepstink to rebuild the team, they had to have accepted and understood there would be a hit in revenue during the rebuild.

By this time next year, both Javier Baez and Kris Bryant will have made their National League debuts, and there will actually be positive buzz surrounding the Cubs again. The payroll will increase as these new core players get contracts comparable to Rizzo and Castro.

I also think we'll see the Ricketts family launch their own network, so if they sign another below-market-value TV deal, the money saved on the TV side still pushes up to the Ricketts, but isn't affected by revenue sharing.
"Payroll in and of itself won't fix the Cubs." Hence why I said, "use at least some of those monies" for payroll.

And if you sign a guy who blocks an up-and-comer, that frees the blocked party for trade. Theo is clearly not trade averse.
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