Monday, January 21, 2013

The Wrigley Plan That Works

The Cubs took the opportunity at last weekend's Cubs convention to make some real news. This is news that’s not only good for Cubs fans, but it's also good for taxpayers. Rather a shocking but welcome development that's totally unexpected from the Ricketts family. But also one that makes sense for a lot of reasons.

If you recall, the Ricketts had floated a plan called "Sales Tax Increment Financing," or STIF. The idea was this: For every ticket sold, the Cubs are required to add on an "Amusement Tax" of 12% of the face value of each ticket. This money is given to the city (9%) and the county (3%). The Cubs collect a substantial amount of tax for the city and county. The most recent numbers I could find were a total of $16.1 million collected in 2009.

Notice the word "collected" and not "paid." That's because the Cubs don't really pay the tax, you and I do. Just look at this ticket. See the advertised price is $90? The Cubs add on the $10.80 to the face. The Cubs get their full $90. Now, the amount of tax can certainly affect demand for tickets, but demand to see the Cubs had been pretty consistent the last few years.

What a STIF does is this: Say the Cubs are currently collecting $16.1 million in tax on ticket sales of $134.2 million. If the Cubs raise prices by 10%, then the tax collected should rise to $17.7 million, an increase of $1.6 million. The STIF plan diverts the $1.6 million from the city and county back to the Cubs. In short, the Cubs want to raise prices but freeze the amount of tax they collect until such time as the stadium renovations are paid for. It's just additional revenue to the team that they don’t pay corporate income tax on because it's dedicated to payment of debt.

On Saturday, Tom Ricketts and Crane Kenney said this plan has been scrapped and they plan to pay for renovations to Wrigley out of the Ricketts family pockets. This is great news, but it does get one wondering why they gave up?

Reason #1 is that they City of Chicago and Cook County really don't have the money to give the Ricketts to boost the value of their private company. In fact, the city and county really need more tax revenue from ticket sales and any freeze hurts future budgets. The chance of this actually getting approved and funded was pretty low.

But reason #2 is this: Joe Ricketts, patriarch of the Ricketts family and source of the family wealth, decided to drop $10 million of his own money on political commercials criticizing President Obama for spending too much money. Kinda hard to blast the president for that and seek his defeat while your kids go ask Obama's former Chief of Staff, current Chicago Mayor Rahm Emanuel, for more government spending. Kinda pissed Rahm off, too.

So, after much soul searching, the Ricketts released they better go another way. And they did. They went the right way.

What the Cubs want now is to spend $300 million of their own money over five years and upgrade Wrigley Field. They want to build a hotel next door. And they want some help from the City.

But they no longer want any money. What they want is pretty simple. They want to be able to make a shit load of money by putting up a shit load of signs, ribbon boards, jumbotrons, more night games, and anything else they can think of to make the money they will need to pay for renovations.

The city should let them do this instantly.

The Cubs are only being asked to be treated like what they are: A private business. The problem is, right now, the Cubs are a private business with major public restrictions. The city tells them how many night games they can have, how many signs they can have, and how they can change the structure of the ballpark. This limits the profit potential of the team.

The opinion here is that they city is fully within their rights to restrict what the Cubs, or any company does, in terms of making changes to buildings with significant historical or architectural value and significance. The opinion here is also that if the city is going to restrict a company in such a way and limit their profitability, the city also has a duty to subsidize such a company to cover the company in ways laws are holding back the profit maximization.

In these times, the City of Chicago and Rahm really just can't afford the subsidization of Wrigley Field. Furthermore, he really doesn't want to do it for a family who knew they shape of Wrigley Field when they bought the team three years ago. And lastly, he doesn't want to do it for a billionaire who is hypocritically asking for money while seeking the defeat of his political allies for the crime of spending money.

Given all this, the Ricketts crew finally caved and said, "OK, uncle. Keep your money. All we want is free enterprise and we'll pay." Early returns from the public are positive. Mayor Emanuel seems to be on board. There only seems to be one set of opponents left. That's the rooftop owners and their water carrying lackey, Alderman Tom Tunney.

The rooftoppers don't have a leg to stand on. They've been able to make a lot of money over the years by stealing the Cubs product. Up until just a few years ago, the rooftoppers didn't pay a nickel for the Cubs product yet charged a premium to view it. They were freeloaders (no longer as now they do pay a portion of their ticket sales to the Cubs).

Tom Tunney is, at this point, backing the rooftoppers. The guess here is that this is posturing. There are about 15 rooftop clubs overlooking Wrigley Field. Per Metromix, there are 105 bars, and 269 restaurants in Lake View. The owners of these businesses have a lot to benefit from a renovated Wrigley Field, with more than 40 night games, with a hotel open year round. You think they will influence Tom Tunney? And who would have more pull? Fifteen roof top owners who were freeloading for over a decade or 374 other businesses? I know where I'm laying my bet. Tunney will cave, just as soon as he extracts a price from Rahm. What that will be specifically is anyone’s guess, but the bet here is that the price benefits Tunney more than the rooftoppers.

This page has been highly critical of Tom Ricketts over the years. He came into his role with the Cubs woefully unprepared and often seemed to be lacking in understanding of how things get done. The two year dance on the Wrigley renovations is just another case in point. Despite all that, he seems to have found the correct path for all involved.

That path deserves our support.

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