The Cubs, MLB, and a Cuban Missile Crisis
Before we get started, don’t let the title fool you; this isn’t about that abysmal Cubs team that went 59-103 with El Tappe, Lou Klein, and Charlie Metro at the helm. And no, the world is not on the precipice like those days in 1962 when Kennedy and Khrushchev took the world to the brink of nuclear war. But, there is an arms race going on with this story, although not of the pitching variety.
The sale of the Chicago Cubs from Sam Zell, the new owner of the Tribune Company, is nearing its final stages, and with it, history will be made. The sale of the Lovable Losers, Wrigley Field, and a 25 percent stake in ComcastSports Chicago will be bringing in well over $1 billion, thus surpassing the Red Sox sale in 2002 and setting the bar for other storied franchises that might come up for grabs, as well as push the needle up on all other clubs – big or small – if and when they hit the market. Somewhere, Harry Caray is saying, “Holy Cow!”
Five approved bidders that have reached the second round in the process each have submitted bids around that jaw-dropping $1 billion. Those bidders include Thomas Ricketts, whose father Joe founded the TD Ameritrade brokerage, Michael Tokarz, chairman of MVC Capital Inc., Sports Properties Acquisitions Corp., who has Henry Aaron and Jack Kemp as public representatives, but is headed by Andrew Murstein, a New York taxi company magnate, and fueled by a $200 million shares sale this past January, a group headed up by Hersch Klaff, a real estate investor, and Mark Cuban, owner of the Dallas Mavericks, and Chairman of HDNet, an HDTV cable network.
In a striking turn of events, the bidder deemed to be a near lock for the package, Madison Dearborn Partners CEO, John Canning, Jr. is sitting on the outside looking in after offering up an initial bid of approximately $800 million, a figure that while large, came in a cool $200 million below where those that made the cut landed. Canning, a minority owner of the Brewers, and a close friend of Bud Selig, fits MLB’s personal profile better than the best Armani suit, but at the end of the day, the Cubs sale is in such rarified air, at least in terms of the sale price, that Canning’s pull with the MLB brass simply couldn’t keep up dollar signs.
And, while Canning may seem to be out of the running, there is certainly the possibility that he could pull together more capital and get right back in the mix. The question on MLB’s mind is, will he? This is, after all, the Cubs, a club that has been successful while being the Kings of Futility. There are brands in baseball, but short of the Yankees, Red Sox, and possibly the Dodgers, is there a name that resonates across America as well? MLB needs -- nearly demands – an owner like Canning. Because, sitting on the doorstep and knocking hard is the antithesis of what an MLB owner is like today.
Mark Cuban, a man whose exceptional worth (reportedly $2.8 billion) was gained through new technology, selling Broadcast.com to Yahoo! and in the process became a billionaire. And while those Armani suits describe Canning, Cuban is one who seems to see the black turtleneck and jeans ala Steve Jobs as being “dressed up.” He’s a jeans and tees guy, something that most anyone with a pulse would have a hard time seeing the vast majority of the ownership brethren ever wearing.
Cuban, the NBA Mavericks owner, has been the one driving the arms race forward in the Cubs sale. A man that seems so driven to gain access to the Cubs that he reportedly has offered an initial bid of $1.3 billion, thus making it clear: you want to play hardball, bring your wallet.
With Canning out (for the moment; maybe longer), Cuban becomes the wild card, and in some ways, the prohibitive favorite. Here’s why.
Sam Zell, while wishing to retain a minority share of the Cubs, really has no interest in the baseball holdings tied to Tribune. Zell’s main motivation to keep that minority share is for tax dodge purposes. Earlier this year, when there was talk of the typical glacial process associated with an MLB sale, Zell said on CNBC’s Squawk Box, “Excuse me for being sarcastic, but the idea of a debate occurring over what I should do with my asset leaves me somewhat questioning the integrity of the debate. There’s a lot of people who would like to buy the Cubs and would like to buy the Cubs under their terms and conditions and, unfortunately, they have to deal with me.”
In other words, a rigged deal where a lower bid is accepted by the MLB owners could have consequences; possibly of the legal variety. With Zell having a $650 million debt payment obligation due in December and approximately $250 million in medium-term notes due in 2008, he’s in need of the highest offer, and can you blame him? Going back to that 2002 sale of the Boston Red Sox, many will recall that Charles Dolan offered up $40 million more than the winning bid submitted by John Henry, Tom Werner, and Larry Lucchino. $40 million might be one thing. If Cuban throws, say, $100 million more at the Cubs than the other bidders, MLB will be hard pressed not to accept.
But, here’s the real thing that could possibly scare the owners: It isn’t that Cuban is a wild card. It isn’t that he doesn’t dress the part. Cuban could wind up being brilliant.
The Cubs are an underutilized brand. Wrigley hasn’t been fully tapped. Cuban took the Mavericks, in a city where the Dallas Cowboys are somewhere short of religion, and made them a player in the NBA. After purchasing the Mavericks in 2000 for $200 million, Forbes valued them at $461 million, the sixth highest rated valued franchise in the NBA. What if Cuban decides to do the same with the Cubs? How do you think Jerry Reinsdorf would feel about that?
The fact that the club that would be impacted the most by a Cuban winning bid is also owned by a man that knows Cuban through the NBA smacks of the ironic. Reinsdorf, who owns the White Sox, also owns the Chicago Bulls. How did Jerry vote on Cuban coming to the NBA? He said no. Where does Jerry sit in order of the ownership brethren? He’s as close to Bud Selig as one can get. Cuban getting through the door will not be easy, but not impossible. He’s been on record as saying he’s opposed to guaranteed contracts in the NBA. Imagine if he put his weight behind that concept in MLB?
As I wrote in late May (Thwart A Cash Heavy Deal By Cuban? Try A Marriage) the one real shot that MLB has to thwart this cash heavy Cuban missile crisis is to pull together bidders in an attempt to get the profile, and the money together. Then, Zell wins, and MLB wins. This was done with the sale of the Washington Nationals where real estate developer Ted Lerner was married up with Stan Kasten, who to date is still the only executive to hold the position of president across three major league sports franchises at the same time (Braves, Thrashers, Hawks). Sports Properties Acquisitions Corp could be that player. Henry Aaron and Jack Kemp certainly would be more stately than a man that has sang Take Me Out to the Ballgame, and racked up over $1 million in league fines through the NBA.
The difficulty, of course, isn’t the “stateliness”, it’s the money. With the credit markets taking a massive hit, pulling together capital is not exactly easy these days. Bud will be working the phones overtime to try and get the players together.
The one thing known in this deal is expect the unknown. Over, and over, and over I wrote how the deal was wired for John Canning, and Cuban was simply the Bombay Sapphire in the mix – a pawn being used to gin up the price. With Canning looking like he’s out of the mix, anything seems possible. But, let’s dream a bit. Let’s say that a year from now, it is Mark Cuban that wins the bidding, and is the owner of the Cubs and Wrigley Field. Isn’t it safe to say that the league will be more colorful for it? That Cuban would bring a competitive element? That in bringing his wallet to the table, he increased the value of all MLB clubs? Look for the next set of bids to occur in September, and the finalized deal announced shortly after the World Series. It seems then, and only then, will we know who will own the Cubs, and whether Mark Cuban is sitting at the table.
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is contributor to Baseball Prospectus, and is available as a freelance writer.