Designated HitterAugust 04, 2008
The Cubs, MLB, and a Cuban Missile Crisis
By Maury Brown

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.

Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

Comments

I really, really hope that Cuban gets the Cubs. I think he'll be great for baseball.

Interesting that Cuban is against guaranteed contracts in baseball, a position not uniquely shared by every other owner throughout organized baseball history. Unfortunately, there's another side of the table in that negotiation. Cuban can put all his weight behind his position all he wants -- against the strength of the Players' Association, Cuban would end up flat on his back. If Cuban would stand on his own principles, the Cubs would be on the outside looking in when it comes to getting any worthy free agent to sign with his team.

*sigh*

Why can't Cuban wait a few years and buy the Braves instead? :-(

Seriously, though, I think Cuban ownership is probably good for baseball in general. Were I a Cubs fan, I'd be definitely be rooting for Cuban to win the bidding. At the same time, if I'm in the NL Central, I'm really hoping such a thing doesn't materialize. :-)

While I personally think prospects have become extremely overvalued, it would be really interesting to see a high-payroll team say "the Hell with it" to FAs and plowing $20-30-40MM a year into draft picks and international signings.

JRVJ, that team would be on track for lots and lots of championships. The free agent market now and in the future is a loser's game, featuring increasingly nothing more than warmed-over and picked-through .500 pitchers and 25-homer a year "sluggers." Building from within then tying up your strongest prospects through their arbitration and first few free agent seasons is what the smart organizations are doing.

I think the Yankees and Red Sox have decided to go the draft pick and international signing route, if not exclusively, certainly with a greater focus.

Maybe. And maybe not.

The FA market right now is the by-product of a very unique set of circumstances across baseball (e.g., there's money sloshing around ALL franchises, so teams can afford to tie-up their own FAs; potential FAs are willing to trade off security and/or home team play in exchange for higher pay checks through FA, to MLBPA's dismay), but I'm not sure that's going to continue being the case (to begin with, I have to believe MLBPA is going to attack FA compensation picks. Either that or set-up a cap on what may be paid to draft picks and/or FA signees).

NY and Boston are being smart about the draft pick and international signing route, but I don't think they'll forego judicious FA signings, particularly for difference makers.

In the very specific case of the Yankees, I'm convinced the Yankees will go hard after Sabathia. It makes all the sense in the world for the Yankees to do so, as they have money (and money coming off the books).

For all of Cuban's pomp and circumstance, his Mavericks' team hasn't won anything. Money does not win championships. Smart personnel decisions win championships.

****** For all of Cuban's pomp and circumstance, his Mavericks' team hasn't won anything. Money does not win championships. Smart personnel decisions win championships. ******

True. But then Cuban would be hard pressed not to succeed at least at the levels that Tribune has done. As far as doing more with the Cubs than Tribune has done (on, and off the field)... I suspect Cuban would throw himself into every aspect to make them a winner. I don't know if one could say that about Canning. Of course, no one knows what kind of owner Canning would be other than a "Selig guy".

Of course money doesn't win championships, but it sure helps. You can spend lots of money and lose (Orioles, Dodgers...), but it is significantly harder to spend little and win. Not impossible, of course, but money can make life easier.

And I don't just mean FA signings. Beefing up scouting and development organizations. Draft bonuses. More money for medical departments. Development centers in other countries. And so on.

As for the Mavericks...last I looked, they've been repeatedly competitive. Last year: 51-31. Year before: 67-15. Year before: 60-22. Year before: 58-24. As a Cub fan, I'd take that. OK, so they haven't won it all...anything can happen in the playoffs, in ANY sport. Nothing you can do in terms of team construction can guarantee you a championship, right? Right? So...your best bet is to consistently make the playoffs.

The Cubs appear to be headed for their second consecutive playoff appearance. The last time that happened? 1907/08.

Yeah, Cuban will be just fine by me.

"The Cubs are an underutilized brand. Wrigley hasn’t been fully tapped."

Can you expound on this? Sitting here in Chicago, I'm wondering how Wrigley hasn't been fully tapped. There's really no more room to add seats there after they've already made a large addition to the bleachers and they have added seats onto the field and a box in the batter's eye. They already do tours at Wrigley (I think proceeds go to charity though instead of the Cubs coffers). They own their own ticket scalping service. They already are in a RSN deal with partial ownership of the channel. What's left, besides buying up the rooftop buildings? Somehow shoehorning more luxury boxes in there? Selling a few tickets per game to watch from inside the scoreboard?

As best as I can tell, the Cubs pretty much have two ways to go to increase revenues at this point. One is to raise ticket prices - they're selling out now with no problem, and a massive increase is likely coming with the new owner, whoever it is, paying that much money to buy the team and the debt service said owner will probably have as a result of the purchase. The other is to consistently win in the playoffs.

Also...Maury, you pointed out over at BOB (http://www.bizofbaseball.com/index.php?option=com_content&task=view&id=2368&Itemid=42) that unlike the others, Cuban's bid was believed to be cash-heavy.

While I don't think that matters to Zell on the surface, it suggests that Cuban's offer is less likely to run into problems due to market forces (e.g. theoretically the financing that other groups are engaging in could disappear and/or become more expensive, etc.).

And yeah, Reinsdorf won't like him...but then again, if Cuban pushes the sale price up further, doesn't that just implicitly grow the value of the other franchises, including the White Sox?

@YDD: well, in theory you could exploit Wrigley for more ad revenue. There's very little in the way of signage, for example. There's also the idea of naming rights. You'd certainly have to watch out for backlash (historic franchise, historic building, yadda yadda).

Or...you build a new park. Someplace where they can seat more people, have far more luxury boxes, more signage, a parking concession, etc. Sure, people will lament the loss of one of the oldest parks in existence, the history, and so on. But that will fade. Meanwhile you end up with a new park with nicer amenities -- believe me, peeing in a trough loses its novelty. Plus, you don't need the city council to approve every change since it won't be a landmark. Sell the old park to the state for $1 and let them use it for whatever they want.

The condition of Wrigley, incidentally, is a point that hasn't been pursued as much as I think it should. During the negotiations with the Illinois Sports Authority (or whatever it's called), some reports suggested that Wrigley may need as much as $300m in repairs. I don't know that we have any way to establish the veracity of that number, but even if it's double what the real number is, that's a lot of money. One wonders just why the Tribune has allowed the park to deteriorate to this point. In fact, I'd argue that the reason the deal with the state and Jim Thompson fell apart is because the state didn't want to pay $300m-$400m for a park that would need an additional $100m-$300m worth of repairs.

"@YDD: well, in theory you could exploit Wrigley for more ad revenue. There's very little in the way of signage, for example. There's also the idea of naming rights. You'd certainly have to watch out for backlash (historic franchise, historic building, yadda yadda).

Or...you build a new park. Someplace where they can seat more people, have far more luxury boxes, more signage, a parking concession, etc. Sure, people will lament the loss of one of the oldest parks in existence, the history, and so on. But that will fade. Meanwhile you end up with a new park with nicer amenities -- believe me, peeing in a trough loses its novelty. Plus, you don't need the city council to approve every change since it won't be a landmark. Sell the old park to the state for $1 and let them use it for whatever they want."

I guess they could put in more ad signs but the fans get all pissy any time they add more and the kerfluffle over a possible name change was pretty loud here. And building a new stadium doesn't really fit into the "Wrigley isn't fully tapped" statement I wanted expanded. I suspect the fans would forget about the ads (I don't hear about the ones on the wall anymore), but they might reject a name change of the stadium much more than my fellow White Sox fans did. They cared until they realized that the money was in large part going to make stadium improvements. The Cub fans would forget the second they finally win a title.

I suspect the state's estimate of repair costs are significantly overly high (so that they could jack us taxpayers for more money or give contracts to contractors who had the right friends and would in no way be the lowest solid bid -- that's the way things go around here) but there have been some real issues with Wrigley in recent years so a price tag of over $100 million in repairs wouldn't be shocking.

" I don't know if one could say that about Canning. Of course, no one knows what kind of owner Canning would be other than a "Selig guy".

Its funny everyone is so quick to judge a man who everything he touches turns to gold.. His business ..last I checked he is part owner of the brewers who for a small market team gives the cubs a run for their money.

****** For all of Cuban's pomp and circumstance, his Mavericks' team hasn't won anything. Money does not win championships. Smart personnel decisions win championships. ******

Good point... I for one would like to see an ownership team from Chicago, cuban is from where??? Not Chicago... Something about Cuban just is not right? (besides the obvious) Whether its canning or another Chicago group keep the cubbies in the hometown.

Being a 4th generation Cub fan, I pray for Cuban to be successfull in his bid to become the next owner of the Cubs. I think he would bring excitement and a much needed jolt to MLB. Imagine, having a single owner..