Cubs in Violation of MLB's Debt Service Rules

[Mark Priors Calves]

http://www.chicagotribune.com/sports/baseball/cubs/ct-spt-0603-mlb-cubs-chicago--20110602,0,344709.story

[Banghart]

I read that article as well, and I'm still unsure what if anything this means. Doesn't sound good, but it appears like it might just be a situation due to the weird conditions of the sale of the Cubs.

[Tarver]

Not all surprised to see Florida and Baltimore among the offenders. The jury's out on Ricketts, but he'd have to really [expletive] things up to ever be mentioned in the same breath with scumbags like Loria or Angelos. Everyone calling for Tom's head can thank Christ they're not fans of those unfortunate franchises.

[apete6]

LOL MLB. I'm sure Mark Cuban would have never landed on this list...for any of the franchises, not just the Cubs.

[Brett]

I don't think it's a big deal. The rule, loosely, is that your debt can't exceed ten times earnings. But when you just took on a huge amount of debt to buy the team, you're probably going to be running up against that number. I think that's all this is. In another year or two - assuming the Ricketts can keep paying down the debt - I suspect the Cubs will be well within the rule.

[Sammy Sofa]

I don't think it's a big deal. The rule, loosely, is that your debt can't exceed ten times earnings. But when you just took on a huge amount of debt to buy the team, you're probably going to be running up against that number. I think that's all this is. In another year or two - assuming the Ricketts can keep paying down the debt - I suspect the Cubs will be well within the rule.

 

Right. It's definitely something to be concerned about if the Cubs are still on this list 2-3 years from now, but I'd be very surprised if they were.

[SouthSideRyan]

I'm stunned there are only 19 comments of idiocy on the Trib article (Well, more like 14 comments of idiocy and 5 that understand what this means) Pretty much a non-story.

[UMFan83]

If Ricketts didn't care so much about "preserving Wrigley" and taking vacations during the year, we clearly wouldn't be on whatever this list is. Stupid Ricketts.

[rocket]

that sound you hear is ryno laughing at the cubs

[Cubswin11]

Yea I don't see this as a huge issue. MLB had to approve the sale, so they knew the debt/equity structure that Ricketts and his group had to buy it from the Tribune/Zell. Like it's been mentioned with the amount of debt needed to secure the sale MLB has to know that the Cubs would be in this position for at least a year. However with earnings likely down this year (lower attendance/concession/memorabilia sales/etc.) I wonder how, if at all, it affects the Ricketts plan long term to handle the debt?

[seanhopper]

Yea I don't see this as a huge issue. MLB had to approve the sale, so they knew the debt/equity structure that Ricketts and his group had to buy it from the Tribune/Zell. Like it's been mentioned with the amount of debt needed to secure the sale MLB has to know that the Cubs would be in this position for at least a year. However with earnings likely down this year (lower attendance/concession/memorabilia sales/etc.) I wonder how, if at all, it affects the Ricketts plan long term to handle the debt?

 

I'm a little weary of it. I actually met with Goldman Sachs at the time the Ricketts were looking for lenders. They bought a large percentage of the team with debt. It's not unusual, but it was a little scary when you thought of the %'s they would need to pay the debt holders. In order to pay it back and continue to invest in the team on a yearly basis was daunting. I honestly questioned at the time why MLB and Sam Zells/Tribune were selecting this buying group vs. some of the other offers on the table. I don't believe Cuban's offer, overall, was better but there was another group that had a more attractive total package.

[Brett]

I don't suppose anyone knows what the Ricketts' payment is on the $580ish million of debt they took on?

 

I'm just spitballin', but if it's like a super jumbo mortgage, and the debt's at 8 to 10%, that's like $45 to $58 million in interest per year. Doesn't really seem that bad when stacked against $200 million in revenues; but it does call into question the ability of the Cubs have a $150 million+ payroll in the near-term.

 

Damn, I just depressed myself.

[Guest]

It is a story becuase servicing the debt will have a direct impact on the product on the field, at least in the short term. Also it is a story in relation to on the field product and revenue. It's a bad cybernetic system and a reason why MLB has such a list. I suspect that the Ricketts family could sell interest in the club to generate income pretty easily though.

 

For the forseable future Cub fans will have to hope that they can draft well and that some of their gambles (e.g., Simpson) come up 7s.

[SouthSideRyan]

Do you guys think the Phillies, Tigers, and Nationals will be scaling back payroll, or is it just the Cubs that this spells trouble for their current levels of expenditure?

[Tryptamine]

I don't suppose anyone knows what the Ricketts' payment is on the $580ish million of debt they took on?

 

I'm just spitballin', but if it's like a super jumbo mortgage, and the debt's at 8 to 10%, that's like $45 to $58 million in interest per year. Doesn't really seem that bad when stacked against $200 million in revenues; but it does call into question the ability of the Cubs have a $150 million+ payroll in the near-term.

 

Damn, I just depressed myself.

 

The rate will most likely be substantially lower and we really don't know the terms of the debt either. It's possible he went with an interest only type of loan that wouldn't impede baseball functions what so ever until the balloon payment kicks in. Either way, there's just too many possibilities to get overly concerned about it.

[seanhopper]

I don't suppose anyone knows what the Ricketts' payment is on the $580ish million of debt they took on?

 

I'm just spitballin', but if it's like a super jumbo mortgage, and the debt's at 8 to 10%, that's like $45 to $58 million in interest per year. Doesn't really seem that bad when stacked against $200 million in revenues; but it does call into question the ability of the Cubs have a $150 million+ payroll in the near-term.

 

Damn, I just depressed myself.

 

The rate will most likely be substantially lower and we really don't know the terms of the debt either. It's possible he went with an interest only type of loan that wouldn't impede baseball functions what so ever until the balloon payment kicks in. Either way, there's just too many possibilities to get overly concerned about it.

 

I'll have to look back to see exactly what the terms were. It is substantially lower than what you mentioned -- however it's enough to make an effect on their availability of cash each year. The reason we didn't do the deal was that we wanted to have the option of converting our debt into an equity share of the team at the current valuation vs. future. That wasn't on the table according to the Ricketts.

[Little Slide Rooter]

Debt May Impact Cubs' Free Agency Plans

By Mike Axisa [June 4 at 9:34am CST]

The Cubs are one of nine teams in violation of MLB's debt service rules, and Gordon Wittenmyer of The Chicago Sun-Times hears that the debt might impact the team's ability to pursue big free agents over the next few years. Wittenmyer estimates the debt at $400MM or so.

 

On paper, a free agent first baseman like Prince Fielder or Albert Pujols would make perfect sense for the Cubs, who have a ton of money coming off the books after the season as Tim Dierkes explained in his 2012 Contracts Issues post. Now their ability to pursue players of that caliber is in question. Chairman Tom Ricketts has been preaching player development since purchasing the team in 2009, and the draft will be even more important if the Cubbies are unable plug holes with free agents.

 

 

Straw that breaksn the camels back? Could be.

[Sammy Sofa]

Yeah, I'll wait for a source just a tad more knowledgeable about these things than Gordon [expletive] Wittenmyer.

[XZero771679666304]

Yeah, I'll wait for a source just a tad more knowledgeable about these things than Gordon [expletive] Wittenmyer.

 

Like Bud Selig?

 

"I have zero concern,'' Selig said. "Everything we've ever asked of them, they've done it and then more. … I'm unhappy that a story (like this) reflects badly on the Chicago Cubs under Tom Ricketts. There is no reason anybody should have economic concerns. … It's so unfair to Tom Ricketts and the family. I normally don't talk about our business, but I can't let this go on. This is just wrong.''

 

Selig said the team's debt does not limit it in being able to improve the team, including spending money on players.

 

"They have complete latitude to do anything they wish,'' Selig said.

[Sammy Sofa]

THAT BASTARD.

[vance_the_cubs_fan]

Yeah, I'll wait for a source just a tad more knowledgeable about these things than Gordon [expletive] Wittenmyer.

 

Like Bud Selig?

 

"I have zero concern,'' Selig said. "Everything we've ever asked of them, they've done it and then more. … I'm unhappy that a story (like this) reflects badly on the Chicago Cubs under Tom Ricketts. There is no reason anybody should have economic concerns. … It's so unfair to Tom Ricketts and the family. I normally don't talk about our business, but I can't let this go on. This is just wrong.''

 

Selig said the team's debt does not limit it in being able to improve the team, including spending money on players.

 

"They have complete latitude to do anything they wish,'' Selig said.

 

I guess that settles it.

[UMFan83]

If you were truly serious about not wanting to be a Cubs fan anymore, read that Sun-Times article today and take every word as the truth. It is the most depressing article you can possibly write about the Cubs.

 

Thank God it was just that hack Gordon Whittmeyer writing it.

 

http://www.suntimes.com/sports/baseball/cubs/5763413-573/cubs-debt-situation-figures-to-affect-free-agent-plans.html

 

A source with first-hand knowledge of the Cubs’ purchase deal and debt structure says it involves enough annual burden that fans shouldn’t count on the Cubs going after any big free agents for two or three years.

 

What you see so far this year —specifically, what you saw Friday with a no-name lineup of prospects and fill-ins — might be here to stay longer than the already restless fan base might be able to stomach.

 

As one longtime talent evaluator said before Friday’s game, “Just saw your lineup. Who are these guys?’’

 

Get used to it.

 

Because even as the Cubs continue to rank among the top teams in baseball in ticket prices and even as they work, for now, with the biggest payroll in the National League, they have essentially become a small-market operator.

[dew1679666265]

If you were truly serious about not wanting to be a Cubs fan anymore, read that Sun-Times article today and take every word as the truth. It is the most depressing article you can possibly write about the Cubs.

 

Thank God it was just that hack Gordon Whittmeyer writing it.

 

From the looks of it, he was working off one comment from one anonymous source and extrapolated that to the idea that the Cubs will be in full-scale youth movement for at least 2-3 years. I'm having a lot of trouble buying that without a little more to back it up.

[Hairyducked Idiot]

"I'm hearing" is code for "The person who told me isn't important enough to be credible if I said it. Probably myself."

[dew1679666265]

"I'm hearing" is code for "The person who told me isn't important enough to be credible if I said it. Probably myself."

 

It seems like a scare tactic to get a lot of hits built up with little substance behind it.