Estimating 2016 Payroll

[davell]

The estimated debt structure payment has been in the 35 mill per year area. This is obviously money that's coming right off the top and affects our payroll in a big way.

 

It's set up in a way that makes us show profit EVERY day of the year. From a cash flow standpoint, this would be very tedious. It's just a tax break for Zell. That's the easy explanation.(and a brilliant move on his part)

 

If a group of celebrities(or anyone) bought a stake and their basic reason for doing it was to pay the debt structure each year-it'd open up more payroll funds for Ricketts to use conceivably. Or(and its a big one) it could be used to help pay the renovation costs moving forward. As much of the extra revenue streams from this year could conceivably do.

 

They aren't going into their own pockets to pay the renovations OR for payroll. The Cubs are basically paying for themselves and its been a win-win for both Zell and Ricketts.

 

The simple take on this is its another revenue stream for Ricketts. That's a good thing at this stage. It'd help them in their quest for not coming out of pocket whatsoever and it'd free up other allocated monies to head towards Theo, who is in need now.

[Bobson Dugnutt]

Where is the celebrity stuff coming from? I remember the possibility being thrown out there a really long time ago, and then it was tabled. (I believe there was a rumor of Bill Murray being approached.) Has there been more on this recently?

[Cubswin11]

Holy crap, Murray's estimated net worth is $140 million. I wouldn't have guessed close to that high (I would've guessed maybe $20-30), also didn't know he owned multiple minor league teams. I don't remember hearing anything about Ricketts looking for celebrities and/or having any lined up to buy part of the team, I vaguely remember hearing in the last year or so they were open to (idk if outright looking for) selling a small percentage of the team. But that may have been more tied to a potential way to fund renovations.

[Banedon]

The Cubs have been trying to line up selling off a silent stake in the franchise to a group of celeb investors. This would allow them to operate free of the debt structure they are currently limited by. Getting this done before Hot Stove season begins would really open up the Cubs options for spending this offseason.

 

Source please.

[mdwilla]

http://articles.chicagotribune.com/2014-04-04/business/chi-chicago-cubs-consider-sale-of-minority-stakes-20140403_1_tom-ricketts-minority-investors-ricketts-family

 

SOME of the names that have spoken with the Cubs as of the 2014 summer. I worked closely with one of them that entire summer.

They are using the Mets deal with Bill Maher as a template.

Billy Murray, Billy Corgan, Pritzker family, John Cusack, Eddie Vedder, Wirtz Family to name a few.

[Guest]

http://articles.chicagotribune.com/2014-04-04/business/chi-chicago-cubs-consider-sale-of-minority-stakes-20140403_1_tom-ricketts-minority-investors-ricketts-family

 

SOME of the names that have spoken with the Cubs as of the 2014 summer. I worked closely with one of them that entire summer.

They are using the Mets deal with Bill Maher as a template.

Billy Murray, Billy Corgan, Pritzker family, John Cusack, Eddie Vedder, Wirtz Family to name a few.

 

I figured Cusack and Vedder. But how would this impact the spending restrictions?

[davell]

http://articles.chicagotribune.com/2014-04-04/business/chi-chicago-cubs-consider-sale-of-minority-stakes-20140403_1_tom-ricketts-minority-investors-ricketts-family

 

SOME of the names that have spoken with the Cubs as of the 2014 summer. I worked closely with one of them that entire summer.

They are using the Mets deal with Bill Maher as a template.

Billy Murray, Billy Corgan, Pritzker family, John Cusack, Eddie Vedder, Wirtz Family to name a few.

 

I figured Cusack and Vedder. But how would this impact the spending restrictions?

 

Depending on how it's set up, I'd just figure it to be another revenue stream. If the debt service is 35 mill(example) then the 35 mill Ricketts had earmarked for that, can go elsewhere.(Payroll or renovations)

[Geech]

Depending on how it's set up, I'd just figure it to be another revenue stream. If the debt service is 35 mill(example) then the 35 mill Ricketts had earmarked for that, can go elsewhere.(Payroll or renovations)

 

I'm not sure I understand what you mean when you call it another revenue stream. Are you assuming that the Ricketts family will use the cash from the sale to fund team operations, or are you actually indicating that this will somehow generate annual income for them?

[davell]

Depending on how it's set up, I'd just figure it to be another revenue stream. If the debt service is 35 mill(example) then the 35 mill Ricketts had earmarked for that, can go elsewhere.(Payroll or renovations)

 

I'm not sure I understand what you mean when you call it another revenue stream. Are you assuming that the Ricketts family will use the cash from the sale to fund team operations, or are you actually indicating that this will somehow generate annual income for them?

 

Eh, who knows where it'd go honestly? The debt structure has meant in the past that other revenue streams(ads, TV deal, etc) have helped formulate their baseball ops budget, the renovations, and other costs, while showing no losses. It'd probably come down to simple math as to where it'd go. Between the upped attendance and playoff revenue(mentioned to help payroll by the FO).....If the added TV revenue and any extra shares being sold pay for this year's renovations-I'd figure the rest would head back to Theo. That's how they paid for them last year evidently anyway. In a perfect world, the shares sold flat out pay for the renovations, while the TV revenue is funneled to baseball ops now that we're in contention.

 

No idea how much of a percentage they'd want to sell off, how much they can get for shares that aren't whole(no voting rights or say in how team is ran). All that would obviously factor into things. But it's a definite that Ricketts has to love their current financial situation with the Cubs. Not coming out of pocket for the renovations the city wouldn't help them with, the very good team that isn't very expensive(yet).....I'm just hopeful that the FO gets more than the attendance bump and playoff revenue to work with this offseason.

[LeftCoastCubFan]

Don’t forget what the long game is; a new TV deal 2020 and the completion of the Wrigley renovations. Both put the team in a fantastic financial situation. Due to this I always believed in a lot of spending on the team for the 2017 – 2019 seasons to boost the value of the tv contract. Before the last few months of 2014, we were looking at above .500 in 2016 and true contention in 2017 (my opinion). But Epstein screwed the plan up in 2015.

 

It will be interesting to see how much money they will free up for 2016 to be real contenders. It would seem that they are now going to have to accelerate their spending. I have no idea of what their cash position is right now.

 

The selling of shares was solely to finance the 500+ million Wrigley renovations that they couldn’t easily fund without pain. I don’t believe they would sell shares to fund the payroll for a year or two.

[Guest]

http://wrigleyville.locals.baseballprospectus.com/2015/11/04/cubs-earning-more-spending-better-as-rebuild-continues-on-all-fronts/

 

Over the last three seasons, the Cubs have spent on average $40 million more per year to run the team (ignoring player salaries) than they did over the previous five seasons. What has changed? They haven’t quadrupled the number of hot dog vendors and groundskeepers, and the cost of borrowing gets taken off after they calculate EBITDA. It isn’t financial shenanigans, either, designed to meet the statutory EBITDA requirement from the CBA, because they would want to show more EBITDA, not less.

 

So if the Cubs are truly spending on average $40 million more each year since Epstein came on-board outside of player salaries, and outside of borrowing costs for the renovation, what then can we take away from that expenditure?

 

Instead, the $40 million average annual spending increase appears to be the cost of building and operating a baseball organization “Theo’s way.” These hugely increased expenses appear to reflect the modernization of an organization that was spread too thin in the front office, lacked depth and talent in the scouting structure, and was woefully outgunned from an information technology perspective.

 

The front office (led by Epstein, Jed Hoyer, and Jason McLeod) has been hugely expanded (Cubs.com currently lists 29 people in baseball operations). Those individuals are highly qualified, highly educated, and highly paid. The scouting apparatus has been completely redesigned and re-stocked, as has the international talent identification and development mechanism.

 

These are the people making the decisions that affect the roster. Drafting, trading, player development, and promotion—all of these are areas vital to building an organization that is stocked with talent from the CEO level all the way down to the Dominican Summer League.

[Guest]

i.e. Kyle's diamond encrusted macbooks

[Cubswin11]

I wonder if that $40 million will stay that high moving forward or if it will lower a bit? How much was ramp up/start up money that was for 1 time things or things that have multiple years of use (computers, the associated ancillary items needed to support computers/analytic dept, would the Dominican facility count?, etc) vs how much is just essentially operating costs?

[Guest]

I wonder if that $40 million will stay that high moving forward or if it will lower a bit? How much was ramp up/start up money that was for 1 time things or things that have multiple years of use (computers, the associated ancillary items needed to support computers/analytic dept, would the Dominican facility count?, etc) vs how much is just essentially operating costs?

 

 

He touches on that in some stuff I didn't include in the quote, but the short version is that the new spending appears to be here to stay. From the article:

 

http://i.imgur.com/aADCluE.png

[LeftCoastCubFan]

Worth a read in TT's link (in the references)

 

http://www.bleachernation.com/2014/03/19/the-chicago-cubs-financial-story-the-payroll-the-debt-and-the-syncing-of-baseball-and-business-plans/

 

The Future Revenue Picture, and the Syncing of Baseball and Business Plans

 

When considering the combination of debt service payments, MLB’s Debt Service Rule, and Wrigley Field upkeep expenses, there is anywhere from $45 to $60 million annually that is unavailable to the Cubs for baseball operations. And, to the extent revenues continue to feel the pinch of attendance declines, the pain associated with those unavailable funds is only going to become more acute. That’s a bummer.

 

But it’s not like these financial issues have gone unanticipated by the Cubs, and that’s why we’ve seen such a dramatic surge in their efforts to capitalize on all reasonable revenue opportunities, from in-park sponsorship deals to Spring Training facilities naming rights to new concessions deals. In the past few years, the Cubs have ramped up their business operations, increased hiring, and worked hard to generate every last dollar of revenue possible. In that way, the business side is operating not unlike the baseball side right now: pinned down by certain externally-created limitations, they are having to find every edge, every efficiency, to generate as much revenue as possible.

 

With that in mind, the Cubs are inclined to focus whatever discretionary money they have available on things that will return a long-term benefit, rather than a short-term patch. For example, the Ricketts Family plans to spend a huge amount of money on the renovation and development of Wrigley Field. Could those hundreds of millions of dollars have gone to funding a couple big-time player contracts? Sure. But, right now, the Cubs would rather spend money on something that returns revenue annually than spend significantly on aging free agents, where, once that money is spent and the player plays, the investment is gone. This is particularly true when spending big on aging free agents doesn’t align with the timing of the baseball plan anyway, and when the pool of available free agents is diminishing in quality.

 

Just as the baseball side will not make moves in the short term that do harm to the long-term plan of a sustainably and annually competitive team, the business side is focused on providing a long-term, sustainable flow of revenue. In the short-term, each of those plans can lead to some pain, as we’ve seen with the falling payroll figures and the (partially) attendant performance on the field.

 

In every sense of the phrase, the baseball plan and the business plan sync up.

 

If you’re going to be dealing with the short-term pain associated with a deep rebuild on the baseball side, and if you’re going to face a variety of financial restrictions at the same time anyway, you might as well focus both sides of your organization on the long-term. That means investing in the future on both the baseball and business sides. It means facing the reality of the financial restrictions, and aligning the best possible baseball rebuild with the years where payroll was probably going to have to be reduced anyway. It means putting your organization in the best possible position to be a behemoth at the end of the rebuild (and the end of the restrictions), repaying the fans many times over for the price the years of last place finishes imposed.

 

Presently, the long-term revenue picture for the Cubs is as bright as the long-term baseball picture. In addition to the many nearer-term revenue improvements on which the business side has focused in the early years of the Ricketts Family’s ownership, there are some big ticket items on the way:

◾When Wrigley Field is renovated and the development plan is complete, Cubs sources estimate that the final project will add upwards of $40 million in incremental revenue. Couple that with a natural drop in that onerous $15 million annual Wrigley upkeep expense, and this is a significant improvement. Should the renovation begin after this season, as is currently expected, these revenue benefits will likely phase in over the course of the next five years.

◾The Cubs’ television broadcast rights are currently split between WGN and CSN, with the rights to the WGN games available to the market after 2014, and the rights to the CSN games available after 2019. Some estimates project that the Cubs’ annual take in rights fees could increase by as much as $130 million. Even being conservative, an increase in the $70 to $80 million range appears to be a minimum. A portion of this revenue increase will kick in for the 2015 season, though the most dramatic changes will likely not come until after 2019.

◾When the Cubs return to a modestly competitive state, considering the history of the fan base, attendance is likely to swing upwards again. With a wave of top prospects arriving en masse as soon as 2015, an increase in ticket sales and attendance beginning in 2015 is not unreasonable to project. Even a modest increase – say, 200,000 – could result in a revenue bump of $12 to $13 million. If attendance climbs as the team’s competitiveness improves, that revenue figure will further increase.

◾As discussed extensively above, the Chicago Cubs will carry some considerable level of debt through at least 2019. To the extent the debt service payments and/or other restrictions related to the debt artificially limit the Cubs’ ability to spend revenue on the baseball side, those limitations may gradually ease over the course of the next five years. Understanding that there is $30 to $35 million in debt service currently paid annually, you can consider that figure extra revenue at some point in the near-term future, or perhaps by 2020, if the bulk of the debt is not paid down until 2019.

 

Taken together, it’s easy to see why the long-term business picture is a bright one, and why the Cubs are confident that their business plan will ably support the baseball plan. Future revenues have the potential to explode like a baseball kissing Javier Baez’s bat.

 

There are, of course, two caveats:

 

(1.) The bulk of the revenue increases won’t be hitting the books until 2019 or later. In other words, we may not see the organization’s vision and might fully realized for another five years. For a fan base that hangs on every day of the year, five years feels like an eternity; and

 

(2.) Any optimism that you would attach to these projections requires that you believe the Ricketts Family’s repeated pledge to put every dollar that comes in the door back into the organization. Increased revenues matter to fans only if that revenue translates into an improved baseball product. My research into the Chicago Cubs’ financial picture over the past four years has pretty clearly demonstrated that the Ricketts’ pledge has held up so far. For me, that buys enough trust that, when the revenues increase, so, too, will the spending (if not sooner). I understand the skeptical among you who need more proof. In time, the proof will come – one way or the other – as the baseball plan progresses, and the payroll money is either there, or it is not there, to support that plan.

[Hairyducked Idiot]

I'm not completely prepared to take it for granted that just because there's $40m the writer can't account for, that it must be those kinds of expenses.

[Guest]

I'm not completely prepared to take it for granted that just because there's $40m the writer can't account for, that it must be those kinds of expenses.

 

What do you think it might be? He makes a pretty compelling case that it's *something* (e.g. they have no incentive to artificially inflate that number, just the opposite), and his educated guess makes some sense to me. Add a dozen well paid people, a few more coaches/instructors, whatever they're paying Bloomberg for that MLB system, fitting all the minor league parks for live video and maintaining that infrastructure, the annual commitments for the Dominican academy and Mesa renovation, etc. That might not be $40 million but it's probably a chunk of change.

 

The other potential contributor that makes sense to me is IFA and/or draft spending. Those player salary values look pretty light to my eyes, to the point where it seems almost impossible that they're including bonuses(and penalties) to Top 10 picks and IFA. That wouldn't be 40 million either(IFA isn't so big and the Cubs weren't draft cheapskates before), but I could see a combo of that and front office scaffolding being the biggest part of that increase.

[Hairyducked Idiot]

I'm not completely prepared to take it for granted that just because there's $40m the writer can't account for, that it must be those kinds of expenses.

 

What do you think it might be? He makes a pretty compelling case that it's *something* (e.g. they have no incentive to artificially inflate that number, just the opposite), and his educated guess makes some sense to me. Add a dozen well paid people, a few more coaches/instructors, whatever they're paying Bloomberg for that MLB system, fitting all the minor league parks for live video and maintaining that infrastructure, the annual commitments for the Dominican academy and Mesa renovation, etc. That might not be $40 million but it's probably a chunk of change.

 

The other potential contributor that makes sense to me is IFA and/or draft spending. Those player salary values look pretty light to my eyes, to the point where it seems almost impossible that they're including bonuses(and penalties) to Top 10 picks and IFA. That wouldn't be 40 million either(IFA isn't so big and the Cubs weren't draft cheapskates before), but I could see a combo of that and front office scaffolding being the biggest part of that increase.

 

The "combination" explanation seems a lot more plausible.

[davell]

From @MLBBruceLevine: How the #Cubs' creative bookkeeping helps add assets this offseason: https://t.co/6RsInbblVl https://t.co/t7ot0dPzfw

 

Interesting, but I guess this has been the case all along. I'm guessing this is how they squirreled away IFA money. Who knows though?

[cubfro]

Has there been any talk of raising ticket prices this year? Just a 2.5% increase might really help our revenues and we have a pretty long waitlist for season tickets so demand shouldn't be an issue...