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The insanely revealing sale of the Chicago Cubs

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Deadspin has a massive story today about the sale of the Chicago Cubs to the Ricketts family ten years ago. It’s sourced by leaked emails from family patriarch Joe Ricketts’ inbox. It contains deal points, presentations from bankers, lawyers and consultants and communications between and among members of the Ricketts family.

And boy oh boy it is a treasure trove of information about the state of modern baseball economics. It’s must-click material.

The two biggest takeaways:

Baseball ownership is idiot-proof

As the Ricketts were gearing up to bid on the Cubs they worked with financial consultants to give them the lay of the land. One of the Powerpoint slides given to the Ricketts family involved how the risks of baseball team ownership are mitigated by the unique benefits of baseball team ownership:

The short version: owners are basically insulated from the consequences of bad business. They have a legal monopoly and can get away with all manner of things other businesses can’t. They can cut payroll if they want to. Since franchises don’t depreciate in value, they can bail out by selling, even if they’re losing money. If things get really bad they can rely on local governments to grant them new revenue streams with tax dollars or, worst case scenario, the league will bail them out.

We’ve touched on all of these things here before. There’s always a group of readers, though, who say I’m just a flaming pinko lefty for bringing that up. Know, now, that it’s not just me, but actual Wall Street folks who consider this to be the defining feature of baseball ownership.

In light of that, I would ask those of you who like to go on about how much risk owners take on and how harrowing a financial path they are traveling in the uncertain, rough and tumble world of professional sports to print that slide out on adhesive paper and smack it to your foreheads.

 

Debt

Not that the business of baseball is guaranteed to be idiot-proof forever. One key component of the Cubs sale, and of all other recent team sales, is massive debt.

The Deadspin story does a great job of revealing just how dependent upon debt modern baseball ownership truly is. We know owners take on a lot of debt to purchase teams, but the size and structure of that debt is hard to get your brain around until you see it written out in black and white like it is here. Major League Baseball has rules about how much debt an ownership group can take on but, as the Ricketts case makes clear, they are easily circumvented and often ignored by MLB.

The reason for that debt is soaring franchise costs. Teams are expensive now! They are expensive because revenue streams, particularly from cable television, have spiraled upward. Despite the allegedly bad cash flow of big league clubs, Wall Street, eager to get a cut of that action, has freed up capital to give to would-be team owners. As more would-be team owners enter into bidding armed with billions, the sale prices go up and up.

The consequence of that debt: a lot of revenue goes to debt service, strapping the cash flow of ownership groups. At least theoretically. Since we have no access to most teams’ books we don’t know how strapped that cash flow is by the debt payments, but it would seem to me that either (a) debt service from owners is cutting into cash flow, thereby limiting what they can pay players; or (b) the reported debt provides a handy excuse for teams to say they can’t pay players more due to debt service. Those aren’t mutually-exclusive, of course. Could be a bit of both. I’ll also add that this could provide some insight into why Major League Baseball doesn’t seem all that concerned with policing its own debt limits. It’s better for owners if revenues go to debt service than to the players, right? Once it goes to the players its gone. If it goes to Wall Street, it keeps Wall Street happy which could benefit owners down the line.

Of course, a possible down-the-road consequence of all of this is something we’ve talked about a lot here before: what happens if the big TV deals which fuel this bubble dry up and causes it to burst? What if cable networks decide that it’s simply not worth paying a team $3 billion to broadcast games? What if a cable network declares bankruptcy to get out of an existing TV deal? What if, like every other media sector, the Internet finally outflanks legacy media in baseball broadcasting and causes its value to plummet?

That . . . would not be good! Stay tuned kids!

 

Other stuff

  • So much in the story involves the petty squabbling among the Ricketts family members about how they were portrayed in the media at the time of the sale. Tom Ricketts, who did end up becoming the control person of the Cubs, was out front and other members of the family chafed at that. Seeing them talk about it in faux high-minded businesspeak, all while circulating talking points and meeting with publicists and stuff, is kind of hilarious. I can’t imagine interacting with my family like this, but then again, my family doesn’t have many billionaires in it, so we tend to talk about different things;
  • Every time family patriarch Joe Ricketts makes the news for saying or writing or doing something insanely racist, the Cubs and/or Major League Baseball issue a statement about how he has no connection to the team. The financial documents here cut against that. Tom Ricketts does not become owner of the team and the Ricketts family does not gain its interest in the team without Joe’s money and active participation in its purchase. He may not do stuff on a day-to-day basis with the Cubs, but to cast him as some outsider is dishonest in the extreme;
  • There’s a memo in there about how the Ricketts met with the Red Sox owners as they were doing due diligence. It was a productive meeting. In addition to getting all kinds of insight into the lucrative Fenway Park renovations, which the Ricketts would largely ape over the next decade with Wrigley Field, John Henry and company gave them notes about how big market teams like the Red Sox have worked hard to make sure as much revenue is possible is classified as non-shareable with the other teams as opposed to shareable. The insight, no doubt, was given because that same strategy would benefit the Cubs. Keep that in mind the next time someone talks about a salary cap with the players getting a set percentage of baseball revenue. If the clubs are working that hard to classify income as non-shareable with other owners, you know damn well they will work extra hard to classify as much revenue as possible as “non-baseball revenue” to keep it out of the players’ pot as well. They do this informally already. Imagine if they had a stronger incentive to do so.

Anyway, a very revealing look at the business of baseball in general and the business of the Cubs in particular. Take some time today to give it a read.

 

 

Washington Nationals roster and schedule for 2020

Nationals roster and schedule
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The 2020 season is now a 60-game dash, starting on July 23 and ending, hopefully, with a full-size postseason in October. Between now and the start of the season, we’ll be giving quick capsule previews of each team, reminding you of where things stood back in Spring Training and where they stand now as we embark on what is sure to be the strangest season in baseball history. First up: The Washington Nationals roster and schedule:

NATIONALS ROSTER (projected)

When the season opens on July 23-24, teams can sport rosters of up to 30 players, with a minimum of 25. Two weeks later, rosters must be reduced to 28 and then, two weeks after that, they must be reduced to 26. Teams will be permitted to add a 27th player for doubleheaders.

In light of that, there is a great degree of latitude for which specific players will break summer camp. For now, though, here are who we expect to be on the Nationals roster to begin the season:

Catchers:

Yan Gomes
Kurt Suzuki

Infielders:

Eric Thames
Starlin Castro
Carter Kieboom
Trea Turner
Howie Kendrick
Asdrúbal Cabrera

Outfielders:

Juan Soto
Victor Robles
Adam Eaton
Michael Taylor
Andrew Stevenson

Starters:

Max Scherzer
Steven Strasburg
Patrick Corbin
Aníbal Sánchez
Austin Voth
Erick Fedde

Relievers:

Sean Doolittle
Daniel Hudson
Will Harris
Tanner Rainey
Wander Suero
Hunter Strickland
Roenis Elías


BREAKDOWN:

The Nationals shocked the world last year, recovering from an abysmal start to the season to win an NL Wild Card before cutting through the Dodgers, Cardinals, and Astros to win the first championship in franchise history. While the roster is largely unchanged, there is one gaping void: the loss of third baseman Anthony Rendon, who signed with the Angels. Rendon, a perennial MVP candidate, led the majors with 126 doubles and the NL with 44 doubles while smacking 34 homers with a 1.010 OPS last season. He’ll be replaced by the young Carter Kieboom and the veteran Kendrick and Cabrera. Those are some large shoes to fill.

With Rendon out of the picture, Juan Soto becomes the crux of the Nationals’ offense. Last year, he tied Rendon with 34 homers while knocking in 110 runs. He also, impressively, drew 108 walks, by far the highest on the team. The Nationals will likely have to utilize their speed even more. Last year, Soto stole 12 bases while Adam Eaton swiped 15, Victor Robles 28, and Trea Turner 35.

As was the case in 2019, the pitching will be how the Nationals punch their ticket to the postseason. Max Scherzer finished third in Cy Young balloting, his seventh consecutive top-five finish. The club retained Stephen Strasburg and brings back Patrick Corbin as well. There really isn’t a better 1-2-3 in the game. The rotation will be rounded out by Aníbal Sánchez and one of Austin Voth or Erick Fedde, though both are likely to see starts during the season.

The back of the bullpen is led by closer Sean Doolittle, who posted an uncharacteristically high — for him — 4.05 ERA last year. He still saved 29 games and averaged better than a strikeout per inning, so they’re in good hands. Daniel Hudson and Will Harris will work the seventh and eighth innings leading up to Doolittle.

As mentioned in the Braves preview, it’s tough to make any definitive statements about a 60-game season. Variance is going to have much more of an effect than it would in a 162-game season. Additionally, the NL East is highly competitive. It would be wrong to say with any degree of confidence that the Nationals will win the NL East. For example, the updated PECOTA standings from Baseball Prospectus only project a five-game difference between first and last place in the NL East. What we can say is that the Nationals will give everyone a run for their money in 2020.

NATIONALS SCHEDULE:

Every team will play 60 games. Teams will be playing 40 games against their own division rivals and 20 interleague games against the corresponding geographic division from the other league. Six of the 20 interleague games will be “rivalry” games.

  • July 23, 25-26: vs. Yankees
  • July 27-28: vs. Blue Jays
  • July 29-30: @ Blue Jays
  • July 31-August 2: @ Marlins
  • August 4-5: vs. Mets
  • August 7-9: vs. Orioles
  • August 10-13: @ Mets
  • August 14-16: @ Orioles
  • August 17-19: @ Braves
  • August 21-24: vs. Marlins
  • August 25-27: vs. Phillies
  • August 28-30: @ Red Sox
  • August 31-September 3: @ Phillies
  • September 4-6: @ Braves
  • September 7-8: vs. Rays
  • September 10-13: vs. Braves
  • September 15-16: @ Rays
  • September 18-20: @ Marlins
  • September 21-23: vs. Phillies
  • September 24-27: vs. Mets

The entire Nationals schedule can be seen here.