Saturday, December 17, 2005

the embarrassment of riches

this writer has encountered many a cub fan in the blogosphere who have rationalized the difficult loss of rafael furcal in free agency by claiming hardship for the cub organization -- by saying that furcal was simply "too greedy", or that the dodgers "overpaid". this is a common method of fictional justification among blindly-devoted cub fans for free agent deals that don't get done which manages to hold the team -- whose virtue cannot be questioned -- harmless.

this page would like to put the lie to that once and for all, disabusing readers of the notion that the cubs run anywhere near some kind of revenue ceiling that they must stay under to avoid generating a loss.

for starters, the cubs have the second-highest average ticket price in the majors. with their average paid attendance in 2005, they cleared $1.22mm a game just in gate receipts. that's just over $100mm for the year. and this before the bleacher expansion, which will be another $4mm or so. and before this year's ticket price increases.

then local television -- and this is a stinker, because the tribune accounts for the revenue generated by broadcasting facetiously in order to shift income into their core businesses (ie channel 9). in 2001, the cubs actually reported 22% less in broadcast revenue than the white sox. moreover, they're now moving away from fsn chicago to a joint venture with comcast, further obscuring revenue with ownership interest. safe to say that actual local television revenue is in the area of $60mm, possibly considerably more.

then their cut of national tv with fox -- $2500mm over six years split 30 ways is $15mm/year

then concessions and merchandising.

other revenue streams -- satellite radio, internet revenues, international broadcasting, what they got from the rooftops, et al -- maybe come in for another $10mm.

in all, revenues total somewhere past $220mm. last year's forbes estimate of $170mm is using old gate receipt data (as noted above, the gate's gone up $20-30mm), of course, politely not adjusted for the income shifting between wgn and the team. revenues increase 10-15% annually in an average year.

now, with $220mm in revenues, we can also say this. the yankees are said to garner $300mm in revenues and spend about $200mm on player payroll. this puts their fixed expenses (stadium, front office, minors, etc) at $100mm -- if they merely break even, and i'll bet they do better than that.

the cubs fixed expenses are certainly not greater than the yankees, playing in new york, paying new york rates. the year-old forbes numbers (revenue less payroll less operating income) suggest $54mm. we could generously guess $60mm for the cubs fixed expenses.

having got that far, some simple math shows about where the actual profitability ceiling in player payroll might be. $220mm less $60mm is $160mm -- split between player payroll and pure profit. of course, this is all back-of-the-napkin -- but i'd be quite surprised if this is very far from the truth.

moreover, the dodgers' profitability looks, in all likelihood, very much like this. remember that when you consider, dear reader, propogating the lie that the dodgers "overpaid" for furcal. what makes the cubs look all the more foolish and negligent for being so outmaneuvered is that there isn't a viable major league shortstop anywhere in the organization (unlike los angeles). the cubs haven't had a threat at the position for more than a few games since 1979.

so, when this team is committed (as they are currently) to something like $85mm in player payroll for next year, and one can hear people actually crying poverty over offering furcal another $3mm a year to close the deal -- such persons can frankly kiss this page's ass. losing furcal isn't about profitability. quite honestly, if this team is any longer to have much hope in 2006, they should (and probably could) trade prior for abreu, dump the farm for huff and lugo (putting murton and cedeno on the bench, in iowa or in sunny miami), go sign kevin millwood and two more righthanded relivers (say tavarez and rudy seanez) -- and in so doing remain profitable, adding some $45mm to the existing $85mm and STILL clearing some $30mm for shareholders.

so, if losing furcal isn't about profitability, what is it about? in this page's heavily considered opinion, it is about a general manager that doesn't know how to close a deal, working for an exploitative engine of profit that cares not a shit about winning but everything about meeting sales projections and creating shareholder value. it's about a middle manager named macFail making his ambitious quarterly goals at the expense of winning ballgames.

this is one of the biggest reasons the cubs desperately need a fan revolt to force the trib to divest itself of a non-core, relatively minor asset in the cubs. tribco's got much more tied up in the wb network venture (which is why they don't need the programming on channel 9 and farm it out to fsn and now comcast) than the cubs. they're close as it is and have looked into it -- a drop in gate revenues of even 10% accompanied with vocal protest would probably get them out of the game, it seems to this page, if they aren't on their way to realizing their $370mm capital gain already.

then, at least, the cubs would stand a chance of getting an owner with an ego large enough to screw increasing quarterly profit goals and try to win for the sake of winning.

(UPDATE: more on the cubs p&l statement here.)

No comments: