there has been a lot of speculation around the cubosphere about the fate of tribune company ownership since crain's first speculated on a divestment of non-core assets. chuck over at ivychat has doen a fine job watching the travails of tribco as it struggles to meet profit targets and its stock scrapes multi-year lows. but what may have escaped the grasp of many is how exactly a sale of the cubs would benefit tribco. after all, aren't the cubs a cash cow?
despite the uninformed sarcasm of some, this page thinks that crain's is spot on in assessing the possibility of a sale of the cubs as higher now than it has been in some time -- and the reason why is a matter of economics and profitability for the tribune company.
the reason they might sell is that tribco's return on investment with respect to the cubs is not very good -- the team is a poor use of tribco capital.
that sounds an outrageous thing to say, from the layman's perspective -- after all, didn't they buy the team in 1981 for just $20mm? aren't they talking about selling it for some $400mm or more?
yes -- and, believe it or not, that isn't what corporate american media expects of their capital investments. if they sold the team for $400mm today, that would be added to some $400mm or so in profits that the team has garnered over the last 24 years to gross tribco a return on investment of some $800mm -- which works out to a pretax roi of 17% per annum. after taxes, this figure could be considerably less -- possibly in the low teens.
regardless of what one might think about the sums involved, that is not a good investment for the tribune. typical capital ventures that find funding have annualized roi that promise at least twice what the tribune has seen as the result of buying the cubs. this fact makes the cubs in fact one of tribco's least attractive assets. for comparison, one of the tribune's better investments of recent years involved aol, in which it invested in 1991 -- turning $5mm into over $1bn in less than a decade, which became the basis of subsequent corporate bond offerings.
the cash flow involved doesn't hurt the company, certainly, but would tribco miss it? they could easily make up their $60mm a year simply by employing the capital garnered from the sale in more productive ventures with higher roi. better yet, such investment gains are non-taxable until realized, unlike operating profits, and so will compound at a greater rate over time.
much is made about the "synergistic" effect of a media company owning the source of its own programming, but this really isn't a reason to hold onto the cubs. tribco would almost surely secure a long-term, below-market deal for such broadcast rights as a condition of sale -- effectively retaining what "synergy" may exist.
the point of this analysis is that, unless tribco has reason to believe that the rate of return will increase, selling the cubs now and reinvesting the proceeds elsewhere makes sense. so can we see a reason why the rate would increase?
in all likelihood, the opposite is more probable. major league baseball's collective bargaining agreement lapses at the end of this season. only once in the history of baseball since unionization has that deadline gone without a work stoppage -- next year is likely to be a shortened season. more importantly, the terms that follow the conclusion of negotiation are likely to be yet less favorable to tribco and other large owners -- more revenue sharing is certainly on the table in an effort to improve competitive balance.
these facts are just as apparent to other corporate media owners as they are to this page, and they have been the motivation of a number of divestments in the last few years -- such as disney's selling of the angels in 2003 and the nhl's mighty ducks in february 2005; news corp's sale of the dodgers in 2004; and time warner, which sold the nhl thrashers and nba hawks in late 2003 and is now exploring a sale of the atlanta braves, which are in a virtually identical position vis-a-vis wtbs and turner south as the cubs are with wgn and comcast.
given their positioning relative to in-house programming, it's perhaps no surprise that the superstation teams -- the braves and the cubs -- are the last to the chopping block. but the underlying reasons that motivated these past sales apply just as forcefully to both these clubs. this page would be underwhelmed at the sight of a sale of either or both in the next year.
one can only hope that the next management is better than the last two. the cubs have gone 1886-2032 (.481) in 24 years of tribune ownership; in the 24 years prior to that, under the watch of p.k. wrigley, the cubs were 1852-2141 (.463). in the last 24 years, there have been 7 90-loss seasons -- one every three years or so. in the previous 24, there were nine. in the last 24 years, there have been 3 90-win seasons -- one every eight. in the previous 24, there was only one (1969, of course). if this seems to favor tribune ownership over p.k.'s, one might note that the economics of baseball have also shifted in the last quarter-decade to increasingly favor large-market clubs like the cubs -- meaning that their recent futility is all the more aggravated and despicable.
it's hard to imagine one of the sport's top revenue-generators bound in such futility for such a span except as the result of profit-driven corporate management. the cubs would be likely, if recent sales are any indication, to be sold to an individual or partnership -- as in real estate magnate frank mccourt's purchase of the dodgers, or philanthropist henry samueli's acquisition of the thrashers. corporate ownership appears to be a fading trend, and that can only help this team.
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