May 17, 2020

LESS THAN HALF THE STORY

I take issue with the one-sided nature of Bruce Levine's report. He did not challenge Tom Ricketts statements to season ticket holders.


Levine stated Ricketts' comment were notable because owners and players have key financial discussions looming as they negotiate a return-to-play framework for a 2020 season that has been suspended due to the coronavirus pandemic. Owners have proposed a plan that includes 50-50 revenue sharing, which the union has pushed back against, saying that it's a form of a salary cap.
Some players have expressed the belief that they should be compensated on a full pro-rated basis because they're the ones taking the health risk, as Rays ace Blake Snell said recently. Beyond that, another argument is that it's unfair for owners to "privatize the the gains and socialize the losses," as powerful agent Scott Boras said. The union hasn't officially commented on its stance.

Under the system of paying players fully pro-rated money, the losses would be too significant in the owners' eyes. MLB owners stand to lose an estimated $4 billion if no baseball is played in 2020, MLB commissioner said on CNN on Thursday.

"This has been a total shutdown of Major League Baseball," Ricketts said. "Unlike the NBA or NHL who had played 80 percent of their seasons, we have played zero. We have to look at how economics will affect the rest of the season. If we are looking at games with no fans, then we do have a real challenge. For the Cubs, about 70 percent of the (gross) revenues come in on the day of games. It comes in through selling tickets, concessions and the ballpark experience (such as parking and merchandise). The other 30 percent comes in through media -- whether it's on Marquee Sports Network, our local media partners and our share of the national media revenues.

"So ultimately, what we are looking at if we can get players into the ballparks is playing a partial season without fans. We are looking at 30 percent of our economics cut in half, so the fact is we must dig deep to find a financial model that works -- the players must feel fairly compensated and ownership doesn't continue to absorb the kind of losses we have so far this season. We are all working diligently toward that. At some point, there will be more discussions. You will hear a lot about it and read a lot about it. It must come down to finding a solution that works for everyone."
Ricketts emphasized players safety is the top priority for the league and owners.

"Every week, the owners have met to talk about how to get baseball back on the field," he said. "We have currently talked about getting back into our home ballparks for this season. That would be without fans. The league has worked very diligently to put into place the most extensive set of protocols, medical safeguards that are out there anywhere. We would be limiting access to the players, limiting access to the number of people in the park. With a strong testing regiment and various other protocols, we can create the safest working environment possible for our players if they are able to come back this summer. We do not have a 100% answer or all clear, but we think the league has created a safe working environment for players to come back to the ballparks. That is very good."

The news report only soft peddles an owner who is not telling a complete truth by trying to gain sympathy over his greedy players. Ricketts is snake oil selling his season ticket holders WHO ALREADY GAVE HIM THEIR MONEY. But Ricketts is hiding in his figures.

As I have reported since the Zell sale, Ricketts family has divided up various parts of "the old Cubs" into separate legal entities: the Cubs as a baseball franchise, Wrigley Field as a real estate owner, the parking lots as a different LLC, the triangle parcel as a separate corporation, and the hotel block as a separate entity. In other words, the Cubs have been stripped of any outside revenue generating properties.

The Cubs team is merely a TENANT at Wrigley Field. It does not share ANY of the revenue from parking, the plaza, or the real estate development income.

When Ricketts says that 70% of Cubs income comes directly from fans (when the league average is only 30%) it is a three card monte financial statement illusion. He is not counting the RENT the Cubs pay to the Ricketts, or all the Wrigleyville income/outside ball park concessions and alcohol sales. The Cubs were stripped down of any outside income sources so the money could flow directly into Ricketts bank accounts.

As for the other 30% income: Marquee Network (a bust), local radio (on a station friendly low revenue deal because Kenney screwed up local rights years ago), and the national TV contract share (which is less than other clubs because Chicago is a large market city). When he says half of the media money is gone, he is saying that Marquee has generated nothing compared to his old Comcast partnership.

Ricketts's turned the Cubs baseball operation, if it is 70 percent dependent on the gate for income,  into a struggling, small market model.






Claiming the Cubs are in dire straights in the coronavirus panic is a FALSE NARRATIVE because Ricketts brought this financial house of cards down on himself. Three restaurants in his buildings have closed in less than 18 months of operation. His big $$$$$ Cubs network is a disaster. Even his local radio partner stopped replaying classic games (when the station has no live content!) He is not selling merchandise; he is not selling alcohol by the barge load; he is not a very good businessman.

He wants "a solution that works" for everybody, but he is really whining about his own potential crushing financial losses.  The 50-50 revenue share works for a delusional Ricketts because no fans in the stands means at 70 percent pay cut for players. If the media income is down by half or more, that means another 15 percent pay cut for the players.

The outside the ball club revenue has to have taken a major hit as Chicago shut down bars and most of the restaurants. Without Cub games, there is no influx of tourists and fans to his Wrigleyville properties. Closed businesses are going to fall behind on rental payments or go out of business.  The Ricketts created their own overdeveloped real estate bubble which burst when the season was suspended by the pandemic.




May 15, 2020

BEING THE FIRST

Apple's Steve Jobs once said that it is better not to be the first pioneer in a new market. It is better to be an innovative second player. The reason? The pioneer has to go through much trial and error, failures, private and public criticism for a first generation product released with flaws.Jobs was anal-retentive about his products working perfectly right out of the box. You can learn from others' mistakes.

Professional sports leagues are meeting constantly trying to figure out how to salvage part of their pandemic lost seasons. The networks, starved of new content, believe there is a huge pent-up demand from fans for live sports. The owners are gnawing their teeth to get their revenue streams back. The players are not getting paid which puts a financial strain on most of their families.

There are some league commissioners who want to "lead" the world back into the sunlight. Sports give people hope. They want bragging rights that their sport knows what is doing and doing it better.

But this is a tricky matter. Things are outside of EVERYONE's control: government, scientific, and private communities. At least 18 U.S. states have lock down orders in place which restricts any type of public gathering, including sports events. In hard hit states like New York, California and Illinois, 9 of the 30 baseball clubs (30 percent) are banned from playing games.

But baseball owners continue to make proposals to the players union to re-start the season. For two days, the parties have discussed the medical and logistics of re-opening camps and playing of games. Owners believe that they can acquire enough testing materials to have multiple player tests per week. (Critics said that would take away from critical need areas as the coronavirus continues to spread.) The issue about a player, coach, umpire or staff member testing positive is hard to grasp. The CDC states a positive test should quarantine the person for at least 14 days. Anyone with contact with the positive test subject should also be quarantined for two weeks. That means an entire team would be suspended. Some Euro soccer leagues think that they can get around the "contact" person rule by immediately testing everyone and only putting positives into isolation. But even then, it may be too late.

Stanford did a study of 5,200 baseball personnel. It found that 0.7 percent infection rate. However, the reports did not state when the tests were done and what the average was at the time of testing. Massive outbreaks in NYC and Chicago have changed the numbers. U.S. officials have been saying that the nation has not reached "the peak," and that there will be a second wave later in the year.

Several players have been vocal about "risking their lives" to play under such conditions (including a biosphere proposal where the players would be isolated from their families.) Further insult to players, owners want to change the fundamental guaranteed contract structure to a 2020 "revenue sharing" plan. Players are already taking a prorated pay cut. If there is no revenue, the players get half of nothing.

But there will be players who want to play. And there will be players who will refuse to play. If the season opens and a player refuses to report, what would happen? In the past, the player would be suspended without pay. But in this case, would owners try to void the players entire contract (to rid themselves of long term dead money?)

The NBA shut down quickly after one player tested positive. Pro basketball is a contact sport. The court is small. The virus could spread quickly through teams and staff. But the NBA is thinking of ending its season with a large, confined to one location, super-tournament.

An unemployed person who is struggling to make ends meet may wonder why sports leagues are so hell bent on returning to action when the national economy is falling apart. Simple: money. There is no income without games. Some teams, like the Mets, have been for years in a financial mess. There is a possibility that many teams could face bankruptcy.

South Korea had 10 straight days of no new domestic virus cases. It had done so well in early testing, on a massive scale, quarantine outbreaks and voluntary isolation that it has a very low fatality rate. But last weekend, one man went clubbing in Itaewon. He later tested positive. He may have infected 800 or more people. Based on the fatality rate, 20 people could die from this weekend party time. As a result, South Korea has re-closed its bars and restaurants.

What happens if a league rushes to re-open and it is a disaster? Does that turn off casual fans because of perceived reckless behavior? Are owners willing to take a public relations hit? What if re-opening spreads the disease - - - is there a liability risk as well?

That is why leagues need to be super-cautious about re-opening. Yes, the world is getting cabin fever. People need to get back to work in order to get paid. The pandemic may be more panic than scientific fact in some circles, but at this point in time no one knows the nature, extent and aftermath of the virus.

May 12, 2020

SHOW US THE MONEY

The salvage show that is the 2020 baseball non-season continues to get strange.

MLB owners had been steadfast against revenue sharing (frequent in other sports). But since the 2020 season now seems to be getting shorter and shorter (if at all), owners have gone back to the union with another re-start proposal.

Prior to his proposal, the union had agreed to a $170 million player fund if the season was canceled. It was a way to settle any litigation over payment of guaranteed contracts, etc. In addition, the plan was to prorate existing player contracts over the number of games actually played in 2020.

But the roadblock to even this negotiated solution is the crippling effect of the shutdown. Individual states have different stay-at-home orders. Science cannot keep up with virus explanations or mathematical models of the contagion. Baseball has no revenue. The golden goose, broadcast TV, has gone sterile as advertising has dried up with most businesses closed or doing poorly.

The owners now want to change the plan to share 48 percent of the "revenue" with the players once the season starts. It is a significant change to the existing baseball payroll structure; a nullification of existing 2020 contract obligations. There is always been multiple account ledgers in baseball. Most teams now consider baseball "revenue" as only what the team pulls in from local TV rights, ticket sales (approx. 30 percent) and concessions. Owners believed that national TV rights, MLB.com and the development of alternative venue sources outside the ball park do not count.

Even if both sides could agree on what counts as "revenue," the owners must have determined that it will be exceptionally low. If you have no revenue, you share zero. If you receive only a fraction of the past revenue, then the players would only get a fraction of a fraction.

National broadcasters have had cable subscriber losses and huge ad revenue declines. There is no time frame for advertisers to return to baseball. Networks will demand concessions due to revenue losses. Owners have had their accountants flip their calculators around to find that prorated 2020 contracts with no significant revenue means massive losses to the owners. It would be better not to open the season.

We know that there are several clubs that were in a financial mess before the virus crisis. The Mets have been a mess for a long time. It is so bad that a vanity couple, A-Rod and J-Lo and their investors, quickly passed at buying the Mets because the financials were so bad. Playing a season could tip one or more clubs into bankruptcy, something that MLB fears the most since it would lose control over who would join their elite ownership club.

The union had stated that it already has a revised 2020 agreement in place with the owners. The union does not have to change its position. It is the owners who are scrambling to find a way to make a profit (and lessen operating expenses - - - salaries, travel costs, etc.).

The Illinois governor has hinted that the "peak" of infections may last through June 15. That means Illinois will remain in lock-down for another month. That would push the Cubs and White Sox back to a late July season start, if at all.An 80 game schedule turns into 65 games.  The longer the wait, the closer it is to a point of no return.

It is assumed that there a pent up demand from fans for baseball's return. But I am not so sure. People have been living without "live" sports for two months. They have found other things to occupy their time, including parents who are working from home AND trying to teach their children homework lessons since virtual classrooms are nearly non-existent in elementary schools. Steaming services have been doing well, but there has been a reported peak in new subscribers and a slow down in viewers. Cabin fever has turned into media burnout.

Even if baseball returns, there is no guarantee that fans will jump on board. There is no guarantee that fans will come back to the ball parks. There is no guarantee that TV ratings will be anything close to respectable numbers. The great unknown is harsh. The epidemic is going to gut the middle class; mom and pop businesses that have been closed may never re-open. People want to go back to work, but cannot. People are confused, angry and in choking debt. A surge a bankruptcies will happen. People will not have the disposable income (the shock of the value of their retirement account balances).

It is still a 50-50 chance that this year there will be any professional baseball.