FOR SALE BY OWNERS

On the eve of Opening Day, several local media outlets reported that the Ricketts family may be looking for minority shareholders for the Cubs.

This may be considered another crack in the foundation of Ricketts' ownership.

The SunTimes noted that the Ricketts family is exploring opening the Cubs ownership to minority shareholders to help finance the long-sought renovation and expansion of Wrigley Field.

The SunTimes story said the Ricketts would offer the shares in a team that Forbes values at $1.2 billion.

If the deal goes through, the Cubs would be seeking a small number of high net-worth shareholders. The shares would come out of the Ricketts’ 95-percent ownership of the Cubs. 

But shareholders would not be offered a vote at the table. “There would be no change in control,” the source said.

“The Rickets family is looking at a number of financial options to be prepared to finance expanding and preserving Wrigley in the event that there is a project to move forward with,” said Ricketts family spokesman Dennis Culloton, who noted that going forward with any financing plan depends on a positive conclusion to ongoing negotiations with rooftop owners concerning expansion plans.

“[The Ricketts] may wind up just writing a check themselves, but this may be another way to generate new capital,” the source said. “The long term goal is to get this project moving forward so the Cubs can generate new resources for the baseball operation.”

There are many problems with the story.

First, when Sam Zell and Tribune sold the Cubs it was under strict guidelines in order to create a "tax free" transaction so the Tribune would not have massive capital gain to report. (The IRS is currently reviewing the transaction to see if taxes are owed on the sale.) The Tribune bought the Cubs in 1981 for $30 million, and the sale was for $845 million. $815 million could be subject to capital gain taxes.

Second, most of the sale price was used by leveraged debt. Under normal commercial loan covenants, ownership cannot change during the term of the financing agreement. In addition, in order to preserve the fiction of the transaction being a partnership and not a sale, Zell's plan mandated that the Tribune maintain a 5% ownership interest in the team and Wrigley Field.

Third, the Cubs and their spokespeople continually lump everything under one banner, "the Cubs" in discussing the renovations, the team, the park, etc. But as the Ricketts zoning petition indicated, a separate legal entity owns the ball club, Wrigley Field, the parking and the new commercial properties outside the park. So if the Ricketts are really trying to sell shares in the "team," it would run afoul of the Zell ownership rules.

Fourth, even if the Ricketts can sell part of their 95% of the team, those current shares have voting and equity rights. The media reports indicate that the Ricketts are thinking about selling "non-voting shares" to raise capital for the renovation. A new share classification of ownership could violate the Zell covenants, and possibly run afoul of Major League Baseball ownership rules, where the other owners must approve any transfers of ownership interests.

Fifth, adding another classification of shares as a means of disguising new "loans" to the Cubs would run afoul with Major League Baseball equity to debt ratios, for which the Cubs are currently not meeting that standard. The idea of using shares to raise capital is common in most normal corporations to fund operations or expansion of goods or services. When a company issues another round of newly issued shares, it dilutes the current equity of existing shareholders as a result. 

Sixth, if the Ricketts are looking to get around current loan covenants, the MLB debt regulations and current commercial loan market, it means that the Cubs and the Ricketts cannot borrow from banks or financial institutions. One could state in that event the team has tapped out is borrowing, so it is seeking alternative means, through "qualified investors." But sophisticated investors are not going to be lured with a shiny certificate that says "You own 1000 non-equity and non-voting shares of the Cubs." They will want a return on the investment and a say in management to protect their investment.

Seventh, if the Ricketts are actually going to sell shares from their 95% of the team, those sale proceeds would not go back to the team but straight into the personal bank accounts of the Ricketts family. This does not raise capital for Wrigley Field renovation. The option noted in the article that the Ricketts could write the check for the renovation themselves seems to contradict the Day One mandate from patriarch Joe Ricketts who said the family would not add any more money to the Cubs; it had to be self-sufficient business.  When an investor wants to start to take profits or retained earnings from their business, one way to do so is to sell a portion of their stake to new people. Perhaps, the Ricketts denials that they have not been taking operating profits from the Cubs are true (because the team has none to meet future expenditures), so the only way to get money out of the team is to sell shares. In most cases, this is probably the last thing an owner would want to do because it adds another layer of complication to running the business, new outsiders with differing views and requirements on how to make money off the Cubs.

The Cubs and Wrigley Field have been milked dry. This season of new promotions and the "Party at the Park" year round celebration is not going to be the big revenue spike that management is hoping for because the team (and attendance) will continue to be poor.

Even though when Ricketts bought the club and said they would be in it "for the long haul," every prudent investor needs to have an exit strategy. The Ricketts selling shares of the Cubs could be the first round of a divestiture of the team. Clearly, the Ricketts expectation of owning an iconic major league baseball franchise was slammed down by the reality of Chicago politics, poor neighborhood relations, poor regional economics and a one-sided purchase agreement that ties their financial options.

WRIGLEY CHANGES

For all the talk about Wrigley Field needs major renovations, the Cubs continue to add cosmetic changes and new ball park sponsors without doing any heavy construction. (I have always said that the Ricketts have lumped the non-Wrigley real estate projects in the $500 million Wrigley Renovation Plan without any true itemization because people are fond of the ball park, and not necessarily about a massive commercial complex across the street).

ESPN reports that without the jumbotron or the new Budweiser RF sign, the Cubs will debut a much smaller outfield wall sign with a new sponsor, Weber Grills.
 
Weber, a Chicago-based grill manufacturer, is getting ad placement on a small outfield door. Joining Target and Under Armour, there will be a white silhouette of Weber's signature round grill mixed in the iconic ivy-covered wall.
"We think it's a company that's synonymous with baseball, the summer, drinking beer, and it's a local Chicago-based company," Cubs vice president of sales and partnerships Colin Faulkner said.


This is how the Cubs see Wrigley Field: as a place to spend the summer eating and drinking. The emphasis on non-baseball factors is clear.

ESPN also reports that Weber joins Kraft and Giordano's as high-profile new sponsors this season. Kraft is partnering with the Cubs at the "Decade Diner," formerly known as Sheffield Grill near Gate D, to serve themed food to honor the Wrigley centennial.
Kraft, which is celebrating "100 years of cheese-making," will have themed recipes for each decade. The Cubs also have historically-themed hot dogs and alcoholic drinks, along with giveaways.
Local pizzeria Giordano's is the new pizza provider at Wrigley, replacing D'Agostino's, which had a brief partnership with the Cubs. Giordano's employees will cook up the deep dish pizza at a Wrigley concourse kitchen. 

Now, teams do cater to their fan base. For the premium prices, Cub fans may desire premium food service. But the Cubs are really emphasizing the amenities over the entertainment of the baseball games. The marketing is more towards the new food court in the mall than exciting Cubs baseball with new food and drink options. Again, this plays into the theme that the Ricketts want to transform Wrigley into a year-round destination place for food and drinks.

INTERVENTION NEEDED

The Cubs continue to sign injured pitchers hoping that they turn it around and find their past skills several years removed from major league action. James McDonald was placed on the 60 day DL at the end of camp. He was another injured pitcher the Cubs signed to find some past glory. Now, the Cubs continue to fill their M*A*S*H unit of rehabbing starters. After the Scott Baker situation last season, you would think the front office would have more caution in this area.

But no. MLBTR reports the the Cubs have agreed to terms with right-hander Joel Piniero on a minor league contract. Pineiro will spend 10 days in extended Spring Training before reporting to Triple-A Iowa

Pineiro, 35, hasn't appeared in the Major Leagues since 2011 or the minor leagues since 2012. He inked a minor league deal with the Orioles last off-season after shoulder surgery cut his 2012 campaign short. Pineiro spent some time rehabbing with the club, but he was released midway through the season without getting into a game.

Pineiro joins A. Vizcaino as the long term rehab candidates. Vizcaino, who is now more than two years removed from TJ surgery, was sent to Daytona to continue his rehab, mostly because the club did not want him exposed to cold weather pitching. How brittle is Vizcaino?  Very. Pineiro has not pitched in the majors since 2011, and his age, what is the realistic chance he will ever recover? Almost nil.

 So why do the Cubs continue on this gambler's path of trying to roll hard eights at the crap table? Is there a continuing desperation that the vaulted minor league system is weak on pitching? That would be one explanation why the team continues to take these risky shots in the dark with injured veterans.

But for a team that is guarding its resources like a small market club, you would think that it would be better served by stopping the injury merri-go-round and try to develop their own pitching staff.

TRANSPARENT CLOAKED

After trading away 40% of  his starting rotation year after year, it is not surprising that the leftover starters remaining with the Cubs would be uneasy about the front office.

Jeff Samardizja has been vocal about such deals. He is on a major league roster to win. Trading away his fellow pitchers for low level prospects is not a win-now plan. Fierce competitors don't want to be around teams that have no chance to win.

The Cubs and Samardzija's agent have danced around the idea of a contract extension for almost two years now. The Cubs said they were open to a contract extension. But they are no closer to getting a deal now then a year ago. Both sides have different views on the 29 year old pitcher's market value. As the Cubs sink in the standing, the gap appeared to grow between the two sides. Even though the Cubs still have Samardzija under contract control, it appears that Samardzija wants out. He recently put up his Chicago home for sale.

Mark Gonzales of the Tribune reports that Cubs president of baseball operations Theo Epstein said  he will no longer publicly address the team's plans regarding Samardzija.  Speculation has spun all offseason between the possibilities of a new deal or a trade of the 29-year-old hurler, who is under team control for two more years.

So the front office, who touts its transparency of their rebuild, has gone into the cone of silence in regard to Samardzija's future.

"We talked about it early in spring training," Epstein said prior to the opener in Pittsburgh. "We indulged the questions. Right now we're just focused on the games and just going out and winning."  Gonzales wrote that Epstein indicated that the club would be cognizant of its place on the win curve in considering its options. 

"All contracts collectively form a market and you have to be aware of the market and operate in the market when you're in free agency, and it affects everything you do, to a certain extent. But we have to make smart decisions for our situation, for the situation we're in now and the situation we're going to be in in a few years."

One interpretation of that quote is that the Cubs are "trying to beat the market," i.e. lock in players to cheaper contracts than the free agent market value.  The Cubs are also trying "to time" the market, i.e. when their prospects are ready to contribute greatly at the major league level. The team is apparently gun shy to sign any player, including Samardzija, to a long term deal with the prospects still in the minor leagues. As it stands, it seems that the Cubs are not willing to spend any money to lock in further control of their own players.

It also signals to the other clubs that extension talks with Samardzija are not a priority, so that trade offers would be greatly appreciated during the season. Several teams, including the Diamondbacks, have had a flurry of pitching arm injuries early into the season. After the Shark's good opening day outing, and the Cubs unwillingness to spend FA money to keep him, Samardzija appears to have "trade chip" sewed on to the back of his uniform.

THE GOOD, THE BAD AND THE SAME

The Cubs lost to the Pirates, 1-0, in extra innings. The loss was not a surprise. How the Cubs lost was not a surprise. It was a reprise of 2013.

The Good. The starting pitching was above average, with Samardzija holding the Pirates scoreless through 7 innings, a quality start by any measure.

Bonifacio showed what a traditional lead off hitter is supposed to do: get on base. He went 4 for 5 on the afternoon.

The Bad. The Cubs could not bring in any runners in scoring position. The team was 0-for-11 with RISP. Last season the Cubs lead the league in this futility (at .213) and this start does bode toward repeating that bad title. Overall, the Cubs hitters besides Bonifacio were pathetic: 2 hits. Bonifacio's production alone was 66.7% of the team's total offense.

Bonifacio also showed how a lead off hitter aggressiveness can get you into trouble. He was thrown out at the plate trying to score a run; and he was picked off once from first (and if replay was to be believed probably twice.) Base running errors has been another hallmark of a bad Cub team.

The fear was that Olt was going to be a Brett Jackson brand strike out machine.  He did his best. He went 0-3 with 2 strikeouts before being lifted for a pinch hitter (ouch). The Rizzo-Olt middle of the batting order was 0-7 with 5 strikeouts. In total, the Cubs fanned 11 times against the Pirates staff.

The Same. I thought new manager Renteria was timid during spring training. He kept quiet as this is his first managerial job. His spring arguments with umpires were more like casual conversations. He did make a challenge in the Pirates game, and lost.

But the worst mistake Renteria made was in the 10th inning. He inserted fifth starter Villaneuva in the bottom of the 10th. This move made no sense. First, Villaneuva had won the firth starter slot. So he was a starter, working up a routine to take the ball every six days. It was highly doubtful that Villaneuva thought he would pitch yesterday since he was no longer assigned to the bullpen.

Second, we all assumed that Grimm was the long reliever in the pen, taking the place of Villaneuva. Grimm got into the game, but only pitched in one inning, throwing 10 pitches to get one batter out in the 9th. Russell came in to finish the 9th with 7 pitches for 2 outs.

Third, Renteria had a four more guys left in the pen with a day off today: Schlitter, Rondon, Wright and closer Veras. Why was he saving any of them? Especially when the Pirates first hitter in the 10th was lefty Neil Walker, the logical call was to bring in Wright.

But Renteria went with Villaneuva, who gave up a walk-off homer to Walker.

If Renteria was thinking that the game could go deep into extra innings, he had to have a long reliever in the game right away - - - that meant a) he did not think about before the 9th when he used Grimm up for one batter; and b) he could have still used Rondon and Wright in the 10th and 11th before having to get Villaneuva into the game.

Some would say that was a rookie managerial mistake. I say it seems to be a continuing pattern of the last three managers the Cubs have had leading the team.

Nothing in this season opener showed any vast improvement over last season's 96 loss team.  The Cubs 40.7% outs by strikeouts ratio was a big reveal. For a front office that continues to say the metric for building the team is OBP and patient hitting, the strike out ratio is the exact opposite of such a philosophy. There continues to be a disconnect in what management says it wants and what is actually on the field.

CLARK THE MASCOT

The Cubs started the 2014 season in typical 2013 fashion.

OPENING ROSTER

The Chicago Cubs broke camp with another journeyman heavy roster for the 2014 season.

Starting pitchers

Jeff Samardzija, Edwin  Jackson, Jason  Hammel, Travis Wood, Carlos Villanueva.

Relief pitchers

Jose Veras, Pedro Strop, Justin Grimm, James Russell, Wesley Wright, Hector Rondon, Brian Schlitter.

Catchers

Welington Castillo, John Baker

Infielders

Anthony Rizzo, Darwin Barney, Starlin Castro, Mike Olt, Emilio Bonifacio, Luis Valbuena

Outfielders

Junior Lake, Justin Ruggiano, Ryan Sweeney, Nate Schierholtz, Ryan Kalish

Two points of note: off-season acquisition George Kottaras was cut, so minor league veteran John Baker is the new back-up catcher. Kottaras was touted as a defensive play caller who had the experience to help the young pitching staff. Somewhere along the line, the scouting report and reality conflicted and he was cut.

The bullpen is different than what most people thought.   Rondon and  Schlitter took the two final pen spots. Schlitter has had minor league closer experience, so this may be a hedge against a very inconsistent Veras spring. However, Schlitter has had several seasons of arm major injuries. He last pitched in the majors in 2010. Rondon and Schlitter took the places of Blake Parker and Alberto Cabrera, who is out of options. Cabrera was doing well until his last outing blow-up. With Villanueva in the rotation, Grimm becomes the long reliever/spot starter role.