What the Cubs sale will say about baseball
The pro sports world may be sweating out sponsorship pullbacks and slow season ticket sales, but for the Chicago Cubs, everything’s cool.
Being a marquee property doesn’t completely insulate from recession, but it comes pretty close. Soon, one of three final bidders will fork over roughly $1 billion to Tribune Company for the storied franchise, if expert predictions prove accurate.
Various published reports suggest that a final decision by Tribune, which is controlled by billionaire Sam Zell, will come by the end of this week. Chicago investment banker Tom Ricketts, New York-based private equity partner Marc Utay and Chicago real estate investor Hersh Klaff are the three finalists to land the team.
Declaring a winner is still premature. With Tribune operating under Chapter 11 bankruptcy protection, a final deal has to be approved by a judge, who would be first obliged to seek out any further bids. That would give each of the two “losers” a final shot at raising their offers.
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“Everyone will get a second bite at the apple,” says sports investment banker Sal Galatioto, who is representing Ricketts. Galatioto confirmed that any final sale will undoubtedly include Wrigley Field and the Cubs’ 25 percent stake in Comcast SportsNet Chicago, the local sports cable channel.
Hence the (roughly) billion dollar price tag. Last April, Forbes valued the club itself at $642 million – the fifth-highest in baseball. Tribune Company bought the Cubs for $21 million in 1981.
But don’t interpret the healthy price the Cubs figure to command as sign that franchise values will keep growing around the league. Despite a tortured history that includes a century without a World Series title, the Cubs are one of sports’ treasured franchises, thanks to their big market, international identity, classic ballpark and colorful past as lovable losers.
Back in the 1980s, they were one of the first teams to regularly broadcast games on a cable “super station,” giving them national exposure on a regular basis.
“Cubs demand is pretty inelastic, but as you go down market you’re taking greater risks,” says Galatioto.
So whoever buys the San Diego Padres from John Moores, who recently announced his intention to sell off all or part of the team, should be careful. Valued at $385 million by Forbes, the mid-market Padres could well be worth less this year.
The last team to change hands, the Atlanta Braves, just got in under the wire. The club’s 2007 purchase by Liberty Media for $450 million represented an 11 percent premium from the previous year’s valuation, with enough upside left to yield another 10 percent gain in Liberty’s first year.
For most franchises, those days appear to be over, at least for a while. But the winning bidder for the Cubs has a real chance to cash in over the next few years, despite the tough economy.
The reluctance of banks to lend right now basically requires a buyer to sink more equity into the purchase, or requires the seller to come down in price (or some combination of the two).
Either way, there’s less debt on the books, meaning a new owner will be sitting in a nice position once the economy turns around.
“Someone buying today could have a property that will look like a steal in five years,” says sports business consultant Marc Ganis, who is based in Chicago. “Being one of the half-dozen or so prestige franchises, of which the Cubs are one, puts you in the best position to take advantage.”
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