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Financial Crisis Impacting Cubs Sale in a Big Way PDF Print E-mail
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MLB Club Sales
Written by Maury Brown   
Tuesday, 14 October 2008 00:15


The Sale of the Cubs

Just under a month ago, we heard through more than one source that the field had been narrowed down on the bidders for the Cubs, Wrigley Field, and a 25 percent stake in ComcastSports Chicago, and with it, the winning bidder was rumored to be Thomas Rickett’s group. The sale agreement between new Tribune Co. owner Sam Zell and the Cubs would come a couple of days after the end of the World Series (see Rumor: Ricketts Will Land Chicago Cubs).

As the saying goes, that was then, this is now. Since we ran the story the financial landscape on Wall Street has been rocked with the credit markets taking a massive hit. So large has the drop been that it has redefined the upcoming Presidential election and in a recent poll, nearly 6 in 10 Americans believe a depression is likely.

With Zell looking to do a tax avoidance deal, the new would-be owners of the Cubs will need to be able to carry a large sum of credit, a near lofty notion given the credit crunch.

The Cubs deal has changed, and in a fashion far more dramatic than the Loveable Losers tanking in the first round of this year’s playoffs.

We had been hearing that the deal would be impacted with a possibility of the sale price dropping, to key bidders feeling the weight of the financial market crash, to an outright delay in the sale. Still, the deal was reportedly down to two bidders: Ricketts, and a second bidder not known.

The five bidders that have made it into the second round are Ricketts, Dallas Mavericks owner Mark Cuban, Houston transportation magnate Jim Crane, Clarion Capital Partners managing partner Marc Utay, and Chicago based real estate investor Hersh Klaff.

The reality of the financial crisis is that it makes investing extremely dangerous at the moment. The markets are so volatile that those interested in the Cubs (at least at the $1 billion threshold), are backing off the deal. In the simplest terms, it’s wait and see.

With bidders pulling back to see if the price will drop, while keeping a close eye on the credit markets, Sam Zell has to make a serious decision.

As of the end of the second quarter, Tribune’s debt stood at $12.5 billion due to declining readership and ad dollars. That’s an increase of $4.3 billion since Zell bought out Tribune for $8.2 billion last year.

Zell needs to weigh whether he needs to sell off the Cubs and their associated holdings now at a depressed rate, or find some manner to raise the cash needed to make a $650 million debt payment obligation due in December. On top of that, there is approx. $250 million in medium-term notes due in 2008.

If Zell hangs back on the sale of the Cubs to allow him to stay in that rarified “$1 billion+” space, he may be forced to negotiate with the banks in order to keep newspapers such as the Chicago Tribune and Los Angeles Times from falling into default.

Coming back to that rumor – the one that had Ricketts winding up with the winning bid and the announcement shortly after the World Series – Ricketts could still wind up with the club. But then in this financial climate, it may be that the bidder that comes out the least scathed and with the most cash to package with the deal wins the day. Regardless, a delay in finalizing the purchase agreement will not be coming shortly after the World Series. At this rate, it would not be surprising to see the deal done in 2009. That is, of course, unless the markets continue to slide. As many analysts have said recently, it may be years instead of quarters before the economy begins to climb out of its malaise. As reported, The Cubs Sale Will Be Like None Other.


Maury Brown

Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is contributor to Baseball Prospectus, and is available as a freelance writer.

Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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