Pay deals could cut Cubs' sale price

By Bill Shaikin

Nov. 23, 2006 12 AM PT

Times Staff Writer

The Chicago Cubs sell everything but victory, and they sell well. The Cubs haven’t won the World Series in 98 years, but they pack their venerable ballpark with fans who forgive their traditional ineptitude and celebrate Wrigley Field, Ernie Banks, Harry Caray and the seventh-inning stretch.

The Cubs themselves could be sold soon, and if so management might have made another blunder. By signing outfielder Alfonso Soriano to an eight-year, $136-million contract this week, the Cubs may have improved their team but shaved millions off a sale price.

“If you were going to sell, the thing you want to have is as much payroll flexibility as you can for the buyer,” said a prominent sports industry financier who asked not to be named because he is representing a potential bidder. “The last thing a buyer wants is to be encumbered with the contracts of people he didn’t pick.”

Can the Cubs complete a winter spending spree and still command a record sale price for a major league franchise?

Tribune Co., the owner of the Cubs and publisher of the Los Angeles Times, has received bids for the company as a whole but has not said whether it would sell either the team, newspaper or other entities to satisfy shareholders angered by a stock price that has fallen more than 40% in the last three years. Tribune spokesman Gary Weitman would not comment on what he called “our individual assets.”

In 2002, the Boston Red Sox sold for a record $700 million, a price that included an 80% stake in NESN, the cable channel that airs the team’s games.

The Cubs could attract enough interest for the team to sell for “even more than what the Red Sox and NESN fetched,” said Robert Caporale of Game Plan, a Boston sports investment firm.

One high-ranking baseball executive said a Wall Street acquaintance told him that a Tribune internal review valued the Cubs at $1 billion. “That would seem to be a stretch,” said the executive, who asked not to be named because he is not authorized to disclose the information.

Indeed, in a report earlier this month, Merrill Lynch analyst Lauren Rich Fine valued the Cubs at $450 million. She noted that a sale would trigger a big tax bill because Tribune paid $20.5 million for the team in 1981.

The price the Cubs could fetch depends on whether a buyer could acquire TV and radio rights as well. When Fox sold the Dodgers to Frank McCourt in 2004, it insisted on a cable deal tying the team to FSN. In return, Fox sweetened the annual rights fee by $10 million a year.

“For Fox, it was extremely important for them to have the Dodgers be a part of their programming,” said Bob Graziano, the Dodgers’ president before the sale.

Cubs games air on WGN television and WGN radio, both owned by Tribune, and on Comcast Sports Net, owned jointly by Comcast and the Cubs, Chicago White Sox, Chicago Bulls and Chicago Blackhawks.

Tribune could maximize the value of the Cubs by packaging the team with the two WGN outlets and its stake in the Comcast cable channel.

“That would be a big driver of price,” the sports financer said. “If they’re just selling the Cubs, they’ll get less.”

Merrill analyst Fine values WGN at $729 million, putting the tab for the team and TV station north of $1 billion.

The Cubs have not informed the commissioner of baseball’s office of a possible sale or asked permission for a potential buyer to examine the team’s financial records, a baseball official said.

Don Levin, who owns a minor league hockey team in Chicago, said he had approached Tribune recently about buying the Cubs and had been told the team was not for sale. Two investment bankers, soliciting interest on behalf of clients, each said he had gotten the same response.

“From every indication I get, they’re serious about holding on to the Cubs,” said Marc Ganis, president of Chicago-based Sportscorp Ltd.

But there is no shortage of interest in Tribune as a whole and in the Cubs in particular.

Gannett, the country’s largest newspaper publisher, several private equity firms and Los Angeles billionaires Eli Broad and Ron Burkle are among Tribune’s suitors. Several high-powered Chicago business leaders, including former state Sen. William Marovitz, have expressed interest in buying the Cubs, either directly from Tribune or from whatever party might acquire the company.

Banks, the Cubs’ Hall of Fame shortstop, has said he would like to join an investment group in a bid. Jerry Colangelo, a Chicago native and former owner of the Arizona Diamondbacks and the NBA’s Phoenix Suns, said this week that he would be interested.

Mark Cuban, owner of the NBA’s Dallas Mavericks, said last year that he would be interested in buying the Cubs if they became available. Cuban said he would “have to pass” on commenting about the Cubs at this time.

The Cubs represent a small fraction of the assets of a company that owns 11 newspapers and about two dozen television stations from coast to coast, plus a stake in the Food Network and several Internet sites. Tribune’s critics contend the team has never been a core asset and doesn’t deliver a lot of cash flow, but could fetch a handsome price for shareholders.

The Cubs turned a profit of about $20 million this year, said the baseball official, who asked not to be named because he isn’t authorized to disclose that information.

“I have to believe they’re sellers,” said an investment banker, who asked not to be named because he’s representing a potential bidder. “It’s the Cubs. It’s a no-brainer sale, at a very high number.”

The Cubs know high numbers. Although not big spenders like the Yankees or Red Sox, the team typically is in the top third of the game in payroll costs. Opening-day payroll for the 2006 season was $94.4 million, seventh-highest in the game, according to the Associated Press.

The signing of Soriano followed the signing of third baseman Aramis Ramirez for five years and $75 million, meaning the Cubs this month have committed $211 million to two players. If Tribune sells the team, a buyer could ask that all or part of future contract liability be subtracted from the purchase price.

The Soriano deal in particular alarmed some Tribune investors, who took it as a sign that the company was unwilling to sell the Cubs and thus wasn’t fully committed to raising the company’s stock price.

“This is big money,” said a finance professional who keeps close tabs on Tribune. He declined to be identified because he does business with some of the parties involved. “This affects EPS,” he said, referring to Tribune’s earnings per share.

Graziano said the new contracts “won’t have a positive impact on the purchase price.”

In the years Fox had the Dodgers up for sale, the company never dictated a payroll level to make the team more attractive to buyers, Graziano said.

When Disney executive Paul Pressler took over the Angels in 2002, with the team for sale, Pressler raised the payroll to a record $60 million and said Disney ought to play to win so long as it owned the team. The Angels won the World Series that year; Disney sold the team the next year.

The Cubs’ interim president, John McDonough, appears to be following Pressler’s lead. As the Cubs signed Soriano, General Manager Jim Hendry said the possible sale of the team played no role in the decision to spend freely.

“We’re here to win and win quickly,” Hendry said. “And all things way above me in the company, I’m not privy to and don’t expect to be.”

bill.shaikin@latimes.com

Times staff writers Greg Johnson in Los Angeles and Thomas S. Mulligan in New York contributed to this report.

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Cubs at a glance

Founded: 1876

Team value: $450 million (estimated by Merrill Lynch)

Owner: Tribune Co., which bought the team for $20.5 million in 1981

2006 record: 66-96, sixth in National League Central

Last World Series: 1945 (lost to Detroit, 4-3)

2006 attendance: 39,040 a game, sixth out of 30 teams

Stars: First baseman Derrek Lee, third baseman Aramis Ramirez, pitcher Carlos Zambrano