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Beyond the Ivy - A Cubs Rooftop Partner

Why we're gonna hate Tom Ricketts - Part I

Monday, May 18, 2009

The Cubs are about to acquire an Alex Rodriguez, except this A-ROD will never wear a uniform, swing for the fences, take a banned substance, shag flyballs during BP... or retire. No - this A-ROD will be the $31mm+ of annual interest payments on the debt Tom Ricketts will issue to buy the Cubs from the Tribune Company.

Daniel Kaplan of The Sports Business Journal published an article this morning with some new information about the planned sale of the Cubs. (see more Cubs Sale process articles on The Cubdom.)

The major news is that JPMorgan Chase, Citigroup, and Bank of America are the three lenders that will provide financing for the transaction. According to Kaplan, the Ricketts are providing $450 million of the $900 million Cubs purchase price, meaning they will need to borrow another $450 million to complete the deal.

Currently, Ricketts is hoping to split the $450 million into:
• $50 million of 'perk notes' (for wealthy investors willing to make a lousy investment in return for being called a Cubs owner and some really sweet Cubs tickets)
• $100 million of fixed rate private placement loans from institutional investors (pension funds)
• $350 million from the bank group (and whomever the banks can turn around and sell a chunk to.)

So what does this mean for fans? Well, now that we have some solid numbers to work with, we can pull out our calculators.

The Perk Notes - $50,000,000
Most of my information on these notes comes from Ed Sherman's article in Crain's. The $50 million would have a 6.5% fixed dividend and the balance would be due in 15 years.
Annual interest expense: $3,250,000

The Fixed Rate private placement loans - $100,000,000
I have no source on the rate, but it will almost assuredly be higher than the 6.5% (no one would buy anything lower than the 6.5% perk notes, otherwise they'd ask for a perk note.) So, let's assume 7% on the $100 million with no principal reduction.
Annual interest expense: $7,000,000

The bank group floating rate loans
Loans such as these are usually priced at LIBOR (The London InterBank Offered Rate, which is similar in nature to the Prime Rate) plus or minus a certain percentage. So, if LIBOR was 1% and the rate was LIBOR+3%, then the debt would pay at 4%... but if LIBOR increased to 6%, then the debt would pay at 9%. Furthermore, Kaplan says the deal will have a floor of 3% for LIBOR and reading between the lines it sounds like the deal will be LIBOR +3%, so the debt would start at 6% and move up when LIBOR, which is currently near 1%, reaches above 3%. So initially, we'll assume a LIBOR floor of 3%, plus 3% or a 6% rate on the $350 million.
Initial Annual interest expense: $21,000,000

Total initial interest expense: $31,250,000
Alex Rodriguez' 2009 salary: $33,000,000

OK, if that isn't bad, we've only looked at half the picture because the $31.25 million does nothing but pay the interest on the debt this year. We still have to discuss where interest rates are going, and how the Ricketts are ever going to pay off the principal on their debt.

To answer the easy question first, I doubt the Ricketts will ever pay off the debt, rather, they'll keep refinancing it until inflation takes its toll and we all have $450 million in our pockets for sports betting, but if they wanted to pay it off, let's calculate the cash set-asides they would need to pay off $450,000,000 (that's a good number of zeros):
Payoff in 5 years: $90 million/year
Payoff in 10 years: $45 million/year
Payoff in 15 years: $30 million/year
Payoff in 20 years: $22.5 million/year
Payoff in 30 years: $15 million/year
Payoff in 45 years: $10 million/year

YIKES! Those numbers are on top of the $31.25 million a year for interest. And I thought Frank McCourt had dug himself a deep hole. Now we're into MLB betting territory.

Coming soon, part II of Why we're going to Hate Tom Ricketts: You think it's bad now, wait until inflation kicks in and LIBOR rockets skyward - the Ron Paul adventure.

This post brought to you by BetUs.com

Posted by Byron at 8:08 AM | Comments (1) | Bookmark and Share | | BallHype: hype it up!

Let's all pile on Milton!

Friday, May 15, 2009

Torii Hunter, one of my favorite players, won't even consider playing for the Cubs. He's heard the stories from former teammates LaTroy Hawkins and Jacque Jones. The Wrigley faithful are racist, you'll get hate mail, it's almost as bad as Boston, etc., etc. The thing that never gets reported is that the mistreatment extends to the local media. I've always felt LaTroy and Jacque were given unnecessarily harsh treatment, especially by some of the sports talk-jocks in this town.

Now, along comes Milton Bradley. He gets in an argument with an umpire, and according to Bradley, the umpire initiates contact with him during the argument. MLB suspends Bradley for two games, and he thinks it's patently unfair, so he appeals the suspension. When the suspension is reduced to one game, Bradley complains that he still didn't get a fair shake... and here's the shocker to no one, especially Torii Hunter, LaTroy Hawkins, Jacque Jones, and your's truly: The Chicago media starts harping on why Milton Bradley is selfish.

These are the kinds of articles that are really quite unfair. I normally like Steve Rosenbloom, but today's comments are wrong. If Milton Bradley thinks he has been wronged, he has every right to appeal his suspension.

Sure, I would have preferred Milton take his two game suspension while he was hurt and would otherwise have missed the game, but that's like agreeing to an unfair suspension from work while you would otherwise be on vacation. Yeah, you weren't going to come in anyhow, but if the suspension is unfair, then you fight it. We don't stand for injustice in our every day lives, but we demand it from our sports stars?

If Milton's sense of personal integrity demands that he not get pushed around by MLB, then let him exercise his right of due process, even if it causes him to miss an extra game. (Because we were certainly expecting him to start all 162 games this year.)

Alright /rant. I disagree with Steve. I'm sure some will disagree with me. The important part is that we let MB have a day off, and we close that .5 game gap with the Brewardinals and reclaim our rightful place atop the central.

Milton Bradley batting at Wrigley Field
Milton Bradley bats against the Cardinals at Wrigley Field.
Image courtesy of The Cubdom Photo Gallery
Posted by Byron at 8:00 AM | Comments (0) | Bookmark and Share | | BallHype: hype it up!

Cue the Bob Brenly chatter

Friday, May 8, 2009

Bob Melvin is out as the Diamondbacks manager... it's time for the 'Bob Brenly is leaving' rumors to start popping out of the woodwork.

As for me, I really like Len Kasper, but I can take-or-leave Bob. Unlike Steve Stone, Bob Brenly always seems to defend players, as befitting a former, and prospective manager. I want someone who will tell it like it is in the booth. Me!

Posted by Byron at 10:27 AM | Comments (0) | Bookmark and Share | | BallHype: hype it up!

Hockey team bankruptcy has baseball implications

Thursday, May 7, 2009

Last week, Jerry Moyes, the owner of the Phoenix Coyotes, placed his team into bankruptcy, touching off a showdown between the NHL and the U.S. Bankruptcy Court.

As explained well in this WSJ Article by Matthew Futterman, the Bankruptcy Court is obligated to accept the highest bid for the team, regardless of the NHL's wishes. Unfortunately for NHL Commissioner Gary Bettman, the highest bidder is a Canadian gentleman named James Balsillie. Balsillie is the founder of Research in Motion, the company that makes Blackberrys.

Balsillie's plan for the Coyote's, like his plan for the Pittsburgh Penguins that he tried to buy several years back (which the NHL blocked), is to move the club to the Copps Coliseum in Hamilton, Ontario. In the past, Balsillie has gone so far as to sell 12,000 season tickets to prove that the team has a market and could compete with the Maple Leafs.

For various reasons, including the fact that the Coyotes currently play in a new taxpayer funded arena in Glendale, AZ, Bettman does not want the Coyotes leaving Phoenix. So, in an effort to stem the inevitable, Bettman is recruiting other potential owners to bid on the club, but none seem likely to top Balsillie's $212.5 million offer. (Jerry Reinsdorf included.)

Now, what does this have to do with Baseball? Can you think of any teams that might be subject to a bankruptcy judge's whims? Can you think of any other teams that are being sold? Can you think of any other teams where the seller, before going into bankruptcy, told the bidders that the best bid would be the one that maximized post-tax profit (rather than the largest bid wins)... but now that the parent company is in bankruptcy those considerations could be for naught? I'm really scraping my brain here... oh wait, there is that one ball club. What was it's name again? Oh, right! The Chicago National League Ball Club (dba Chicago Cubs).

No, I don't expect the Phoenix proceedings to have much of an impact on the sale of the Cubs. It would be quite late in the game to derail the Ricketts' purchase of our team (although if this had happened a year earlier, my guess is Mark Cuban would be the new owner), but the world should be watching with bated breath because the legal precedent that allows Leagues to determine who can be an owner and where those teams can play is shaky at best. If the Bankruptcy judge sides with Balsillie, that's just one more stone thrown at the window of League self-determination.

Where do I come down on this? Well, the WSJ gives us a nice peak into the debt structure of the Coyotes. The NHL is in the pole position and should receive the full $37 million it is owed, no matter who buys the club. Next is Michael Dell's private equity firm which would receive it's $80 million in most circumstances. And finally, the creditor who would be most sensitive to any price fluctuations is Jerry Moyes. He has $104 million of unsecured debt, so the club would need to sell for $221 million (plus legal fees) for him to receive payment on all of his personal loan to the club.

Normally, I would side with Moyes. It's his money that would be lost if the club sold for less, so he ought to be able to choose whom to sell it to, and he already has - in lining up a deal with Balsillie... but this isn't a normal situation.

Remember that part about the Coyotes playing in a taxpayer funded arena? The original lease, which gets torn up in bankruptcy court, called for a $700 million fee if the Coyotes left Phoenix, and so I am arguing that the party most harmed here is not Jerry Moyes, Jim Balsillie, or the NHL, but the taxpayers of Phoenix and Arizona. If I were Bankruptcy King, I'd call all of those gentlemen into my thrown-room and tell them that the highest bidder who intends to honor the original lease gets the club, otherwise I'll be cutting Jeremy Roenick in half.

Posted by Byron at 8:03 AM | Comments (0) | Bookmark and Share | | BallHype: hype it up!

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