Why Tribune won't sell the Cubs

NEW YORK (CNNMoney.com) -- The Chicago Cubs are acting very un-Cub like this winter. That may be good news for the team's long-suffering fans but not for shareholders of newspaper publisher Tribune Co.

Tribune (Charts) has been under pressure from some major shareholders to improve its stock price, and the company has announced it is reviewing whether to sell some of its newspapers, television stations and other assets, or perhaps the entire company. One of the higher-profile assets is the Chicago Cubs baseball team, which the media company bought for a mere $21 million in 1981.

Whether or not the Cubs have made the right moves this offseason, the spending spree does not mean Tribune is going to sell the team.

Many sportswriters following the team have suggested that a rash of high-profile player signings by the Cubs this winter is a sign that Tribune is getting ready to sell the team.

The Cubs signed outfielder Alfonso Soriano to an eight-year, $136 million deal, gave its free agent third baseman Aramis Ramirez a new five-year, $75 million deal and this week picked up journeyman pitcher Ted Lilly for $40 million over four years.

All told, the team has added about $33 million a year in salaries to a team had an opening day payroll of $94.8 million last year.

"It seems that someone in the Cubs' hierarchy has given (team General Manager Jim) Hendry the green light to offer uncharacteristically large sums of money, knowing that the Tribune Company won't be paying the bills for much longer," wrote Murray Chass, the baseball columnist for The New York Times.

But experts who are involved in the buying and selling of sports franchises say the sportswriters have it completely wrong.

An owner looking to sell a team is going to cut payroll to improve the teams' finances, not go on a spending spree in hopes that a winning season will improve the sale price.

One sports investment banker, who is working for a group that is interested in making an offer for the Cubs, says he fully expects a bidding war if Tribune does decide to sell the team.

"It's a trophy property, and it comes on the market once in a lifetime," said the banker, who couldn't give his name because of his clients' interest in the team. "They're a great brand and they get great attendance." He estimates that the team is worth in excess of $600 million.

But he said Tribune probably won't be able to sell the Cubs for that much because of the heavy spending this offseason.

"It makes it a lot less attractive for a certain class of buyers," he said. "The contracts will make it more difficult to put debt on the deal. It'll cut down on cash flow. And any prospective buyer wants maximum payroll flexibility. They want to make their own mistakes."

And he said that even if the signings help the Cubs win their first World Series title since 1908, it won't necessarily make the team worth more. He said that Walt Disney Co. (Charts) didn't get a premium when it it sold the Anaheim Angels after the team's 2002 championship.

James Peters, publishing and advertising equity analyst for Standard & Poor's, agrees that Tribune has nothing to gain in signing players to expensive, long-term contracts if it is going to sell the team.

"We believe the Tribune Company is trying to make the team more competitive while trying to signal the team is not for sale," said Peters.

Tribune recently said it will complete its review of what assets, if any, it will sell, by the first quarter of 2007. So if Tribune puts the team on the shopping block then, Peters said, it will still be too soon to see if the new players help the team win since the baseball season doesn't start until April.

And Marc Ganis, a Chicago-based sports marketing consultant who has worked on other franchise sales, says the Cubs have only limited financial upside even if they do start winning.

The team had paid attendance of 3.1 million last year - a record high - despite the National League's smallest stadium and worst record. In addition, 94 percent of available tickets wound up being sold, one of the highest sellout rates in baseball.

The Cubs even outsold the rival Chicago White Sox once again last year, even though the Sox went into last season as defending World Series champions. The Sox did beat the Cubs in television viewership for the first time in decades, though.

Ganis said the Cubs spending spree is management's answer to the growing fan disenchantment with the team, which manifested itself in falling television ratings and a significant rise in no-shows at Wrigley Field.

"There were quite a few people who couldn't even give their tickets to people who would show up," said Ganis. "The no-show rate is the greatest indicator that ticket sales are about to drop unless you do something. If they had gone through a second year like last year, a year from now you'd be seeing a drop in ticket sales."

But Ganis said he can't see Tribune agreeing to sell the Cubs if it holds onto its television stations, which include WGN, a Chicago broadcast station that airs many Cubs games and is carried as a superstation on many cable and satellite television systems. Tribune also owns a minority stake in Comcast SportsNet Chicago, the regional sports network that carries most of the games not on WGN.

As a journalist, its tough to say anything nice about Tribune's management as it demands newsroom staffing cuts at the same time they are spending like fantasy league owners on the Cubs. The company recently replaced both the editor and publisher of the Los Angeles Times when they resisted making cuts, arguing it would hurt the paper's quality.

And most media companies that have dabbled with team ownership have gotten out of the business. Besides Disney's sale of the Angels, News Corp. (Charts) has sold the Los Angeles Dodgers baseball team and Time Warner (Charts) sold the Atlanta Hawks basketball team and Atlanta Thrashers hockey franchise. It is also rumored to be set to sell the Atlanta Braves baseball team. (CNNMoney is a unit of Time Warner.)

But if Tribune had run all its properties as well as it has run the Cubs, it wouldn't be in the situation it's in. It's certainly run the team better than most media companies team owners. (i.e. Cablevision's (Charts) ruin of the New York Knicks and New York Rangers.)

When Tribune bought the Cubs in 1981, the team not only wasn't winning, it also wasn't drawing. Wrigley was, as it still is today, tough to reach by car and at that point wasn't allowed to have any night games.

It would have been very easy for Tribune to decide the answer to the team's problems was to build a ballpark in the suburbs or at least near some expressway, filled with the luxury boxes that Wrigley lacks. It would have been a disaster.

Instead, Tribune realized that Wrigley itself could become a draw. Helped by an improvement in the surrounding neighborhood, the team was soon packing in the fans even when the team they were watching was lousy.

Tribune eventually won the rights for a limited number of night games from Chicago's City Council and the team's attendance is now less dependent on wins than any franchise in the majors, including the Red Sox and Yankees.

The team has even had some limited on-field success during Tribune's ownership. It has made the playoffs four times, which is four more than it saw in the previous 35 years before Tribune bought the Cubs.

So no matter what you think of the recent signings, the Cubs could do worse than the current ownership. They typically have.

Extra! Extra! Tribune's a buy!

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