Friday, November 24, 2006

Jerry and the Cubbies – the perfect marriage

For long-suffering Chicago Cubs fans 2007 will mark the 99th anniversary of the last time their beloved north side Major League Baseball team won a World Series. Cubs fans have waited longer than supporters of any professional sports team to experience their team winning a championship. Eternally optimistic the Cubs have been very active early on in baseball’s free agent signing period, agreeing to terms with Alfonso Soriano, Aramis Ramirez and Kerry Wood. But the most exciting news for Cubs fans might be the interest Jerry Colangelo, arguably one of the better sports executives (at least when it comes to winning, not business), has in taking control of the Cubs. For the long suffering members of Cubs Nation, Colangelo is the answer to what Cubs fans have been praying for, an owner focused on winning a World Series (and not on prudent business practices).

Born and raised in the Windy City, Colangelo moved to Phoenix in 1968 to take over the expansion Phoenix NBA franchise as the youngest general manager in professional sports, and has molded the Phoenix Suns into one of the most successful organizations -- on and off the court -- in the NBA. In addition, he brought Major League Baseball to the Valley in 1998, and was chairman of the 2001 World Champion Arizona Diamondbacks. Colangelo also was the key element in facilitating the move of the NHL’s Winnipeg Jets to the Valley of the Sun to become the Phoenix Coyotes. He is a four time NBA executive of the year, a member of the Basketball Hall of Fame and the man entrusted with the responsibility to bring men’s Olympic basketball gold back to the United States.

"I have a lot of juice left," Colangelo said in a telephone interview Wednesday in which he barely tempered his enthusiasm over the fact Tribune Co. hasn't put the Cubs on the market officially with The Chicago Tribune.

"No decision has been made, but would I have interest? Absolutely. It would be very attractive—if they're for sale."

"I have great respect for the Cubs' brand," Colangelo said. "It's as strong as there is."

The Phoenix Suns where at the edge of the abyss in 1987 when Jerry Colangelo stepped up and coordinated a group of investors that purchased the club for $44.5 million on October 14, 1987. That transaction was the first of many that helped Colangelo not only stabilize the basketball organization but also transform downtown Phoenix into an active and thriving district.

In 1987 the Maricopa County (Phoenix) Attorney's Office indicted 13 people on drug-related charges, three of whom were active Suns players (James Edwards, Jay Humphries and Grant Gondrezick). These indictments were partially based on testimony from star player Walter Davis, who was given immunity. No defendants ever went to trial: two of the players went into a prosecution diversion program, while another received probation. Nevertheless, the scandal, although now perceived in many respects to be a witch-hunt, tarnished the reputation of the franchise both nationally and within the community. The scandal did provide an opening for general manager Colangelo to lead a group that bought the team from its owners for $44 million, a record at that time.

Colangelo quickly moved on a new arena for the Suns, and in April 1989 the city of Phoenix approved the concept of a new, state-of-the-art downtown arena that would house the team. The 18,422-seat America West Arena opened in June 1992 and became the first venue in the NBA to also house a full-size practice facility, an amenity now common in the league. The arena is a public-private partnership with the City of Phoenix and has played host to a wide variety of concerts, family shows and sporting events, including the 1995 NBA All-Star Game and the 2000 WNBA All-Star Game.

The key to understanding how Jerry Colangelo does business and why he’s been successful in managing the Suns and the Diamondbacks is that his actual investment (dollar figures) in the teams he served as managing director has been minimal. After putting together a group who invested $44.5 million in Colangelo’s vision for the Phoenix Suns, Colangelo put together another group of investors that secured a franchise for Phoenix on March 9, 1995, paying a record MLB $130 million expansion fee.

Colangelo mortgaged the Diamondbacks future to win the 2001 World Series. In 2000 Major League Baseball had to guarantee a bank loan to keep Colangelo’s Diamondbacks franchise afloat (a first for MLB). Ten members of the 2001 Diamondbacks agreed to restructure their contracts, including Randy Johnson, a key member of the World Series winners.

''I feel I'm helping this organization out to let Jerry have some working capital and go out and get what he needs to make this a competitive team,'' Randy Johnson, one of the deferring 10, told The New York Times. Having had to ‘rescue’ the D-Backs from financial peril, Major League Baseball was less than enamored with Colangelo’s business philopshy in May 2001.

''There are significant concerns there,'' the official told The New York Times Murray Chass at the time speaking on the condition of anonymity. ''They've spent themselves into serious economic problems. What they've done with deferring more money has only postponed the problem.''

It’s important to understand Colangelo’s history as an owner is to find investors, find success, win championships, while spending other people’s money. In May 2001, five months before the D-Backs accomplished what was once unthinkable (winning a World Series in the franchises fourth year), Colangelo made it clear to the New York Times all was fine with how he managed the business affairs of the Diamondbacks.

''Not at all,'' he said. ''People refinance their homes. Companies downsize and let people go. In our case, when the season ended last year and we took inventory, I had to weigh the fact that I had committed to make a run with a group of players I put together.''

''To keep it together, looking at our cash-flow projection, we needed to get a little more lean in our operations. We were a little fat. Part of what I thought was a viable option was spreading the payouts to the players. It lessens the cash-flow requirements each year.''

The Diamondbacks won their World Series in their fourth season; proof positive money can buy a championship. In 1969 the baseball world marveled at The Amazin’ Mets, winning the World Series in their eighth season. Jerry Colangelo’s personal investment in the Arizona Diamondbacks was less than 2 percent. Colangelo’s unique ability to raise hundreds of millions of dollars by getting people to support projects he believed in was proof positive when the D-Backs won their World Series. Colangelo sold Major League Baseball on the Phoenix market, found a group of investors, secured the additional funding for Bank One Ballpark, and then built (bought) the 2001 World Series.

Built at a cost of $349 million, and seating 48,569, the D-Backs sold 2,091,505 tickets in 2006, averaging 25,821 or 52.7 percent capacity. Winning wasn’t an issue in the teams’ inaugural 1998 season. The D-Backs won 65 games and sold 3.6 million tickets. A year later, the D-Backs won 100 games and made the playoffs. Interestingly the teams’ attendance fell to 3,013,778, a drop of nearly 600,000 but a team that won 35 more games and made the playoffs in their second season. The D-Backs 2001 World Series title attendance fell to 2,736,361. The fall in attendance while delivering a contending and competitive team had to raise a great many red flags about baseball’s future in Phoenix.

The D-Backs enjoyed a nice attendance bump after winning the 2001 World Series selling 3,198,977 tickets, averaging 39,493 or 87.7 percent in 2002. In 2003 the D-Backs sold 2,910,386 tickets, averaging 35,930 tickets or 71.4 percent capacity. The D-Backs won 98 games in 2002 and 84 games in 2003. After the 2003 season the D-Backs completed the dismantling of their 2001 World Series team by first trading Curt Schilling to the Boston Red Sox, and then traded Randy Johnson to the New York Yankees a year later for two players and $9 million. If ever a baseball franchise sent a message to their fans the good days where over it was the Arizona Diamondbacks in dealing Schilling and Johnson.

Schilling shared the 2001 World Series MVP Award star with Johnson. He and Johnson also shared Sports Illustrated magazine's 2001 "Sportsmen of the Year" award. In 2002, he went 23-7 with a 3.23 ERA. Both years he finished second in the Cy Young Award voting to Johnson.

In 2004 the D-Backs first year without Schilling, the teams’ attendance fell to 2,519,560. In 2005 the D-Backs first year without Schilling and Johnson their attendance fell to 2,059,331. Delivering a World Series in the teams’ fourth season was amazing. Winning 100 games in the teams’ second season must have seemed unbelievable, but at the end of the day it’s too much success to early on. How exactly was the D-Backs management team going to follow-up their first four seasons. It was 86 years between World Series titles for the Red Sox. The Chicago Cubs haven’t won a World Series in 103 years.

Three years after winning the 2001 World Series, the bottom having fallen out of the teams’ attendance, hemorrhaging in red ink, the members of the consortium who owned the Diamondbacks in 2004 had enough of how Jerry Colangelo managed the business affairs of the D-Backs buying him out. Clearly for a team that hasn’t won a World Series in 98 years makes the arrival of Jerry Colangelo as the Cubs savior perfect timing on his part.

The Tribune company placed a for sale sign on all of their companies including the Cubs recently. The teams’ free agent spending spree (more than $215 million and growing) has led to the belief the Cubs will be sold in the not too distant future. Why else would the teams’ baseball management have gone on an uncharacteristic payroll spending spree?

The big question how much could the Cubs be sold for. 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. It’s important in understanding the value of the Red Sox, John Henry purchased the team, Fenway Park and revenue generating NESN.

Robert Caporale of Game Plan, a Boston sports investment firm, told The Los Angeles Times he believes, the Cubs could sell for "even more than what the Red Sox and NESN fetched." A Wall Street insider told the Los Angeles Times the Tribune company pegged the value of the Cubs at $1 billion.

Despite Caporale’s belief the Cubs could sell for more than the Red Sox did, that makes little if any sense. The $700 million John Henry’s group paid for the Red Sox included NESN. Cubs’ games are televised on WGN and the radio rights holder is WGN Radio. Both media properties are also owned by the Tribune company. The market value for the two media properties has been pegged at $729 million.

If the Tribune company packages the Cubs, Wrigley Field, WGN and WGN Radio as a package, those four properties packaged together could sell for as much as $2 billion, at the very least for $1.5 billion. It serves the best interests of the Tribune company to generate as much as they can from the sale of their assets. The Cubs sold on their own (with Wrigley Field) might sell for between $500 and $700 million.

While Colangelo’s name has been prominently mentioned in relationship to the sale of the Cubs, his isn’t the only ‘interesting’ sports industry related name. Mark Cuban, a sports owner who puts his money where his teams are, has also mentioned on several occasions if the Cubs became available he would be interested. However when asked by The Los Angeles Times regarding his current interest in the Cubs, the normally talkative Cuban passed on offering any comments on his interest in the Cubs.

What about Jerry Colangelo owning the Cubs? Well, he’s put together big sports ownership deals with other people’s money, but nothing that comes close to the $500 to $700 million he would need to buy the Cubs. Finding investors with enough resources to make the Cubs work (buying the Cubs and WGN as a package) isn’t in Colangelo’s league. Its rarified air Colangelo and his group aren’t a part of. However, that hasn’t stopped Colangelo before – you know based on his history the opportunity to own the Cubs is to enticing for Colangelo to not set his sights on.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: Wikipedia, The Chicago Tribune and The Los Angeles Times

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