Haugh: Cubs Bracing For New Financial Reality

The Cubs imposed pay cuts of 10% to 35% earlier this week.

David Haugh
May 21, 2020 - 4:39 pm
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(670 The Score) While America hopes for baseball to return soon, the Cubs braced for the worst this week at Clark and Addison.

The Cubs imposed pay cuts Tuesday ranging from 10% to 35% for their highest-paid employees, the latter group including top executives Theo Epstein and Crane Kenney as well as manager David Ross. Team officials determined pay cuts were a better alternative than furloughs for non-playing personnel so that workers could continue to get paid through the COVID-19 pandemic, a league source said.

The measures were deemed necessary as Cubs chairman Tom Ricketts confronted the reality that the team stands to lose at least $100 million this season — even if Major League Baseball plays half a season without fans.

As one of baseball’s most successful big-market teams, the Cubs claim to derive around 70 percent of their revenue from the game-day experience — i.e. the sales of tickets, concessions, merchandise and parking. Ricketts referred to that number in an online conversation with season-ticket holders last week.

At first glance, Ricketts’ figure seems inflated – particularly given a recent Associated Press report about MLB finances pegging the league average at 39%. The disparity invited skepticism and underscored why so much mistrust surrounds MLB owners' reluctance to open their books for the inspection of the players' union.

But information contained in a filing by Liberty Media, the parent company of the Braves, one of the few publicly held sports franchises in the world, gives more credence to the Cubs’ claim. Liberty, which reports its financials every quarter, finished 2019 with a record $476 million in total revenue, according to its February filing. Of that total, 63% was attributed to the game-day revenue – and the Braves ranked 12th in MLB attendance in averaging 32,776 fans last season. The Cubs finished fourth, averaging 38,208 fans at Wrigley Field. It's a fair comparison.

In April, Forbes estimated the Cubs generated $471 million in revenue in 2019, so it’s not inconceivable that a franchise that made about as much money as the Braves last year would have a similar financial reliance on game days. The league average dipping to 39%, as reported by the AP, likely stems from the inclusion of teams such as the Rays, whose game-day revenues hover lower than 25%.

Internally, the Cubs project to earn 15% of their anticipated 2020 revenue if they play an 80-game season without fans – half of the 30% revenue derived from non-game-day experiences. Using Forbes’ reported 2019 revenue of $471 million, that projects to about $71 million in revenue for the Cubs – with half of that going to payroll if players ultimately accept a 50-50 revenue split. Which is hardly a guarantee.

That potentially leaves a team that had baseball’s second-highest payroll at $221 million in 2019 with around $36 million to pay players for a half season in 2020. Apply that to any Cubs player scheduled to earn $20 million this season – representing 10.69% of the team's payroll, according to Spotrac.com. A 10.69 percentage of a $36-million payroll amounts to around $3.8 million – the kind of steep pay cut that likely will give more than a few players pause when considering the risks involved in returning to the game.

This all becomes moot unless owners and players make any progress over Memorial Day weekend toward an agreement on pay. Player advocates such as super agent Scott Boras have attacked the owners for reneging on an agreement in late March to pay players a prorated portion of their salaries this season. But a provision in the agreement, as reported by the New York Post, included the caveat that the sides would renegotiate those terms if fans were unable to return to stadiums when baseball resumed. The owners favor splitting revenue with the players. One source who has read the agreement called the stipulation calling for renegotiation in the event fans weren’t allowed back in ballparks "as clear as day."

Talks continue in MLB front offices in Chicago and everywhere, with the goal of finding the safest way to get as many as 175 people in and out of ballparks every day in a post-pandemic world -- and keep them healthy enough to keep coming back. Ricketts communicates with MLB commissioner Rob Manfred every Monday. Team officials monitor the governmental landscape across the country as MLB navigates the different restrictions in 17 states, the District of Columbia and Canada.

Meanwhile, questions persist about whether the Cubs ever will strike a deal with Comcast to carry the new Marquee Sports Network. A team official declined comment, but an industry source said the Cubs have made it clear they won’t ask for more money from Comcast in negotiations if baseball returns without fans — a dynamic that obviously would increase local interest in seeing games on Marquee. The Cubs were said to be optimistic about their chances of striking a deal with Chicago’s largest cable provider.

Of course, first there must be games to televise.

David Haugh is the co-host of the Mully & Haugh Show on 670 The Score weekdays from 5-9 a.m. Listen to the show here. You can follow him on Twitter @DavidHaugh and email him at david.haugh@entercom.com.