Saturday, May 29, 2010

Are the Cubs financially sound?

So, I'm casually going through my morning news when I go to the ESPNChicago website and this headline grabs my attention:

Source: Dempster deferred $3M



Then it got worse as I clicked on the story...and the title said:

Dempster deferred $3M to help Cubs help the Cubs? The 3rd highest payroll team in the top 4 in generating revenue?


This can't be what it sounds like...this must be for charity or something, right? Players don't defer their salary on for teams like the Cubs. That's what happens to teams like the Reds, Cardinals and Twins...not the Cubs!

Ok...reading into this story by Bruce Levine:

Ryan Dempster deferred $3 million of this season's salary during the offseason to help the Cubs gain financial flexibility, a source told on Friday. is what it sounds like. Dear God, no!


The team used that windfall to sign outfielder Xavier Nady to a one-year contract, a move that likely would not have been possible without Dempster's offer.

Xavier Nady? Oh...that was worth it. Blah!

Upon further investigation, the story actually broke through Fox Sports.

Here are the terms of the deal, via Ken Rosenthal:

Dempster agreed to defer $3 million of his $12.5 million salary for 2010 at little or no interest, according to major-league sources.
The Cubs will pay the money back to Dempster in three $1 million installments, payable by Feb. 2011, Feb. 2012 and Feb. 2013.

That's not nearly as bad as some of the other deferment deals we've seen throughout baseball over the last number of years.

But still, for a team with the 3rd highest payroll in baseball, and who jacked up ticket prices by 20% this year, and a team sitting in 3rd place three games under .500, this is not a good sign.

Usually deferment is used to help a team land a top level player not a bench player with a history of serious injury problems.

I've said this before...but this team might actually be in a financially bad situation...much more serious than previously thought. The Ricketts family has $450 million in debt to pay off already. They have the most outdated facility in baseball...a facility that will probably need $200 million done in renovations over the next 4 years. And they have some very large contract commitments to aging veterans for several years (though some will be coming off the books soon).

Tom Ricketts is a really good business man, or so we are led to believe. Rumors are that he has spent a good deal of time, since buying the club, shuffling the debt around using creative ways of reduce the payment amounts and time tables for payback. But what happens if some of this stuff back fires? Remember what I wrote about on Wednesday? Attendance is down...down significantly.

Right now the Cubs know they finances are tight even with the expected revenue...but what if they don't make as much this year as they expect? Ryan Dempster had to defer part of his salary just to sign Xavier Nady. What happens when the Cubs have a real need somewhere? What happens when the trade deadline comes and (fat chance) that Cubs are actually in contention? Sounds a lot like the Cubs will have to take a pass again, just like last year.

In the end, the only thing that will be able to save this team will be the production from the farm system. The days of these huge back-weighted deals for questionable, 1 or 2 tool talent are least for now. The Cubs are going to have to be more creative.

And we have to pray that the Cubs don't end up being the next Texas Rangers.


Links to the stories about the deferment: