Thanks for your time and effort in this piece! It would be interesting seeing how this model compares to other teams that have made franchise turnarounds in recent years, or even compared to Theo’s time in Boston, but that seems like a pretty sizable undertaking!

By taking on debt that they otherwise would not have, the Ricketts were able to keep the cash that they would have spent to purchase the team in their pockets.

I assume that they would have been capable of paying cash for most, if not all, of the purchase price of the team (otherwise MLB likely wouldn’t have approved the sale). If that assumption is accurate, then the Ricketts still have hundreds of millions either in equities markets (which are much higher than they were when the family bought the team), or deployed in other business ventures (though I guarantee that their lenders require them to keep a certain amount of capital liquid as a condition of loans- SOP).

So, then, the debt that they are carrying has been refinanced at least twice at lower at lower rates (I would imagine their net effective borrowing rate on the entire package is under 3.5%, certainly), and the cash that they would have used is earning some rate of return while deployed into other products or securities (remember that the Ricketts also own an investment company called Incapital).

Assuming that the cash they would have used to purchase the Cubs in an all-cash transaction was invested wisely, is it possible then, that being forced into borrowing for the purchase of the team has been a net positive to the Ricketts (and therefore the Cubs) bottom line?

They bought the team for $850 million. It’s now worth $1.8 Billion. If they were able to use money borrowed at 3% to earn that rate of return, and earn something more than 3% on the money they would have otherwise spent to purchase the Cubs in cash, then they are borrowing for free and profiting with every dollar of return above the cost of borrowing.

So, then, it’s possible that the borrowing costs are having no impact on payroll other than the fact that payroll has to be made using “Cubs” money, not “Ricketts family trust” money. This is a real concern, but one that could be addressed with shareholder loans, debt reassignments, etc, if desired.

The stadium renovations seem to be financed by the Ricketts family, so I assume those borrowing costs are not affecting payroll at all.

The cost of borrowing for the existing team purchase debt would be under $20 million, in my opinion (contrary to what many have reported.) This expense would have a minimal impact on salary because it is deducted after EBITDA and therefore MLB won’t get all upset about it. As long as they keep increasing revenue (which they are proving to be very good at doing), the impact will continue to be less and less.

If we consider the Rickett’s position, though, I would assume they don’t care a bit about the debt service. If the Cubs are paying $20 million in debt servicing fees, but the money they would have spent to buy the team earns them $40 million per year, then they’re net positive $20 million AFTER the cost of borrowing, AND they still have their cash invested in other projects, AND the team has appreciated to the point where the equity makes the borrowing look like low leverage.

They would be having their cake, eating it too, and then also eating my cake and your cake.

I would submit this theory as not only likely, but probable.

The question to be answered is how much cash would they have spent on the purchase of the team if borrowing were not required. If the answer is they would have paid it all in cash, then I’m surprised they can ever talk to anyone without laughing about how they crushed this deal out of the park.

I hope that helps.

EBITDA is up because revenues are up… they are very effectively monetizing Wrigley Field.

One thing you didn’t comment on was the exponential increase in EBITDA from 2014 to 2015. Is that because the debts haven’t been serviced yet, and thus current FY EBITDA will decrease in time?