Management by Baseball

Yesterday afternoon, the Cubs won the second half of a doubleheader and put themselves into the playoffs. Congratulations, Chicago. And I'm psyched about it for the team, the manager, the front office, the neighborhood, and for the true fans.

I'm equivocally displeased for the media conglomerate that owns the Cubs, the Tribune Company (NYSE: TRB).

Not totally displeased for them. This year, they brought in a manager with a very successful track record (Dusty Baker), and they acquired extra weapons for their assault on the NL Central championship, both efforts costing them money they didn't truly need to spend to make more money. Why would not need to invest additional resources in personnel to make more money?

Because, unlike all but a few teams, the Cubs can bypass standard reality and make good income because of return on image. Their lovable-loser image is bankable. Chicago fans (both White Sox and Cubs) are the top of the line for loyalty, and near the top for sophistication. Cub fans' expectations are expectations of losing, so anything good (a Sammy Sosa chasing a home run record or crown, a fun young pitcher like Kerry Wood or Mark Prior) is good enough to sustain interest. While baseball economists have run numbers showing the general amount of revenue a team can expect to make for each incremental win per season, the Tribune Company's numbers don't work quite like anyone else's because the slab foundation of ticket- and souvenir buying doesn't sag as much when the team loses. And don't forget, they play in the best park for fans in the National League.

The Tribune Company could probably earn close to what they do now without trying to invest in quality, taking the pre-2003 Milwaukee Brewer strategy of making a few window-dressing moves in the off-season, keeping payroll down and collecting welfare in the form of luxury tax transfers (an arrangement meant to dampen salaries by having the Yankees and a few other teams pay a tax on salary pools above a certain ceiling to teams that spend the least; why it's a "good" idea is that poor teams get more money to spend on player salaries, making them competitive, but in reality, it's more frequent that the owners of the welfare recipients pocket the windfall as profit). So bravo to them for that willingness to invest incremental resources in quality that may not improve the bottom line of the financial statements.

Cheap Trick (Not the Band)

But the Tribune Company plays loose with ethics and with baseball's own regulations and the fans that have granted the team a 58-year hiatus in the World Series (a lot longer if you overlook 1945, which was a flukey war year which punished teams randomly at random levels, 1908 was their last true trip to the World Championship) with incredible, marked grace.

As if the practice of scalpers hogging too many tickets for big games and then gouging loyal fans who wish to see the big games wasn't already distasteful enough, the Tribune Company has set up a subsidiary to scalp ducats. This isn't a couple of frat-boys or drug-dealers with two-way radios...this is a New York Stock Exchange traded billion-dollar company (oh, same thing). They've tuned the whole model, almost revolutionizing the shake-down of the loyal fan the way Henry Ford revolutionized automobile manufacture.

My favorite baseball economist (and maven of the old national highway system's roadside attractions and diners) Doug Pappas wrote about this scam earlier this summer in a must-read article. The essence of it:

<snip>The Tribune Company also owns Wrigley Field. This month the New York Yankees play there for the first time since Lou Gehrig was their first baseman. Early this season, an outfit called "Wrigley Field Premium Ticket Services" was offering front-row field box tickets for the Yankees games, face value $45, for a mere $1,500. Bleacher seats, $30 from the box office, cost $155 from WFPTS.

WFPTS is located one block from Wrigley Field. Its offices are on land owned by the Tribune Company. Its President, Mark McGuire, is also a Vice President of the Cubs. Its books are handled by the Cubs' accounting department. Its only business is reselling Cubs tickets for more than their face value. WFPTS sells thousands of tickets which have never been offered for sale to the general public -- and if it can't sell all of its allotment, the Cubs will take them back. Yet a WFPTS spokesman insists, "We're not related to the Cubs ticket office."

Of course not.

The relationship between WFPTS and the Cubs will soon be tested in court. Illinois law requires the Cubs to sell their tickets at their stated face value. The Tribune Company thinks it can avoid this law by establishing WFPTS as a separate corporation, selling many of the club's most desirable tickets to this corporation at face value, then letting WFPTS resell them at scalpers' prices. all without ever offering these tickets to the general public. Several angry ticketholders disagree.<snip>

In reality, most or all of the tickets sold by WFPTS would otherwise have been sold at face value by the Cubs ticket office. Whether or not this practice is legal (a trial is scheduled for mid-August), it's a contemptible abuse of the club's best customers. Season ticketholders who for years had been given first shot at extra single-game seats were told that none were available for the most desirable series, the games against the Yankees, White Sox and Cardinals. Loyal fans who stood in line for hours, during a freezing Chicago winter, to buy tickets for these games as soon as they went on sale went home empty-handed.<snip>

Pappas got much of his information from whistle-blowing Chicago Sun-Times columnist Greg Couch who earlier this month blew the whistle again, this time on the way the Tribune Company was handling their scalping scheme for playoff tickets, seats for the "biggest" games of all. I recommend the entire article at the link in the previous sentence, but here's the essence:

But this entire surprising season has shared headlines with the Cubs' dirty greed. With a chance to give us our dream playoffs, what do the Cubs do?

Come up with a fresh, new ticket scam. Angry Cubs fans have been e-mailing me about it. Season-ticket holders had to pay up Wednesday for playoff tickets. One e-mailer said his tickets usually are $25 a game. The Cubs charged him $1,355 for his two seats for what could be 10 postseason games, including the World Series.

He was OK with the price hike but was upset by this line on the sheet the Cubs sent him: ''If the Cubs are eliminated from postseason contention before playoff tickets are mailed, we will automatically credit your payment to your 2004 season-ticket account.''

The Cubs will hold his money until January, when it's time to pay for next year's tickets? Why should the Cubs be the ones earning interest on his money? White Sox season-ticket holders were given the option of getting a refund. Do the math: The Cubs sold roughly 15,300 season tickets. If this e-mailer's $67.75 per postseason ticket is the average, then the Cubs basically will be sticking their most loyal fans for a $10.2million interest-free loan for four months. At the current prime rate, that would mean skimming nearly $140,000 in interest on money that's not theirs. <snip>

We never can trust the Cubs again and always must keep watch. A whole year of bad press over dirty ticket policies, and they do this anyway.

The Tribune's approach to strip-mining the team's image extends beyond the ticket scheme. They are playing with the goodwill built up in Wrigley Field, a crown jewel that makes the whole return on image model work for the Cubs' top and bottom lines. When Chicago's Department of Planning and Development tried to clarify the facility's landmark status, the Tribune Company make a noisy stink about that limiting their options to change their property and exaggerated the limitations in an attempt to be able to ignore the stewardship that landmark status requires. The Goose That Laid The Golden Egg.

The image that fuels return on image is not unlimited, even when it's drawing from a vast reservoir based on almost a century of tradition, as in the Cubs' case. The Cubs are somewhat inoculated against the tarnishing effects of such a cheap trick. But they're not totally immune. In Part II, I'll try to discuss the factors that managers need to know about return on image, why it works and where. And where and when it fails.