The Financial Operations of the Chicago Cubs, Avoiding Megadeals, and the Implications of Private Equity Investment

Yes, I read the Jesse Rogers piece on the Chicago Cubs. Being that it was Christmas Eve when it dropped, candidly, I wanted to take a breath before I more openly contemplated its next-level meaning. I never quite know exactly where something like this is going to take me when I start typing, and I just wanted to enjoy my holiday.

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Now that the stockings are put away and the Christmas cookies digested, allow me to share and discuss, if you hadn’t yet seen the article:

Happy Holidays! The Cubs are still searching for some gifts for fans next season but I took a look at them from 30,000 ft. Over the luxury tax, an exec entering his final year and no playoff appearances since 2018 (full yr). What gives? Story here: https://t.co/wnU731mFsg— Jesse Rogers (@JesseRogersESPN) December 24, 2024

The article probably registers at different levels of interesting to different groups of fans, and some of the article is just baseball talk. Some folks aren’t into the financial stuff, while others maybe read too much into it. I think the article is worth consuming, though I’d caution against drawing any dramatic conclusions. The Cubs, like every other MLB organization, have a series of strong incentives to keep financial details in-house.

Some of the bits included in the article are known or were suspected (Marquee has not been a cash cow, the team is likely not to go over the luxury tax again in 2025, but the team is also likely not to simply pocket the money they saved in trading Cody Bellinger), but having additional reporting on the matter is always useful.

Two things stood out to me as being newly worth a discussion, and both were included in this paragraph:

“Meanwhile, private equity investment has ownership answering to more than just a handful of local minority investors like it did previously. The bottom line is more of a concern than ever, with some industry observers believing the Cubs won’t sign a megadeal for a player before the next labor agreement is negotiated with the players after the 2026 season.”

Let’s talk about the megadeal part first. Nothing until after 2026, eh?

Although the sourcing there reads as relatively thin – I think technically I would qualify as an “industry observer,” right? – I don’t think Rogers is pulling that out of nowhere, and I don’t think his sources are either. This is something we should be paying attention to.

Because of the dramatically-shifting landscape for revenue in this sport, the financial relationship between MLB organizations could similarly change dramatically in that next Collective Bargaining Agreement. The way revenue-sharing operates is one of those sneakily massive things that we almost never talk about as baseball fans because, well, it’s complicated as hell. Suffice to say, little tweaks to the interlocking formulas could fundamentally alter the Cubs’ financial projections post-2026 in one direction or the other. And that’s to say nothing of the way team payrolls could be impacted directly by new language in the CBA, or the ways team revenue could be impacted directly by dozens and dozens of plausible changes (in the CBA and just in our world) in the next two years.

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I’m not saying I agree with it – and I certainly don’t LIKE it – but I can at least contemplate a defensible series of positions that leave an organization like the Cubs (large market, revenue-sharer, but not massive like the Dodgers or Yankees) warier than most about how aggressive to be these next two years. (Of course, just because the Cubs aren’t the Dodgers or Yankees doesn’t mean they couldn’t proceed with the same confidence of, like, a half-dozen other large market clubs …. )

Of course, all of this comes against the backdrop of an organization that has *never* shown an interest in signing one of those 10+ year megadeals under any operating circumstances, so, actually, how much does the looming CBA negotiation matter? It might simply be yet another reason the Cubs are disinclined to do something they were already powerfully disinclined to do.

Tuck it in your back pocket. This feels like the opening salvo to a topic that will increasingly be foisted upon us as the next CBA negotiation approaches. We are likely going to be hearing it a whole lot as Kyle Tucker’s free agency approaches, aren’t we? Fun, right?

On to the second part that really stood out to me: minority private equity owners making the “bottom line” of the Chicago Cubs’ business operation more important, and thus making those megadeals (among other things) all the less likely.

To be sure, private equity investment in the Cubs is actually not new information, but the possible implications illuminated by Rogers’ piece certainly are.

Although the Ricketts Family remains the controlling owner of the Chicago Cubs, there have been minority investors over the years. Some small and local, some not.

Sportico has previously reported that Arctos Sports Partners had invested in at least six MLB teams as of March 2022, including the Cubs, together with the Dodgers, Red Sox, Giants, Padres, and Astros. It is not clear whether that’s the only PE firm that has a stake in the Cubs, nor is it clear how large that stake is. MLB rules reportedly allow teams to sell up to 30% of their franchise equity to PE firms, with no individual firm holding more than 15%. (Also a fun fact that you may or may not vaguely remember: former Cubs and Red Sox executive Theo Epstein took on an advisory role at Arctos back in 2021.)

MLB started permitting its teams to sell stakes to PE about five years ago. Doing so allows club owners to take advantage of escalating franchise valuations (i.e., turns some of that equity growth into real cash to pocket or pay off debt, without selling the whole team), but with restrictions in place so that the clubs don’t become beholden exclusively to private equity. The league has a strong preference for having team control still lie vested in an individual person or family, rather than being controlled by a decentralized entity whose existence is exclusively about capital growth. (Which is a pretty fine line, given that most team owners, you know, also care quite a bit about capital growth …. )

Why any of this matters, at least as Rogers’ piece implies – and as we absolutely saw during the days of Tribune Company ownership – is that the more your club is owned by investors, the more your club needs to operate as a business that shows profit, and profit growth, over a long horizon. The argument would be, then, that the more of the club that is owned by PE, the more incentive the organization has to err on the side of profit generation, even when doing so may conflict with win generation.

Moreover, it’s pretty simple to argue that an individual human owner of a team should go out of pocket to upgrade the roster; it’s much more complicated to argue that a collective of owners, including institutional owners, should take a loss on the books to upgrade the roster. They just don’t do that.

Again, consider the days of the Tribune Company as the Cubs’ owner: because operations all ultimately had to answer to a board that had to answer to shareholders, there was a literal fiduciary duty to try to make money. The Cubs of that era could not intentionally be operated at a loss even if the front office wanted to.

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In other words, the more that the Cubs are owned by private equity/institutional investors, YOU COULD ARGUE that it is worse for fans, who want wins, wins wins, irrespective of organizational profit.

Is it in fact the case that a chunk of corporate ownership is in fact bad for fans? Do we know for sure that spending proclivities would be different under different ownership structures? Do we know for sure that having a sports collective like Arctos involved isn’t actually a net benefit for the organization? Do we know that full corporate ownership of the Atlanta Braves has actually been a bad thing for the fans, or partial corporate ownership as with the Dodgers, Red Sox, Padres, Giants, or Astros? Do we really even know exactly how all of this works? Do we fully grasp and appreciate the layers and layers of complexity behind revenue sharing and reimbursements and what counts as team revenue and on and on? I have to say no across the board there. I am reasonably intelligent, but I am not an expert on this stuff, and I also don’t have any kind of inside financial access. I can speak only in generalities, and I hate to make assumptions when I don’t have all the data.

At a gut level, I can say that all sports fans dream of their favorite team being owned by an individual fellow fan with infinite cash and infinite largesse, eager to spend to win, regardless of what it might generate for that individual’s pockets. Does the Cubs’ ownership setup seem like a parallel for that Steve Cohen-type New York Mets existence? It does not.

None of that is to say we are suddenly today learning that the Cubs are required to be a profit machine, and that is the reason for Behavior X or Decision Y. For one thing, winning doesn’t HAVE to be inconsistent with profit; ask the Yankees and Dodgers how they are doing financially. Winning is the ultimate that’s-just-good-for-business, lest anyone involved in the ownership of the club forget that. Spend money to make money and such.

For another thing, we already knew the Cubs restricted baseball ops spending to revenue minus expenses, with “profit” to be derived primarily from extracurricular activities and asset appreciation. So long as there isn’t a fundamental deviation there (i.e., spending LESS than revenues minus expenses on baseball ops), then it’s status quo, which would be more spending than we saw under the Tribune.

Still, it is hard not to wonder about the extent to which there’s a relationship between how the Cubs organization is run as a business, and how averse the organization is to massive long-term deals of the sort that Juan Soto just received, or even a tier down, such as the one Kyle Tucker could eventually command. Those deals make a baseball team much better in the near-term, but they probably go down on a Profit and Loss Statement as “bad business.” So who gets to drive that decision?

As I said, I apologize that I won’t have any hard-and-fast answers for you on this stuff. I like talking about it and I do think it’s very important for considering the totality of how a given MLB team operates. But the league and its owners work very hard to ensure that as little detailed financial info leaks out as possible. Divine from that whatever meaning you see fit.

So where do I land after reading Jesse Rogers’ piece and typing my way through the implications? Well, I don’t think my expectations for organizational behavior have changed from what they were a few days ago. It’s long been the apparent case that this ownership group – even if it were only the family – was not going to spend out of its own pocket and go into a loss to add another impact bat or whatever. Having minority PE owners doesn’t really change any of the calculus there.

But I do think we probably haven’t been considering the “Cubs as a business” enough in the current era. The reality is that PE firms invest in businesses because they want to make money. Period. Full stop. End of purpose. So if Arctos and/or other private money is being funneled into sports organizations, it is because they expect returns on that investment. We as fans can hope that the returns primarily come from areas that don’t impact baseball operations spending, but it isn’t up to us.

The Cubs, for as much as we think of them as a public trust, are a business. Their owners – any of them – want the business to do well. The fan in me hates to accept it. The adult in me knows that it’s just the way things are, and quietly chides the fan in me for sometimes forgetting it.

I also think, as I said, that we will need to keep the CBA stuff on our radar in the coming years, particularly with respect to owner relationships (league revenue generation, big market revenue-sharing, any rebate stuff, etc., etc.). The owner-player dynamic will rightly get most of the ink when the time comes, but the sparring between the owners could actually dictate much more about how an organization like the Cubs behaves after 2026.