Interesting conversation on WGN last night... Zell and Ricketts

by Endrick on Jun 12, 2009 12:38 PM CDT

Last night I was listening to WGN Sport Central and wondered if anyone else heard it...

Basically the hold up with the sale seems to boil down to Sam Zell wanting the sale financed a certain way.

He wants Ricketts to do a majority of the sale with loans, saving Zell a buttload of taxes on the sale...
By doing this it would saddle Ricketts with 30 to 40 million in interest per year...

Now considering the sale price of the Cubs is sitting at $1.1B to $1.2 Billion the 30 to 40 million
doesn't seem like such a large amount except the Cubs are only making a profit of $30 Million a year.

So our buddy (* Tongue Firmly in Cheek *) Sam Zell, wants the new owner to use all the club profit to
keep him from having to pay his taxes on the sale thus preventing the club from doing things like
increasing the player payroll pool or make renovations to Wrigley without loosing money.
What I found most interesting is that if Zell drags his feet long enough it is possible for the Banks to
get impatient, set in and force the terms to get the sale done so they get their money and Ricketts
could very well get the team for less than the original price...

What really amazes me is this...

Is Zell really that greedy or stupid to think the new owners, no matter who they were going to be would sacrifice
the team profits to keep him from paying taxes???

This is a FanPost and does not necessarily reflect the views of SB Nation or Al Yellon, managing editor (unless it's a FanPost posted by Al). FanPost opinions are valued expressions of opinion by passionate and knowledgeable baseball fans.

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I heard the conversation as well

Zell probably thinks if he can’t get Ricketts to finance the way Zell wants that someone else will.

He may be taking a big gamble . . . his last one hasn’t paid off so well.

I'm singing, "GO CUBS GO! GO CUBS GO!" -- DrCrawdad on Jun 12, 2009 7:23 AM CDT

Facts are meaningless. You could use facts to prove anything that's even remotely true! -- Homer J. Simpson

by Shanghai Badger on Jun 12, 2009 12:41 PM CDT reply actions

I thought...

I heard them say that the deal is done its just the financing that needs to be agreed on…

In effect Zell is stuck… He can’t back out or the deal…

- Over? Did you say "over"? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!
- Germans?
- Forget it, he's rolling.

by Endrick on Jun 12, 2009 12:55 PM CDT up reply actions

Except the financing

is the major part of the deal. Zell wants Ricketts to assume a massive debt load in a complicated scheme to avoid paying any capital gains taxes.

For Zell, it’s not so much the sale price. It’s avoiding paying taxes on the sale.

by Josh Timmers on Jun 12, 2009 3:30 PM CDT up reply actions

In these economic conditions...

… if the Ricketts deal doesn’t go through, sure, there may be someone else. But the “someone else” won’t offer as much, nor will he give as good terms as Ricketts.

Zell may be stuck, and it’s his own fault.

"You can observe a lot just by watching." ~ Yogi Berra

by Al Yellon on Jun 12, 2009 4:49 PM CDT up reply actions

I agree

Zell waited too long and the sand has shifted beneath him. He’s still behaving like nothing has changed since he bought the Tribune.

by Josh Timmers on Jun 12, 2009 7:10 PM CDT up reply actions

And doing so has cost him hundreds of millions of dollars.

"You can observe a lot just by watching." ~ Yogi Berra

by Al Yellon on Jun 12, 2009 7:45 PM CDT up reply actions

Couldn't happen to a nicer guy

The rest of us have to pay our taxes. Seems like the IRS would be watching this one closely with how publicly they have been trying to get out of paying taxes. I guess the loophole is open so they can’t do much about it.

by LT on Jun 12, 2009 9:08 PM CDT up reply actions

I obviously have no idea...

how big money loans and transactions work but to me it sounds like the Ricketts want to finance X dollars and pay Y in cash and Zell wants them to finance a higher X amount and pay less Y so that it would save him taxes.

Why wouldn’t the Ricketts finance the higher amount and save a bit of the cash, then when their first payment comes up overpay on the principle all that “saved” cash and essentially end up at the same point except for one massively expensive interest payment? Would the banks not allow this?

In numerical terms say they want to pay $450M in cash and get the other $450M financed. Zell wants them to finance $600M and pay $300M in cash. If they did it that way, the Ricketts would “save” $150M in cash. Their first loan bill comes in for $1.8M and they pay $151.8M.

by CubFan81 on Jun 12, 2009 12:55 PM CDT reply actions

Because he can't pay the principal

if Zell is to avoid paying capital gains taxes. Ricketts apparently can’t touch the principal for five years under Zell’s scam,

by Josh Timmers on Jun 12, 2009 3:32 PM CDT up reply actions

Ah...

well, that would do it. And also would be insanely stupid for the Ricketts to agree to.

by CubFan81 on Jun 13, 2009 9:12 AM CDT up reply actions

Their first loan bill comes in for $1.8M and they pay $151.8M.

Brilliant!!!! The deal isn’t that complicated if 2 parties really want to get it done. The only issue could be the bank not wanting to load $600 mil instead of $450 mil.

by Cubsfan Waveland on Jun 12, 2009 2:04 PM CDT reply actions

Won't work

Ricketts can’t touch the principal for Zell to avoid paying taxes.

by Josh Timmers on Jun 12, 2009 3:32 PM CDT up reply actions

Zell is accustomed to getting his way...

…which is one reason he has made such a fortune. He has also been accustomed to negotiating from a position of strength, and I’m not sure that’s the case this time around.

"I don't like them fellas that drive in two runs but let in three" Casey Stengel

by MPH73 on Jun 12, 2009 4:30 PM CDT reply actions

My money is on Sam Zell getting this deal done his way

He is an absolute shark when it comes to highly leveraged deals. He hasn’t amassed a personal fortune still worth over $2 billion by being a dumb. Or weak. Unfortunately, I think this soap opera plays out for even more months.

You mean, let me understand this cause, ya know maybe it's me, I'm a little messed up maybe, but I'm funny how, I mean funny like I'm a clown, I amuse you? I make you laugh, I'm here to amuse you? What do you mean funny, funny how? How am I funny?

by BLou on Jun 12, 2009 9:04 PM CDT reply actions

Maybe he USED to be a shark...

… but there are two factors he didn’t consider here:

1) the current state of the economy

2) the free-fall of the newspaper business.

Zell made his money in real estate. Quite a different ballgame.

"You can observe a lot just by watching." ~ Yogi Berra

by Al Yellon on Jun 13, 2009 4:15 AM CDT up reply actions

He seems to be out of his element on this one. The longer he hold out the less atractive the Cubs look. I

don’t see anything out there to induce the Ricketts to move his way on this deal. If they walk away now, he will be left holding a pretty big pile of crap.

"Hats for bats.....keep bats warm." - Pedro Cerrano
"Hey bartender, Jobu needs a refill !!!!!!!" - Eddie Harris

by willie mays hayes' gloves on Jun 13, 2009 10:22 AM CDT up reply actions

You underestimate Sam Zell

He has working for him on this Tribune Company thing some of the nation’s preeminent leveraged-buyout, tax and bankruptcy lawyers from a handful of the preeminent law firms in Chicago (to include Kirkland & Ellis and Cravath). It’s an all-star team of the most prominent and highly paid lawyers in this country. They won’t lose for their client Zell. To chalk this up by saying that Zell is out of his element and the economy is in too big of a mess is to not understand how the man works.

by BLou on Jun 13, 2009 9:57 PM CDT up reply actions

you keep saying that

and the market for newspapers keeps going in the toilet, and the value of Zell’s investment keeps dropping.

What, exactly, is not to understand? Zell may lose control of Tribune Co. He made a $250 million loan to the company that he’s in danger of losing completely, because it’s at the bottom of the list of things to be repaid. If the senior lender group does take over, they might even fire Zell and his management team. The Tribune is THIRTEEN BILLION DOLLARS IN DEBT.

I'm a Cubs FANATIC. They are my team, through thick and thin. When they play over their heads, and when they play under the gutter. When they win the division, and then get swept in the division series. When they get no-hitters and when they blow no-hitters. And some day, when they go all the way and get those rings. This is the kind of fan I am.

by drewishdrewid on Jun 13, 2009 10:43 PM CDT up reply actions

Zell might have overreached this time...

Sure, he wants the deal financed his way, but in the current economic climate, few banks are willing to provide the highly leveraged financing the buyer would have to undertake. Plus, I’m sure Ricketts (or any buyer) would prefer not to assume the high debt level. He’s been going over everything while working on the financing. I believe there has been some questions by Ricketts side about the value of the broadcast rights or perhaps something else, I can’t remember. I would guess that’s why he was trying to interest some other investors so he wouldn’t be carrying the whole debt load.

In the end, Zell might be forced to sell by allowing the buyer to use more traditional financing methods. He needs the money to pay down debts now, and there are few banks and buyers who will go along with his financing preference. Also, in the end, the IRS might still get its money if they decide to audit the completed deal and dis-allow parts of it.

"Pinky, are you pondering what I'm pondering?"--The Brain

by brook on Jun 12, 2009 9:45 PM CDT reply actions

You greatly underestimate Sam Zell

Sam Zell and his roomful of highly paid tax attorneys came up with this sale structure because they believe it can and will work. I’m not a Zell fan by any stretch, but fact is the guy always comes out on top in his deals. To underestimate him is to not understand him. He also doesn’t like to lose on principle.

by BLou on Jun 12, 2009 10:31 PM CDT up reply actions

The broadcasting issue

is WGN, radio and TV. The Cubs make less money than the White Sox do in broadcasting revenues, for example, because the Tribune shifts profits to the broadcasting side where it doesn’t go into a MLB revenue sharing pool. This was fine as long as both were owned by the same people, but Ricketts obviously doesn’t like the arrangement. Zell also wants to give WGN the right to match any contract that Ricketts might strike in the future once the current contracts are up, once again limiting the Cubs future revenues.

by Josh Timmers on Jun 12, 2009 11:56 PM CDT up reply actions

How does giving WGN matching rights limit revenue?

I'm singing, "GO CUBS GO! GO CUBS GO!" -- DrCrawdad on Jun 12, 2009 7:23 AM CDT

Facts are meaningless. You could use facts to prove anything that's even remotely true! -- Homer J. Simpson

by Shanghai Badger on Jun 13, 2009 9:11 AM CDT up reply actions

It may limit revenues in that other entities may view the Cubs deal as less valuable to them if WGN has a right to match. So there may be less interest in the Cubs.

by DudeVf11 on Jun 13, 2009 9:47 AM CDT up reply actions

by Shanghai Badger on Jun 15, 2009 10:43 PM CDT up reply actions

Sam Zell is a TOOL!!! This a$$clown is killing this franchise!!

We needed this sale finalized months ago and its tying up our hands with trying to make any deals! This is ridiculous! It’s bad enough with SELIG as the COMMISH!

MLB is in sad shape!

Nick

by niko68 on Jun 13, 2009 12:18 PM CDT reply actions