In Pitch for Increased Revenues, Cubs Face Formidable Lineup of Obstacles
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Byron Clarke
April 9th 2004
This was originally written for a class assignment, and should not be copied under any circumstances. If you use this for any purpose, please make sure to give me credit. This material is copyrighted.
Clarke, Byron T. "In Pitch for Increased Revenues, Cubs Face Formidable Lineup of Obstacles." TheCubdom.com <http://www.thecubdom.com/Papers/casestudy.html> 9 April, 2004.
Abstract:
The Chicago Cubs are a very popular Major League Baseball team. They are owned by the Tribune Company, a Chicago based media conglomerate which acquired the team to further its vertical integration of the Chicago baseball market. The Cubs compete with the Chicago White Sox in an oligopoly market. Furthermore, the Cubs have done an excellent job of incorporating an imperfect price discrimination strategy in their business.
The Cubs play their home games at Wrigley Field, one of the smallest parks in baseball. Beginning in 2001, they began a major push to increase the size and number of their revenue streams. They planned to increase seating capacity, build a parking garage and museum, increase the number of night games, and start a ticket brokerage firm. However, the Cubs were opposed by neighborhood special interest groups who used political clout to stymie the Cubs plans.
In 2003, the Cubs doubled their lobbying and legal expenses which lead to new negotiations with city officials. The Cubs then reached agreements allowing them to expand seating capacity and increase the number of night games. The Cubs also finalized a revenue sharing plan with local businesses which were free-riding on the team, and won a lawsuit concerning their ticket brokerage firm. While the Cubs have not finished implementing their revenue enhancement plan, they have made significant progress, and have an improved relationship with their neighbors and city officials.
Cubs History and Ownership
The Chicago Cubs are one of sixteen franchises in Major League Baseball’s National League. Founded in 1876, the team was one of the original eight Major League Baseball teams(1) . In 1920, William Wrigley purchased the Cubs and Weeghman Park(2). Wrigley renamed the ballpark Wrigley Field, and the team was owned privately by the Wrigley family for the next 61 years. In 1981, William Wrigley Jr. sold the ballpark and the team to the Tribune Company of Chicago, Illinois(3). The Tribune Company, a media conglomerate, also owns The Chicago Tribune newspaper, WGN Television, and WGN Radio. The Cubs were purchased in order to further the Tribune Company’s vertical integration of the Chicago baseball market. The baseball team provides programming content for WGN, which had begun broadcasting Cubs games on the radio in 1925 and on television in 1948(4). Now, WGN television is a national cable superstation, and WGN radio has a large network throughout the Midwest.
Market: Structure and Positioning
The Chicago baseball market is an oligopoly market, which is dominated by the Cubs and the Chicago White Sox. Although they compete with each other, the Cubs and White Sox are exempt from many antitrust regulations because of their membership in Major League Baseball. In 1922, the U.S. Supreme Court granted the league an anti-trust exemption that is still in effect today(5). Like many companies operating in an oligopoly market, Major League Baseball teams colluded increase profits. From 1986 – 1990 team owners worked together to suppress player salaries(6). However, despite the limited number of baseball teams in the Chicago, both the Cubs and the White Sox operate in a reasonably competitive market environment. Both teams compete with other entertainment companies, and specifically the other Chicago professional sports teams such as the Bears (football), Bulls (basketball), Blackhawks (hockey), and Fire (soccer).
Following its 1981 purchase of the Chicago Cubs, the Tribune Company has remarkably improved the Chicago Cubs brand by aggressively marketing both the team and Wrigley Field. Furthermore, by carrying Cubs telecasts on the WGN national cable ‘superstation’, the Chicago Cubs have become one of the most popular baseball teams in the country. In the National League, the Cubs are the team which most consistently increases its opponent’s gate receipts when playing on the road (the best measure of national popularity). Since 1998, the Cubs have had the largest road attendance three times (1998, 2001, and 2003) and been in the top three the remaining years(7)(8). Additionally, the Chicago Cubs have been in the top five Major League teams over the previous three years in attendance, measured as a percentage of stadium capacity(9).
Despite the high demand for Cubs tickets, the Cubs play in the third smallest stadium in baseball (capacity is 38,765)(10). As would be expected with a high demand and small supply of tickets, the Cubs have the second highest average ticket price in Major League Baseball ($28.45 for 2004)(11). Like other firms attempting to earn monopolist profits, the Cubs practice imperfect price discrimination. For the 2004 season, there are nine types of tickets sold to each Cubs game, and three different game classifications, based on likely demand, throughout the season. As a result, there are 27 possible ticket prices to see the same product(12).
Meeting Resistance
In order to increase the supply of baseball tickets, the Tribune Company proposed an addition to Wrigley Field in June 2001. This expansion plan would have added another 2100 bleacher seats, 200 dugout level seats, and increased revenue by approximately $7 to $10 million in 2002(13). The 2001 expansion plan also included plans to build a large parking garage and administrative building. The building was expected to house a new Cubs museum, and offices for team executives. By moving the offices out of the ballpark, the Cubs would have been able to expanded concession areas in the ballpark(14). However, due to community and local government opposition, the Cubs were not able to move ahead with their plans for expansion of Wrigley Field.
Wrigley Field is one of the few Major League ballparks located in a residential neighborhood. This neighborhood has been named Wrigleyville because of its location and close economic ties to the ballpark. Surrounding the outfield walls of Wrigley field are 13 buildings that are tall enough so that people on the third floor of can see into the ballpark. For many years, these were apartment buildings and the tenants would go on top of their building’s roof to watch ballgames. However, beginning in the mid 1990’s, many of these buildings were renovated and turned into bars. The bars then started selling tickets to watch the game from the rooftops. Thus, after the Cubs announced plans to expand the bleachers in 2001, the rooftop owners formed a special interest group known as the rooftop owners association to oppose the expansion. The rooftop association wanted to block the expansion because it called for two additional rows of bleachers at the back of the stadium, which would obstruct the view from their buildings(15). Furthermore, the plans also called for steel beams to support the new seats, which would have created a covered walkway over the existing sidewalk. Another special interest group, Citizens United for Baseball in Sunshine (CUBS), composed of neighborhood residents, opposed the plans claiming the expansion would make the neighborhood more dangerous by creating dark areas along the street. Together, these groups approached Aldermen Bernard Hansen and Thomas Tunney, of the Wrigleyville neighborhood who were able to block the initial expansion plan by designating Wrigley Field as an historic landmark(16). In an effort to compromise, the Cubs began discussions about a possible revenue sharing agreement with the rooftop owners. After these talks failed initially, the Cubs sued the rooftop owners alleging that the owners were free-riding on the Cubs by selling tickets without helping to pay for the product.
Along with its unique location, the Cubs were the last Major League Baseball team to add stadium lights to their ballpark. Since night games are easier to attend for many fans, lights were added in August 1988 to help increase attendance and revenue(17). However, in order to be granted permission to add the lights, the Cubs signed an agreement with the city limiting the number of night games to 18 per year for the following 15 years. This agreement expired at the end of the 2003 baseball season, and the Cubs have been lobbying the city to increase the number of night games(18).
In yet another attempt to increase revenue, the Tribune Company formed a corporation called Wrigley Field Premium Ticketing Services in 2002. With the help of Cubs personnel, the Tribune Company purchased a store location about two blocks from the ballpark and began operating a ticket brokerage service(19). However, in October 2002, a group of Cubs fans brought a class action law suit against the company alleging the Cubs were operating a ticket scalping service, and not a legitimate brokerage. The main claim of the suit was that the Cubs were not first offering these tickets to the general public(20).
Winning the Compromise
With mounting opposition to their plans for adding new revenue streams, the Cubs turned to the political process and doubled their 2003 city lobbying budget. The team was specifically hoping to gain concessions from the city in order to implement their expansion plan. The Cubs also wanted to block the historical landmark designation on Wrigley Field, and reach a solution to their lawsuit with the rooftop owners. Additionally, the Cubs wanted to win their ticket brokerage lawsuit and increase the number of night games. After spending about $56,000 in 2002, the Cubs doubled their lobbying and legal expenses to $113,000 in 2003. Most of this money, $100,000 was paid to Piper Rudnick, a Chicago law firm which handled legal work for the Cubs. Another $13,000 was spent on public relations work from Jasculca/Terman and Associates(21).
It appears the increased lobbying budget has helped the Cubs win agreements and compromises on most obstacles to implementing their new revenue streams. Following the 2003 season, the Cubs were able to reach a compromise on four of their target issues. First, in November 2003, the Cubs won the class action lawsuit alleging that they were scalping their own tickets(22). Then in February 2004, the Cubs reached a compromise on the landmark designation that limited the city’s control over future ballpark changes. The finalized designation covers the famous ivy growing on the brick walls in the outfield, the marquee in front of the stadium, and the scoreboard. However, the landmark status does not extend to the bleachers, the concession areas, or the business offices in the stadium. Moreover, as part of the landmark designation compromise, the Cubs have been told that they will be permitted to expand the bleachers, albeit on a smaller scale than originally planned(23).
Furthermore, in March 2004, the Cubs reached a compromise with the city that will allow them to gradually add higher revenue night games over for the next three years. By 2006, the Cubs will be allowed 30 night games per year. In return, the Cubs have promised to fund $1,000,000 for a neighborhood safety and security fund over the next 20 years(24). Finally, the Cubs also reached an out of court settlement with the last of the rooftop owners in April 2004(25). The agreement, which will last 20 years, will give the Cubs 17% of gross revenues from rooftop tickets. In return the Cubs have agreed to partner with the rooftop owners with on-air advertisements and by showing the rooftop patrons on television(26).
Also in April, As a result of the landmark designation agreement, the Cubs were able to implement the first part of their 2001 expansion plan by adding 200 dugout level seats. These seats, which are the closest seats to the field, are expected to bring in about $3.2 million in additional revenues for 2004. In total, between the added night games, dugout seats, and rooftop revenue sharing, the Cubs will gain an addition $10 million in 2004 revenue(27).
Growing the Business
Despite their recent success, the Chicago Cubs have not stopped their efforts to fully implement their June 2001 expansion plan. The Cubs are still in negotiations with the city of Chicago and the rooftop owners to find a new design that will allow them to expand the bleachers without blocking views from the rooftops, or creating a covered walkway over the sidewalks. While the tone of negotiations seems to have improved remarkably, the Cubs still face significant opposition to building a parking garage. Furthermore, since the expenses associated with operating a Major League ball club show few signs of decreasing, the Cubs will be forced to continue finding new ways to generate revenue if they are to remain competitive on the field, and on the income statement.
Works Cited
(1) “Chicago Cubs History: Cubs Timeline: 1800s.” Cubs.com
<http://chicago.cubs.mlb.com/NASApp/mlb/chc/history/timeline01.jsp>
(2) “Chicago Cubs History: Cubs Timeline: 1920’s.” Cubs.com,
<http://chicago.cubs.mlb.com/NASApp/mlb/chc/history/timeline04.jsp>
(3) “Chicago Cubs History: Cubs Timeline: 1980’s.” Cubs.com
< http://chicago.cubs.mlb.com/NASApp/mlb/chc/history/timeline10.jsp>
(4) “Chicago Cubs History: Cubs Timeline: 1940’s.” Cubs.com
<http://chicago.cubs.mlb.com/NASApp/mlb/chc/history/timeline06.jsp>
(5) Helyar, John. “Lords of the Realm.” Villard Books. New York, NY. 1994. page 10.
(6)Helyar, John. “Lords of the Realm.” Villard Books. New York, NY. 1994. page 337.
(7) “Major League Attendance.” ESPN.com.
< http://sports.espn.go.com/mlb/attendance> 7 April 2004.
Used for 2001 – 2003 statistics.
(8) “Park adjusted Attendance.” Bigbadbaseball.com
<http://www.bigbadbaseball.com/articles/jones_19990824.html>
Used for 1998 - 1999 statistics.
(9) “Major League Attendance.” ESPN.com.
<http://sports.espn.go.com/mlb/attendance>
(10)“Ballpark comparisons” Ballparksofbaseball.com
<http://www.ballparksofbaseball.com/capacity.htm>
(11)“Getting Pricey, MLB ticket prices up 3.9% from 2003.” Associated Press, 29 March 2004.
<http://sportsillustrated.cnn.com/2004/baseball/mlb/03/29/bc.bbo.ticketprices.ap/>
(12)“Chicago Cubs: Tickets: 2004: Tickets and Schedule.” Cubs.com
<http://chicago.cubs.mlb.com/NASApp/mlb/chc/ticketing/pricing_schedule.jsp>
(13) Armour, Nancy. “Cubs expanding bleachers at Wrigley.” Associated Press, 18 June 2001.
(14) Armour, Nancy. “Cubs expanding bleachers at Wrigley.” Associated Press, 18 June 2001.
(15) Armour, Nancy. “Cubs expanding bleachers at Wrigley.” Associated Press, 18 June 2001.
(16)Wilgoren, Jodi. “Cubs sue Neighborhood bars on Rooftop Use.” The New York Times, 18 December 2002. Section D, Page 4, column 2.
(17) “Chicago Cubs History: Cubs Timeline: 1980’s.” Cubs.com
<http://chicago.cubs.mlb.com/NASApp/mlb/chc/history/timeline10.jsp>
(18) Washburn, Gary. “Deal set on night games.” Chicago Tribune. 7 February 2004.
(19) McDill, Kent, “Cubs create season ticket resale plan.” Chicago Daily Herald, 17 June 2002.
(20) “Fans sue Cubs, claiming illegal ticket scalping.” Associated Press, 10 October 2002.
(21) Herman, Eric, “Cubs’ spending to lobby city more than doubled in ’03.” Chicago Sun-Times, 4 February 2004.
(22) Fidler, Eric. “Judge rules Cubs didn’t break scalping law.” Associated Press, 25 November 2003.
(23) White, Geoffrey. “Wrigley Field close to becoming landmark.” Associated Press 23 November 2003.
(24) “Wrigley night games rise from 18 to 22” ESPN.com news services, 16 February 2004
<http://sports.espn.go.com/mlb/news/story?id=1732756> 8 April 2004.
(25) “Cubs, holdout rooftop business reach deal.” Associated Press, 8 April 2004.
(26) Dodd, Mike. “Cubs cash in big time” USA Today, 20 February 2004.
(27) Herman, Eric. “Cubs’ spending to lobby city more than doubled in ’03.” Chicago Sun-Times, 4 February 2004.
Copyright ©2004, Byron T. Clarke, thecubdom.com All rights reserved.
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