Crane Kenney sat down with Forbes’ Mike Ozanian while the Cubs were in New York playing the Yankees last month. The Cubs President of Business Operations discussed a variety of Cubs topics including the importance of Wrigley Field and the team’s media rights.
According to the report from Forbes, “the Cubs are also in the process of selling some shares in the team to investors – the new limited partners would likely own less than 25 percent combined – and want to use the proceeds to renovate Wrigley Field and develop nearby real estate.”
The interview with Crane Kenney aired on YES Network’s Forbes SportsMoney.
Lede: Chicago Cubs’ fans haven’t seen a World Series win since 1908. While various owners have tried to accomplish this feat over the years, none have been successful. But the current ownership group thinks it may have the answer. The game plan starts with the reconstruction of Wrigley Field, the second oldest Major League Park, which is celebrating its 100th Anniversary. Now, unfortunately 10 years ago Wrigley literally started falling apart and the battle to shape and finance the 21st Century version of this iconic home of the Cubs began in earnest.
At that time Crane Kenney was the President of the Cubs under Tribune Broadcasting Company ownership. But when Tribune went bankrupt and the Ricketts family bought the club, Kenney became President of Business Operations. It is his job to generate the revenue needed in order to generate wins.
Mike Ozanian: After the Ricketts family bought the Cubs, was it almost like rebooting the business model?
Crane Kenney: Yes, in particular because of the bankruptcy. It wasn’t just we went from corporate, public ownership to a family ownership. But we went from a cooperation that was in bankruptcy to family ownership. So it was a change and a welcome one. Yeah, you could say it was a reboot.
MO: What was your take on the business model in terms of, ‘Okay we are going to do this first, this second and this third to get this thing on track’ as far as making the business side as big as the brand?
CK: There were opportunities, seen by me as well as folks around me for years that we just couldn’t capitalize on because, really, the form of our corporate ownership. You think about it. You have a public company, managed quarter to quarter, every penny per share matters and large capital projects at Wrigley Field that aren’t going to generate any additional revenue. For instance, restrooms, improving steel, concrete … those don’t necessarily generate any short-term return. $150 million of our spend will be on infrastructure. It won’t create another seat, another club or any additional sales, but it needed to get done. Those investments weren’t going to be made with a public owner, especially one tied to the print industry, which was in decline. We were always in a contingency at Wrigley Field. There was very little ability to do long-term planning. So a group of us, in that organization, thought about what if we actually had resources? What would we do if we had an owner that would allow us to think long-term instead of quarter to quarter? We moth balled all of those ideas, sometimes for years. So when the family took over, one of the first things we did with Tom and his siblings, in particular Tom, we went offsite up to Northwestern University to get away from Wrigley Field and walked through about a dozen priorities. And my hope, not knowing Tom well, was that he would say yes to three or four of them. And instead he said, yes. And I said which of these? He said all of them. That’s our watershed moment. That’s a great moment as managers to come back and say we are going after every one of these.
MO: What were the ones at the top of that list?
CK: Rebuild Wrigley Field … was the number one. It is the revenue engine for us. If you think of our media rights, which may leapfrog our gate receipts in terms of overall size, our media rights in some ways depend on the stage we play on and the stage we play on is Wrigley Field. And so what we are monetizing at the ballpark, really is not a lot different than a broadcasting model, we’re monetizing eyeballs in attendance through various mediums: In person, on radio, on television, digitally. But the stage is Wrigley Field and it’s unique. That was the number one priority and obviously a quite expensive one.
MO: It is important to upgrade to get players excited?
CK: Yes, there’s no question. We have the worst facilities in for players at Wrigley Field. We actually think we now have the best facilities for players at Spring Training and in the Dominican because we’ve renovated those or built new facilities there. But when they come back to Wrigley, finally, which is their home, the place they spend the most time, it is really … it is decades behind. We will be at or above the league standard in every respect. Yesterday I was out touring Yankee Stadium to see what they’ve done with their clubhouse with Theo and Jed and a group on the baseball side and a group on my side. We are designing the amenities for the players now and trying to think about where will the game be in 10 years. How important will some of the things that aren’t really focused on today that much be important then? Like the mental part of the game.
MO: You mentioned the Dominican investment and others, you know as a percentage of overall revenue, it seems like the Cubs are investing more money in the minor leagues and in player development than they were before the Ricketts family bought the Cubs.
CK: What we are doing today we could not have done with a corporate owner focused on improving ratings every year. When you think about Tribune Company as a media entity, one of the things the Cubs did for them is they locked up in perpetuity their radio and television rights. And then they monetized those rights and that was basically how they grew their earnings in one part. Obviously they owned a bunch of other properties. The idea that you could take the on field performance down in the short-term and take ratings down would have been an anathema. No one would have agreed with a strategy to focus on the long-term and plow resources into growing a really strong farm system, at the expense sometimes of the Major League club.
MO: Wasn’t this sort of risky in a sense that, here the new owners are basically becoming more dependent on gate receipts for overall revenue and they are taking the chance putting more money to develop the minor leagues to enhance the product in the future. Meanwhile, they had to buy this team with a mountain of debt and you don’t really know how the fans are going to react. Attendance has gone down the last few years. I mean they had to have your back.
CK: But it begins with their courage. My job is easy as long as the owner is there. And the plan as it evolved, and we really understood what we had from a player development perspective and the need to support it and grow it. Then the question is, we hit a high watermark in attendance in 2008, a playoff team. Won 97 games and we put 3.3 million people in the ballpark. Attendance has gone from 3.3 to 2.7, that’s a lot of fans that are choosing to wait or do something else with their discretionary dollars. That takes courage to say ‘We understand that’s going to happen’ and we would never tell people how to spend their money. If they think that this is not a product worthy right now, they can choose that. To say that is a smart investment on our part because of what’s going to happen down the road, obviously you have a long-term vision and you’ve got courage to withstand criticism along the way. It hasn’t been exactly a picnic as the team has not performed that well. Despite telling fans this is the plan and you’re going to have to trust us and stay with us and many have. It is amazing the support we have to put that many people in the ballpark on a yearly basis, when they know our best days may be a year away, and still they come and support us at that level, is tremendous. But it starts with the owners having a conviction around they’re doing and even with criticism say ‘I’m not going to do a short-term fix here. We could sign three players this off-season, and we’ll win 84 games. It will feel better on a day-to-day basis, but it’s not going to help us to get to the promise land which is a World Series.
Back from Break Lede: After the renovation of Wrigley Field and adjacent real estate, the Cubs have a second major generator of revenue, the radio and television rights. Sports media rights have been exploding and while television rights to the Cubs are somewhat complicated due to the fact there are currently two separate deals for two separate networks that expire in two separate years. The potential for a record-breaking, multi-billion dollar deal in the hottest sports media market the world has ever seen is none too far away.
MO: Your TV deals are a little bit tricky in the sense that the deal with WGN expires after this season and the CSN Chicago deal doesn’t expire until after 2019. What type of strategy can you employ to maximize your TV money?
CK: Well, there is a long-term strategy and then there is the short-term strategy. Again it’s a little bit of a jigsaw puzzle because we only get half of our games back in the present sense. In 2019 all of the games come back and there is no backend right for CSN, there is no matcher or right of first offer. So, we will be free agents in 2019 with all of our games. And that’s where you will see a big transaction, like the transformative ones you’ve seen in L.A. and Philadelphia and other places.
MO: Do you think it’s plausible that the Cubs, after 2019, will have the largest TV deal among any Major League team?
CK: Yes. I think that’s plausible. A question for all of us will be how people consume media at that time. Right now you look at cable; most teams look at either a cable or distributor as their partner. Partner with someone like Fox or you partner with someone like Time-Warner as the Dodgers did or Comcast. As you see the evolution of things and people going over the top, I think it’s not … it’s just a matter of when someone like Google says ‘We are going to go and be a bidder for rights because we are going to take these games to consumers in a different way.’ And you’re seeing that happen. I saw Yahoo announce they are going to get into original production streaming video. Apple is doing it. Obviously Netflix is creating their own proprietary content and sort of leapfrogging the entire ecosystem to go direct to consumer. By 2020, has that evolved in the sports field or not? We’ll find out.
MO: Possibly, could there be a Cubs RSN (Regional Sports Network)?
CK: Yes. I think that the Cubs are … There are a few brands that have that brand equity that can kind of carry their own channel and you’ve seen some fail and you’ve got some situations now in Houston for instance that are a little dicey. Our brand is big enough they can carry a channel on its own and that’s a likelihood I think.
MO: As one of the founders of CSN Chicago, along with Jerry Reinsdorf the owner of the White Sox and the Bulls, do you feel that’s given you a better understanding of what the media rights market is like, particularly for local television and cable?
CK: Yeah, I mean my background was in media. So I was media lawyer before I kinda started into the baseball side. And we did Fox Sports Chicago together, Jerry and I before Comcast, so it kinda predates all of that, but it’s an incredible look at the pace of change that has occurred in sort of media consumption and trends. So if you think about it, the last four or five years if you’re a fan of … pick a show that’s on ABC, like Scandal. Today that show airs on ABC. Then Comcast is going to air that show in an on demand format, and you’ll pay extra to have the on demand. Then that show will be on Netflix to get prior seasons and then, like the third season, you are going to go to iTunes to buy. There are now five revenue streams that have been created just through technology for one show. And then it will go into backend production and you will sell it in syndicated market. The same thing is going to happen with sports. So streaming is really important right now. Fans expect to take their games with them. If I can’t be home to watch my Cub game but I’m going to my son’s little league game, I want to take the Cubs with me on my iPad or on my phone. That wasn’t an opportunity for us five, six years ago. I think the world has gone completely mobile. And, so the media, the pace of change in the media space is going to create great opportunities for all of us. Yeah, being on the Comcast Sports board has been really helpful and its’ been a really strong board and Comcast has been a great partner. I’m really excited about what’s going to happen in the next generation.