Selling Naming Rights to Wrigley would add $4.5m in annual payroll

Selling the naming Rights to Wrigley Field would add $4.5m in payroll.  I provide this fact as a data point for any holiday discussions you find yourselves in.

Bleacher Nation recently asked its readers if the Cubs should sell the naming rights to Wrigley Field. The post framed the question by asking if ‘losing’ the Wrigley name, and its history, is worth “$10 million annually, and a slightly better bullpen each year [or] $20 million annually, and the ability to always go after the best free agent pitcher on the market?” I disliked this question because the data exists to reliably predict the actual dollar amount payroll would increase. Providing this dollar value allows the argument to be less abstract. So as a public service, I calculate that selling the naming rights to Wrigley Field would add $4.5m in annual payroll. I estimate this on the following evidence and assumptions. Be warned, there is math ahead.

 

Wrigley Naming Rights: How Much are they Worth?

Twenty MLB fields having naming rights deals today. The terms of those deals are available for seventeen. Table 1 below shows the annual value of those deals. The average naming deal pays $4.4m annually. The value of naming rights are climbing, however, as the six most recent deals average $7.8m annually.

Table 1: Stadium Naming Deals
Team	Annual $	Year signed
Braves	$      10,000,000	2016
White Sox	$        2,000,000	2016
Rangers	$        5,000,000	2013
Twins	$        6,000,000	2010
Indians	$        3,600,000	2008
Mets	$      20,000,000	2008
Phillies	$        3,800,000	2004
Reds	$        2,500,000	2003
Padres	$        2,730,000	2003
Astros	$        6,360,000	2001
Tigers	$        2,200,000	2000
Brewers	$        2,000,000	2000
Pirates	$        2,000,000	2000
Mariners	$        2,000,000	1999
D-backs	$        2,200,000	1998
Giants	$        2,000,000	1996
Rays	$        1,000,000	1996

The naming rights for Wrigley would presumably exceed that of the $10m for the Braves new stadium, Suntrust Park. Chicago is a larger media market and the Cubs are (currently) more popular than the Braves. Plus, ownership would never incur the blowback of renaming Wrigley for anything less than top dollar. So at minimum the Cubs would insist on several million dollars more than Atlanta’s deal. The largest current deal is the $20m annual deal the Mets made with Citibank, in the larger NY media market. We would expect a deal in Chicago to be smaller than New York. On the other hand, the Mets deal is seven years old, suggesting the Mets could get more today. So I estimate the upper bound of a Wrigley deal at $20m. By coincidence, in 2012, industry sources estimated the value of selling the naming rights to Wrigley Field between $15-20m annually. Thus, I feel confident that the Cubs would get $15-20m to rename Wrigley. Let’s suppose the Cubs get top dollar, $20m, and continue this exercise.

 

How Much of that $20m Would Go Towards Payroll?

Selling the naming rights creates a new $20m annual revenue stream, but payroll would not instantly increase by the same amount. For starters, the Cubs will have to contribute a chunk of that money to revenue sharing. I previously calculated the Cubs only keep 89% of their baseball income after revenue sharing. So that $20m get reduced to $17.8m immediately. Also, the Cubs, like most baseball teams, typically only spend 50% of their revenue on payroll. That leaves $8.9m in potential payroll.

Then comes the luxury tax, aka the Competitive Balance Tax (CBT), which charges teams a hefty penalty for having payrolls above a preset limit. The Cubs already have the revenue to spend beyond the luxury cap, and did so in 2016. Since then they have added millions in revenue. So every dollar the Cubs add in payroll from renaming Wrigley would actually be spent above the luxury cap. That means the Cubs need to budget some of the $8.9 to pay luxury tax.

 

Paying the Luxury Tax

In the original Bleacher Nation post, the premise was that the Wrigley naming money would be used every year. The post also implied that the money would be used on top of all other Cubs revenue. So under the scenario set forth in the original post, the Cubs would be paying the Luxury tax every year. The luxury tax charges teams differing surcharges based on different factors. Table 2 below summarizes these factors.

Table 2: CBT Penalty System
$ over Cap	1st Year Penalty	2nd Yr	3rd Yr
$0-20m	20%	30%	50%
$20-40m	32%	42%	62%
$40m+	62.5%	75%	95%

If the Cubs signed a naming rights deal today, and started spending it all, the Cubs would be paying the luxury tax every year. By 2020, they would be in the 3^rd year column, and remain there in perpetuity. Also, by 2020 my projections show the Cubs will have the revenue to spend $40m over the cap. So in the long term, every dollar earned from Wrigley naming rights will be taxed at 95%. In effect, the Cubs will need to budget $2 for every dollar of salary they add. Thus, the $8.9m now turns into only $4.5m in new payroll. The other $4.4 gets budgeted to pay the resulting luxury tax.

 

Renaming Wrigley to Pay for Its Renovations

Before ending this post, I want to address an interesting side argument that popped up in the comments section on Bleacher nation. A few commentators argued that the Ricketts were entitled to sell Wrigley naming rights to help pay for the renovations to the stadium. This is an interesting, and potentially valid, opinion. Yet I do not personally agree. The Ricketts privately paid for the $700m Wrigley renovations by selling between 5-10% of the Cubs franchise in 2015 (at a hefty profit) and through several large corporate sponsorship deals (like the Budweiser Bleachers). The renovations also provide large permanent cash streams; like the jumbotron, new bullpen seating area, and premium clubs. So I would argue that the $700m has already been raised. The Cubs do not need to rename Wrigley to pay off their debts.