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December 12, 2003

Breaking Balls

A Real LeechCo

by Derek Zumsteg

"They're going to lose this suit, and if enough people who bought tickets through their sham company join in, WFP and possibly the Tribune Company will be on the hook for huge costs..." Derek Zumsteg, May 22, 2003

It took me two weeks to wipe the surprised look off my face after I found out the Cubs got off. The Honorable Sophia Hall found on behalf of Wrigley Field Premium and the Chicago Cubs and dismissed the suit in what, I have to say, is one of the strangest decisions I've ever followed.

There's a law on the books in Illinois that says if you hold an event, you can't scalp your own tickets. The Cubs and their parent company, the Tribune Co., seeking to get around this law, set up a shell company, Wrigley Field Premium, with their own people, their own accountants running the books. They allowed the shell company to buy $1 million in tickets, then sell them at insane prices. Now, I don't practice law, but that's illegal. It's also Chicago, though.

What's weird is that the judge agrees with everything everyone's said about the suit up until the point where she has to declare them guilty. Reading the opinion, it's all there: "WFP is a subsidiary of the Tribune Company (p. 9)." In March 2002, this brand new ticket broker was allowed to purchase $1,047,766 of tickets (incidentally, go ahead and try that as an actual unaffiliated business and see what the Cubs tell you).

The opinion contains a nice little history of how Tribune formed it, the corporate officers overlapped, how WGN provided Premium free advertising...it's crazy. And it contains this gem (on p. 13): "From the beginning Ball Club and Premium did not keep secret they were both owned by Tribune Co. [...] To dispel possible confusion, Premium's employees were instructed to tell customers that Premium is not a part of Ball Club."

Gee, that's not concealing ownership, or anything.

"Hey, are you owned by the Cubs?"
"Owned by the Cubs...no, no, we are not owned by the specific entity you have mentioned, the Chicago Cub Baseball Club, no."
"That's an awfully strange answer. What's going on here?"
"Oh, nothing."
"Is there something I should know about?"
"Um, noooooooo. Did you want those $1,250 box seats or not?"

"The tickets sold to Premium were for high demand locations, which were club box, field box, and bleacher seats. Premium was able to obtain these tickets before the on-sale day." (p.17)

So then it's time for the butt-kicking. Judge finds that the defendants satisfied the conditions of Ticket Scalping Act Section 3. On p. 24 Judge finds that the tickets were sold, since intercompany accounts count for exchanges of funds for tickets. That WFP was extended extremely generous return terms, and that the tickets WFP couldn't sell when it delayed opening were sold normally by the team, doesn't phase her.

Therefore, because the judge finds that WFP and Club had a normal Club-broker relationship, just like any other club, they don't violate the Act (p. 27)

Here's the kick in the pants, though. The plaintiffs argue that the Cubs set up WFP specifically to get around the law that says you can't place tickets with a broker. Even if you buy that WFP is a separate broker, it's pretty clear this is exactly what happened. We've seen that WFP got preferential seating and was able to buy tickets early on terms other brokers couldn't get. The judge then says that this is fine because it wasn't the Cubs that set up WFP to profiteer off the suffering of their fans, but the Tribune Co.:

"In the instant case, the plaintiffs presented no evidence that Ball Club has an arrangement with Premium whereby Ball Club directly or indirectly shares in the excess over face value which Premium receives upon reselling the tickets. Instead, the evidence shows that the revenues Premium receives from the resale of tickets goes into its bank account and then is swept directly into Tribune Co.'s concentration account where the amount is entered on Premium's separate account." (p. 27-28)

So wait...it's illegal for a theater owner to give tickets to a broker and share in the profits. But it's OK for, say, a business that owns a theater-owning business to get tickets from the theater and move them to the broker? Isn't that the same thing? What the hell?

Hall believes that the legislature has to act specifically to outlaw this (p. 28): "If indirect sharing [of profits] is to be assumed because of the common ownership of Premium and Ball Club by Tribune Co., then the legislature could prohibit common ownership outright, or prohibit a Ball Club from selling tickets to a broker also owned by a common parent. Both of these prohibitions are absent from the Ticket Scalping Act."

I still can't believe this. I can't even come up with a good analogy. But fortunately the plaintiffs came up for one much earlier. They cited a case, Chicago-Crawford Currency, Inc. v. Thillens, Inc. in which the court stated (and the judge quotes this in her opinion, so we can be reasonably sure she wasn't just asleep for this part): "Regulatory statutes apply to the regulated activity regardless of the form or guise it takes, and the court cannot allow the defendants here to do, by indirection, what is forbidden by the statute."

So the judge has agreed, so far, that Premium's selling tickets above face value. She's noted the common ownership, shared personnel, the insane advantages Premium had over other brokers, and has so far said that the scalping was OK because Premium was a licensed ticket broker and bought those tickets fair and square, from itself, essentially.

And then Hall says that this doesn't apply because Premium is a legitimate ticket broker and that: "Plaintiffs have not proven by a preponderance that Ball Club, in its relationship with Premium, is getting around the Ticket Scalping Act by using Premium to sell tickets at a higher price. Thus, Ball Club is not working in concert with Premium to violate the law." (p. 31)

Um, what? Hall could have written: "Ramalamadingdong hot dog street lamp ionosphere" and it would have made as much sense as that leap. The tickets were sold for insane prices, over a thousand dollars a stub, and...and...what the hell?

After which, Hall says that they're really separate, even though all the evidence indicated otherwise, because the Cubs don't control Premium--Tribune does.

What Hall wants in the law in order for her to have ruled in favor of the plaintiffs would have been something like this:

"Event holders are prohibited from selling their tickets for higher than their face value, and also from offering tickets at a time or in locations that favor any vendor. This includes vendors who are owned by the event holder, or the event holder's parent or related company. It also prohibits the event holder's parent or related company from doing the same, or from buying the tickets themselves and then giving them to the vendor. Also, involving a fourth company is out."

So what's this mean for you, the fan?

Well, the Cubs screwed your team. Or, rather, Tribune Co. did. They managed to hide all that ticket revenue from revenue sharing agreements, so their revenue appeared lower than it was, they paid less into the pool, which is money that could be used to line the pockets of the Brewers owners.

This is the kind of shell game that makes baseball so ridiculously stupid. Owning the Cubs is profitable for the Tribune, and now even more profitable. Why shouldn't the Cubs sell all their tickets for $1 face value, give them all to Premium, and have Premium handle all ticket sales, setting the price from there? Boom, Tribune Co. makes zillions, and the Cubs can claim a zillion-dollar loss on ticket sales this year and mooch money off revenue sharing.

Other clubs should be furious, for starters. But what we should be really afraid of as fans is that MLB has done nothing. As long as Bud Selig tolerates this kind of thing, how long until LeechCo becomes a reality? And then we've gone from increased revenue sharing to a demolition derby where the most clever teams of accountants and lawyers win. Is there anyone out there that wants to baseball get more obsessed with payrolls, corporate structuring, and maximizing the utter screwing of their fans?

Besides the Honorable Judge Hall, I mean.

Related Content:  Chicago Cubs,  Club Sales,  Tickets

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