A lecture hall at Indiana University’s Kelley School of Business became more like the bleachers at Wrigley Field, minus the ivy, during a presentation to students and faculty by Chicago Cubs owner Tom Ricketts.
Ricketts was the keynote speaker at Friday’s ninth annual IU Entrepreneurial Connection Day, presented by the school’s Johnson Center for Entrepreneurship and Innovation and attended by more than 250 people.
He is also the founder of Incapital LLC. Johnson Center Executive Director Donald F. Kuratko described the Chicago-based investment banking firm as innovative due its creative and individualistic approach to the bond market.
“The Chicago Cubs are a well-established organization, but almost like a 140-year start-up, because of the things that he’s had to do and innovate with that franchise,” said Kuratko, also the Kelley School’s Jack M. Gill Chair of Entrepreneurship.
“Mr. Ricketts has a great perspective on the entrepreneurial nature of businesses, even those as old as the Cubs organization,” said Idalene “Idie” Kesner, dean of the IU Kelley School of Business and the Frank P. Popoff Chair of Strategic Management.
The Cubs owner was happy to talk about investment banking and underwriting securities, but he knew everyone wanted to hear more about what we dream about: going from trading baseball cards as fans to trading players and transforming one of baseball’s more storied franchises.
“I have this unique job where someone will come up to me and before telling me their name, they tell me their age,” Ricketts said. “It pretty much goes like (this): ‘Mr. Ricketts, I’m 71 years old, please win the World Series in my lifetime.’”
A lifelong fan of the Cubs, Ricketts led his family’s acquisition of the team from the Tribune Co. in 2009. He and his siblings Laura and Todd serve as the team’s board of directors.
Inherited challenges to building a winner
Ricketts explained how the team he has assembled is working to turn the Cubs into a perennial contender for a World Series title, which is the No. 1 goal. He also highlighted the team’s work to preserve and improve Wrigley Field for future generations and give back to the city and neighborhood.
“When we bought the team, we knew we had a tough history,” he said. “In 2011, we had a very old team, a very expensive team, and we didn’t have that many prospects that were coming through the system.”
The challenge was to develop a team that will be successful on a consistent basis. While the Cubs are on track to win 100 games this season, Ricketts said it’s more important to make the playoffs each year.
“What you want to do is get to the playoffs as much as possible, because your odds of winning the playoffs will not be predicted by how well your team played during the season,” he said. “Wild-card teams, until a couple of years ago, had a higher percentage or chance of winning the World Series than the division winners.”
He compared the Seattle Mariners, who won 116 games in the 2001 regular season but failed to make the Series, to the rival St. Louis Cardinals, who won only 86 games but won the title as a wild-card team.
Owners can no longer spend to win
The days of buying a winner through free agency are over, Ricketts said.
“Those correlations between how much you spend and how many games you win have been declining over time,” he said. “It’s very weak, much weaker than you would think.”
He explained basic baseball economics: Players earn the league minimum during their first three years, become eligible for arbitration during years four through six and then qualify for free agency.
Successful teams figure out the calculus of a relatively new statistical metric – Wins Above Replacement – which tracks how many games a team wins because a certain player is in the lineup versus another player.
Position players who get off to a good start in their careers tend to get signed to long-term contracts by their teams.
“Free-agent contracts have gotten larger,” he said. “They’ve gotten longer, which is also a problem, but the thing is the players have come out (of the contracts) older. So the days of George Steinbrenner waiting for a player to become a free agent when he was age 27 or 28 and hiring him are gone. The Yankees can’t buy championships anymore because the players that are available on the free-agent market are not at their peak.”
Building the core of this year’s contender
Ricketts said his “darkest days” as an owner were in August 2010, when the Cubs had the third highest payroll, third worst record and third worst minor league system. The team decided the best approach was to invest in young talent, including top minor league prospects such as Kyle Schwarber, who played for IU from 2012 to 2014.
Ricketts walked the audience through a series of key Cubs trades in 2012 and 2013, including those for first baseman Anthony Rizzo and pitchers Kyle Hendricks, Jake Arrieta and Pedro Strop.
In July 2012, the Cubs traded fan favorite Ryan Dempster to the Texas Rangers for another pitcher, Kyle Hendricks, and for Christian Villanueva. Hendricks was young, with six years of league control, and since then has become a two-time All-Star.
“This one was a tough one for a lot of Cub fans, because Demp is just a great guy and now is actually with the organization (in the front office), and I see him all the time,” Ricketts said. “The other night, he was in Theo’s (Epstein) box and Kyle Hendricks was pitching. (I was saying) ‘Wow, Kyle’s having a great night,’ and Demp’s like, ‘Nobody ever thanks me for that.'”
Taking a long-term view
The team also made investments at the ball park and training facilities and is looking to make improvements in the Wrigleyville neighborhood, including a new hotel and entertainment complex across the street from the park.
Responding to a question, Ricketts said he admires what a longtime Cubs rival, the St. Louis Cardinals, have accomplished. He hopes to emulate their success.
“The Cardinals are one of the best-run organizations – obviously one of the best-run organizations in baseball and in the country – and one of the most consistent,” Ricketts told a student who courageously identified himself as a Cards fan. “They have such a great fan base and such good ownership that they can make good, long-term decisions.
“That’s why the Cardinals are in the mix. They don’t panic when they lose Albert Pujols. They don’t have to freak out when a good player gets hurt. They just think long-term. They’re building from the bottom up,” he added. “They’re a great rivalry, and I’m glad that we’re finally holding up our half of the rivalry.”
After speaking, Ricketts stayed for a networking event with Kelley students. But chances for getting an internship with the Cubs are slim. The team has 30,000 applicants for eight internships.
In addition to being an honored guest speaker, Ricketts is a proud member of the IU Kelley family, as the parent of a current student.
“The Kelley School is considered one of the best in the country, and I can see why,” Ricketts said after the presentation. “I think my son Quinn is getting a great education. I’m very proud that he picked this place, and I’m very proud of what he’s doing here.”