Can the Cubs Win the Real Estate Negotiation Game?

September 23, 2014

This article appeared last week in my Sports, Business & the Law column in the Chicago Daily Law Bulletin.  Here is the link to the article on the CDLB website.  A subscription is required, but a free trial subscription is available.

 

When the Ricketts bought the Cubs in 2009, their goal was to win the World Series.  To achieve that, the expansion of Wrigley Field became key, as it would increase ticket, ad, and television revenue to help fund the baseball operation. 

 

In any real estate transaction, obstacles need to be addressed.  Wrigley Field holds a whole series of unique issues.  The park is entirely confined within one city block that prevents easy expansion.  Parts of the property are landmarked with advertising and expansion restrictions.  A 2004 agreement with the rooftop owners across the street has limited further growth in the outfield. 

 

Unique circumstances call for unique solutions.  The Cubs could barrel ahead with their plans regardless of the rooftop concerns and let the rooftops seek a remedy in court or arbitration.  However, such a strategy could pose an uncertain outcome and would take time and money, all of which can be the death knell for a real estate project. 

 

To continue the negotiation with the adversary and to secure a positive outcome without litigation, here are some negotiation strategies that can be considered:

 

Use Vagueness in an Agreement to Your Benefit

Vagueness means risk and uncertainty.  Emphasizing the other party’s risk and uncertainty will encourage that party to focus on their downside.  When a party focuses on the negative, short-term wins appear more attractive.  If your resolution includes attractive short-term wins for the other side, they will be more inclined to also accept your long-term goals. 

 

The Cubs’ 2004 agreement with the rooftop owners is surprisingly short at less than twelve pages.  The limitations on the Wrigley Field expansion are not clear.  The key sentence reads: “Any expansion of Wrigley Field approved by governmental authorities shall not be a violation of this Agreement…”  The Cubs believe this means that the bleachers and outfield signage can be expanded because the City approved it.  The rooftop owners have a different view. 

 

The sentence is vague and means risk and uncertainty for both sides.  The key is to make it appear that the risk and uncertainty disproportionately affects the rooftop owners.  A negotiator will do this by bluffing, overstating its confidence, and emphasizing the overwhelming amount of resources that it has committed to its goal.  If one party has bigger pockets and can outspend in a negotiation, this poses a big problem for the other side. 

 

Encourage Multiple Parties to Negotiate Against Themselves

If there are multiple parties on one side of a dispute, those parties usually will not have the exact same goals and motivations.  Some will want to fight to the very end; some will be more willing to settle.  A diligent negotiator will sniff out these differences and will encourage the adverse parties to negotiate against themselves. 

 

With the rooftop owners, the Cubs have had opportunities to do this and appear to be having some success.  The rooftops are not affected equally by the proposed expansion.  Some views will be blocked worse than others.  Some rooftop owners are willing to commit more money to fight the Cubs than others.  The goal for the Cubs is not to get all of the rooftop owners to agree to their position.  The Cubs just need to get some owners to agree.  By poking holes in the opposition, the Cubs can have the owners less inclined to fight help persuade the others to settle.  A good example of success with this is the recent rooftop lawsuit against the Chicago Landmark Commission in which only some of the rooftop owners are involved.

 

Turn Small Concessions into Big Benefits   

Each concession that the adverse party offers in a negotiation should be analyzed to determine all the potential positive that can be leveraged from it.  In the expansion negotiation, the rooftop owners offered to let the Cubs install signage on their buildings and to keep all the resulting revenue.  The Cubs rejected the offer.  Not only would the team receive the revenue but, by placing the new signage on the rooftop buildings, the Cubs also could avoid losing $75 million in federal historic tax credits due to National Park Service objections about the expansion. 

 

Be Generous in the Short-Term

A good way to get something in a negotiation is to offer the adversary an immediately better position than what they have now and then demand something in return as part of that offer.  The adversary usually focuses on the improved short-term position and becomes less interested in the long-term future tradeoff. 

 

In the Cubs situation, the team could have agreed to locate its signage on the rooftops and then offered to share the revenue.  This would have been an added perk for the rooftop owners, opening the opportunity for the Cubs to secure its long-term goals.

 

Trade Your Short-Term Generosity for Long-Term Goals

The Cubs long term challenge is expanding a ballpark that is physically confined in an urban area.  The long term vision should be to rethink the boundaries of Wrigley Field.

 

The Ricketts already are thinking in this way.  The Ricketts purchased the McDonalds property on the west side of Clark and the adjoining parking lot in 2011.  They also own a 15 percent interest in a rooftop on Sheffield and are renovating the areas on the west and south sides of the ballpark.   

 

As part of sharing any signage revenue, the Cubs could consider securing an option to purchase the rooftop buildings once the agreement expires in 2023.  At that time, the fair market value of the rooftops likely will be lower.  It would be an ideal time for the Cubs to acquire the buildings, which would add almost 1,700 seats to the Cubs revenue stream and would further buffer the ballpark from the neighborhood.  In this way, the Cubs could expand the "ballpark" seating and physical area without making any changes to Wrigley Field, itself. 

 

World Series Soon?

With careful planning and negotiation, the Cubs should be able to guide the team and the ballpark successfully into the next century with World Series Championship soon.   

 

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