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Canaries and how they might suggest a Chicago Fire sale

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One of Illinois' biggest industries has always been the coal industry.  While never a big part of Chicago's direct business, coal has been a part of the state's economy since the early 1800's.  My fellow Chicago historians should check out the history of coal mining in Braidwood near Joliet, but the main reason for bringing this up is the canaries.  Specifically I'm talking about the canaries that miners would take down with them into the mine.  As the U.S.A. Mine Safety and Health Administration notes:

According to tests conducted by the Bureau of Mines, canaries were preferred over mice to alert coal miners to the presence of carbon monoxide underground, because canaries more visibly demonstrated signs of distress in the presence of small quantities of the noxious gas. For instance, when consumed by the effects of carbon monoxide, a canary would sway noticeably on his perch before falling, a much better indicator of danger than the limited struggle and squatting, extended posture a mouse might assume.

Today there is much better technology for reading carbon monoxide so while the practice is no more, the phrase 'canary in the coal mine' lives on.  In analyzing the Chicago Fire, I always look for those 'canary signs' that might tip the next move, alert a dysfunctional situation, or perhaps provide a greater truth than boilerplate press releases.  As the Chicago Fire approach the 2011 season, allow me to present the canaries that have me coming to the unsettling conclusion that the owner Andrew Hauptman might very well be looking to sell the team.

1. The difference between the roster and salary in 2010 vs. 2011 is staggering

As Fire Confidential's Guillermo Rivera detailed back in August 2010, the Chicago Fire were operating just $140,000 under the $2,550,000 MLS salary cap.  When you added in the cash the Fire were spending on Freddie Ljungberg and Nery Castillo as designated players and other player commitments, Chicago was spending about $5.6M.  That figure meant the Fire were 3rd overall in team salary behind New York Red Bulls and the Los Angeles Galaxy

As we look toward  2011, the proverbial wallet has significantly tightened.  As Merwin Mixdorf reported here on HTIOT, we are looking at a team that might only use around 50% of the salary cap.  It's very possible that the Fire will have finished 2010 being 3rd in team salary and open 2011 by being dead last.  Salary does not dictate who wins - New York and Los Angeles were No. 1 & No. 2 and both finished last year without a MLS Cup Final or U.S. Open Cup appearance - but such a large shift in salary does represent a major philosophical change in roster outlook.  The move to play players who are young and not making much money could even be cheered.  The Chicago Fire faithful might have to come to grips with the fact that we are rebuilding.

There are two problems with that idea though.  First, 10 teams will make the playoffs this year.  If there is one last year where MLS teams can stumble into the playoffs and still come out victorious, this is the year.  Portland and Vancouver are both expansion teams so if you like your chances against them, there are only 5 other teams you have to outdo in order to make the playoffs.  The Chicago Fire have a lot of questions to answer but adding two or three quality veterans either through the MLS Re-Entry Draft or the international market would have not only gave the team extra depth but it would have also allowed some of the younger players to flex their muscles in the Reserve League.  We saw what happened to Andrew Dykstra's confidence last year when he had some bumps in the road after being named the starter.  Imagine a situation last year with this year's roster rules.  The Fire would have been have allowed to keep Jon Busch as the starter, have Dykstra as the backup, and have Sean Johnson starting in the Reserve League.  Busch continues to hold the line, Dykstra doesn't become a lightning rod for fans and we discover that Sean Johnson is a budding star anyway through his Reserve games.  How long will it be before Davis Paul, Jason Herrick or Amani Walker is the starting forward with goose eggs to show for it and the fans knock them down a peg?  The current roster construction is less than optimal unless... you wanted to sell a potential new owner on the opportunity to work with a semi-blank canvass.  There are no big money contracts so a new owner could bring in their own stars to make their mark.  Either way, Andrew Hauptman is saving significant money on this year's team versus last.

2. The economy in 2007 was much better than it is in 2011... and that means a lot to Andrew

Anschutz Entertainment Group agreed to sell the Chicago Fire to Andrew Hauptman's Andell Holdings on July 11, 2007.  I could tell you what Andell Holdings is but I think a commenter from that 2007 Chicago Tribune article does a good of summarizing the company while introducing some key points.

It will be interesting to see how the purchase will be financed. Andell appears similar to a private equity firm which would seem to indicate that they believe that this is a good financial investment. I could see this acquisition looking similar to the Glazer's acquisition of Man United with a lot of the money borrowed which makes investing in new players more difficult (note from Andell's website that they have a portfolio of investments including investments in private equity firms and hedge funds - these are sophisticated investors). Trouble is sports teams generally do better when the owner is passionate about the team and sport rather than the bottom line - particularly when the team is only a few years old and clearly needs some upgrading. Fingers crossed that this is more of an hobby or ego investment than one designed to earn the family a large return withing the next 7 years.  

Of course a year later in September 2008, the housing market crashed leading to a deep recession.  I'll never forget it because my wife and I were on our honeymoon in Rome.  We had 180 channels but only 3 in English - BBC, Sky Sports, and some weather channel that I should not even really count.  Regardless, we watched a lot of BBC and it was the collapse of the US economy 24/7.  As Dave Clark of Sounder at Heart reported last year, MLS has not been spared from the aftermath of this recession.  He estimates that the Chicago Fire lost anywhere between $4M-$7M dollars in 2009 based on numbers from a Portland Timbers release of league wide numbers.  There is more to the story as this number is without the dispersal of funds that come from Soccer United Marketing (often simply referred to SUM money) but it's safe to say that Andrew Hauptman's investment in the Chicago Fire has not made him money hand over fist, in fact he has probably lost some cash.  

Hauptman's purchase of the Chicago Fire happened rather quickly as broken down by Fake Sigi

Charlie Corr did a nice interview with Chicago Fire owner Andrew Hauptman a few weeks ago. The quote that stood out to me:

"I didn't know MLS quite frankly, and I was that prototypical soccer fan who presumed that the quality was lacking," Hauptman said. "In that sense I was the target audience. I was a relatively young guy who loved the game and knew the game and followed the sport internationally. I didn't really know from a U.S. perspective."

Frankly, I was somewhat stunned by this quote. Does someone really buy a Major League Soccer team and not know much about the league or how to run a team? It sounds crazy. But there's not a whole lot of evidence to the contrary.

"I had one conversation and the deal was done. Six weeks later I owned this team and thought now what?"

I can only imagine that cash was flush in 2007 for Andell Holdings. Toronto FC was breaking attendance records. New MLS teams were going to be bringing in expansion fee money. Cuauhtémoc Blanco had just arrived to play for the Fire.  I have no doubt that Andrew was thinking of his days in London rooting on Chelsea and how fun it would be to always be in the news.  He probably pictured himself on the big stage accepting trophy after trophy from MLS Commissioner Don Garber.  Really, who wouldn't do that and who wouldn't want to add successful sport owner to their resume?  The problem is that sport owner fun doesn't do much for Andell Holdings - this is company that is designed to make money.

Right now the best way for the Chicago Fire to make Andell Holdings money would be if the team was sold.  If the team was taken off their ledger, this would eliminate any future risk.  No more worrying about how much SUM money will come in to bail out the team.  No more deciding if they should be spending money on expensive designated players that may or may not show a return at the box office.  A sale of the Fire would bring a cash infusion to Andell Holdings that could be anywhere from $50M to $70M+ dollars.  I'm basing this number of the fact that Portland and Vancouver had to pay a $40 million expansion fee when they entered the league in 2009 and that expansion fee is rumored to be even higher for the 20th expansion team.  Buying a team like the Chicago Fire which already have a passionate fan base, a stadium in place and operates in the fourth largest metropolitan area in North America could easily bring the price up depending on Andrew's sales pitch abilities.  

3. The arrivals and departures of team personnel have had an odd path

Chicago Fire Country was ablaze when news hit on July 17 that Nery Castillo was coming to Chicago and then on July 30 it was revealed that Freddie Ljungberg was traded from the Seattle Sounders to the Fire.  Five days later on August 4, Team President Dave Greeley announced that he was resigning from the team.  At the time the news did not get that much fanfare but in retrospect the timing seems a little off.  Think about it, the Fire add two marquee players along with their marquee salaries and five days later the President resigns?  Imagine the speculation that would take place if the Chicago Blackhawks traded for Sidney Crosby and then five days later John McDonough stepped down.  There would be non-stop talk on the radio on whether or not this was the best thing to do as the Blackhawks headed into the playoff stretch.  Speculation would abound as to what was going on behind the scenes.  Was McDonough's resignation a protest of these acquisitions?  Does this spell trouble for the Blackhawks in the future?  Most fans' opinions of Greeley ranged from lukewarm to critical so the most vocal voice that they were just happy to see him gone.  A much less intense Fire media did not bring these sort of questions up.  I was not writing at the time but I will admit that I also had a so-so reaction to the whole thing.

My concern was also subdued on December 1 when the Memphis Business Journal reported that Chicago Fire Chief Operating Officer Mike Humes was leaving the team to become the Chief Revenue Officer for the Memphis Grizzlies.  Earlier this week on February 1, Vice-President of Communications and Community Affairs Becky Carroll announced that she was resigning from her post.  Carroll's departure means that within the past six months, the three top administrative officials at the Chicago Fire have resigned or left for a new job.  There are many different reasons for that kind of turnover in a company but one reason would be that a company is going to be sold.  The people at the top often do not want to be involved in the sale and/or they do not want to be involved in the transition where new owners have the ability to bring in new leaders they are more comfortable with.  For what it's worth, the Fire continue to operate without a COO.

If an impending sale was on the table, this would also shed some light on moves that have not happened.  For starters, there is the seemingly obvious move of hiring C.J. Brown to be on the coaching staff.  This did not happen despite the goodwill that the move would have generated with the fanbase.  C.J. could have been in marketing materials, done press interviews, continued to be a community ambassador, and just be an all-around asset to the team.  I'm sure new assistant coach Leo Percovich is a very nice guy but it is impossible for him to come close to carrying the same weight in Chicago.  By not hiring C.J. Brown, you might save some money and you also give the new owner quite a valuable opportunity to be the potential hero who not only brings C.J. Brown back to Chicago but also inducts him into the Ring of Fire.  Another non-move was not firing head coach Carlos de los Cobos.  Rightly or wrongly, CDLC is not very popular with most Fire fans.  You could say that the fans do not always know the correct moves but keeping Carlos de los Cobos is another move that will save the team some cash.  Carlos de los Cobos's contract dictates that he gets paid regardless of whether or not he is patrolling the sidelines at Toyota Park in 2011.  As mentioned above, the Fire are currently saving operating money by not hiring a new COO.  Then we have the biggest non-move of them all: the Fire still do not have a jersey sponsor while Philadelphia Union and Chivas USA both locked up lucrative deals this off-season.  You might think that not locking in a jersey sponsor prohibits the team from a revenue source but there's also the chance to sell that future line of credit to an ambitious potential buyer who thinks they can outdo whatever Andrew Hauptman can sign.

I'll be the first to admit that every move here has a simple counter explanation.  I myself tend to agree with the infamous summary of Occam's razor: 'the simplest explanation is most likely the correct one'.  Taken in that light, all of those roster moves are just rebuilding even if I disagree with the timing and the execution.  Andrew Hauptman bought the team seemingly on a whim but like the marketing motto for 2011 Chicago Fire season tickets, he's now 'All-In'.  The three top administrative people in the Chicago Fire front office each individually and separately in a relatively short time span decided it was the best time for them personally to leave the organization.  The C.J. Brown hiring was just not the right timing.  Carlos de los Cobos is the best man for the job right now.  Andrew Hauptman is wisely holding out for what he believes is the correct price for the jersey sponsor and no one is willing to meet him just yet.  Once the Fire take the field, corporate sponsors will be willing to pay more as their company name will instantly hit the field.  A mid-season announcement might get more press or maybe Andrew even has a company all lined up but they are waiting for a leadership transition of their own to be finalized.  All reasons are perfectly rational and potentially benefit the team more down the line than some of the situations I proposed have proposed here.  Sure, sometimes canaries die of natural causes but when multiple birds fall from the sky... people start to wonder.