Case: 1:15-cv-00551 Document #: 27-11 Filed: 02/17/15 Page 1 of 14 PageID #:578
Exhibit 11
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Case: 1:15-cv-00551 Document #: 27-11 Filed: 02/17/15 Page 2 of 14 PageID #:579
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
RIGHT FIELD ROOFTOPS, LLC,
d/b/a SKYBOX ON SHEFFIELD;
RIGHT FIELD PROPERTIES, LLC;
3633 ROOFTOP MANAGEMENT, LLC,
d/b/a LAKEVIEW BASEBALL CLUB; and
ROOFTOP ACQUISITION, LLC,
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Plaintiffs,
v.
CHICAGO BASEBALL HOLDINGS, LLC;
CHICAGO CUBS BASEBALL CLUB, LLC;
WRIGLEY FIELD HOLDINGS, LLC; and
THOMAS S. RICKETTS,
Defendants.
Case No. 1:15-cv-00551
Judge Virginia M. Kendall
Magistrate Judge Michael T. Mason
DECLARATION OF LOUIS G. DUDNEY, CPA, CFF
I, Louis G. Dudney, hereby declare as follows under penalty of perjury:
Introduction
1.
My name is Louis G. Dudney and I am a Managing Director with the professional
services firm AlixPartners, LLP and the Co-Lead of its Americas business unit.
2.
Counsel for the Defendants requested that I assess the possibility of calculating damages
that the Right Field Rooftops, LLC, d/b/a Skybox on Sheffield, Right Field Properties,
LLC, 3633 Rooftop Management, LLC, d/b/a Lakeview Baseball Club, and Rooftop
Acquisition, LLC (collectively, “Plaintiffs” or “Rooftop Businesses”) may incur as a
result of an alleged breach of the January 27, 2004 agreement between the Plaintiffs and
Chicago National Ball Club, Inc.
3.
My experience covers broad types of operational, financial, valuation, litigation,
bankruptcy, and management consulting engagements. I have over 25 years’ experience
acting as a financial expert in litigated corporate disputes.
I have consulted with
companies in a number of industries including, but not limited to, property management,
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Case: 1:15-cv-00551 Document #: 27-11 Filed: 02/17/15 Page 3 of 14 PageID #:580
real estate, food services, retail, consumer products, and financial services. In performing
engagements in these industries, I have analyzed economic, accounting, operational, and
financial issues and have testified in federal civil, criminal, and bankruptcy courts as well
as state courts, American Arbitration Association hearings, international arbitrations, and
state regulatory proceedings as an expert witness.
4.
Prior to joining AlixPartners, I was a Partner in the Financial Advisory Services Group of
PricewaterhouseCoopers. I hold a Bachelor of Business Administration with a major in
accounting from The College of William & Mary, am a Certified Public Accountant
licensed in the State of Illinois, and am recognized by the American Institute of Certified
Public Accountants as Certified in Financial Forensics. I am a member of the Illinois
Society of Certified Public Accountants, the American Institute of Certified Public
Accountants, the American Bankruptcy Institute, and the Licensing Executives Society.
5.
AlixPartners is being compensated at my customary rate of $800 per hour for my time
and between $200 and $595 per hour for staff working at my direction.
6.
The opinions presented in this declaration are based on my analysis of the available
information and my experience, education, and expertise as a financial consultant.
Possible Damage Theories
7.
Based on my review of information available to me in this litigation and my more than 25
years of damages quantification and consulting experience, there are several wellaccepted damages analyses that could be appropriate, depending on the specific evidence,
to calculate money damages for Plaintiffs, should they prevail in this litigation. Which
damages analysis that is ultimately appropriate to use will turn on facts and information
to be developed during the litigation.
8.
One potential damages approach is to consider lost profits to the Plaintiffs. There are
several treatises and other sources regularly used by financial experts that support this
approach.
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Case: 1:15-cv-00551 Document #: 27-11 Filed: 02/17/15 Page 4 of 14 PageID #:581
9.
For example, the Litigation Services Handbook – The Role of the Financial Expert, a
treatise often referred to by financial experts, provides a framework by which a lost
profits analysis can be built – it notes the following key steps / considerations:
a.
b.
c.
d.
e.
f.
g.
h.
10.
Identify the damage period;
Identify assumptions and estimates needed for the particular case;
Build the foundation for the damage claim;
Perform revenue analysis;
Perform cost analysis;
Subtract actual results from the but-for amount to ascertain lost profit damages;
Perform analysis to adjust for time value of money; and
Perform analysis related to tax considerations.1
The Litigation Services Handbook – The Role of the Financial Expert also provides a
discussion of available approaches that practitioners utilize when evaluating lost profits.
Practitioners usually derive revenues for a lost profits analysis using one of
four approaches:
(1) Before-and-after approach. Comparing the performance of the company
before and after the alleged harmful acts.
(2) Forecast approach. Using sales forecasts of expected performance for
the business or industry to evaluate the probable effect of the harmful
acts.
(3) Yardstick approach. Comparing the harmed business to comparable but
unharmed businesses or locations to assess but-for results.
(4) Market share approach. Comparing the plaintiff’s market share during
the period prior to the harm to that of the firm afterward.
From these revenues, the practitioner subtracts the appropriate amount of
costs.2
11.
Financial Valuation: Businesses and Business Interests, another treatise often considered
by financial experts, further supports the quantification of damages based on a lost profits
calculation.
Lost profit measurements generally require two basic ingredients: profits that
actually occurred after (in the presence of) the illegal acts and profits that
would have occurred but for the acts. The latter profits are often identified as
“but for” profits. The difference between the two profit amounts is the
measure of damages.
1
Litigation Services Handbook – The Role of the Financial Expert, Fifth Edition, Roman L. Weil, Daniel G. Lentz,
David P. Hoffman, pages 4.23 – 4.31.
2
Litigation Services Handbook – The Role of the Financial Expert, Fifth Edition, Roman L. Weil, Daniel G. Lentz,
David P. Hoffman, page 4.17.
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Lost profits are generally computed based on one of two basic methods. In
the first method, an incremental profit margin concept is used whereby the
profit that each unit of lost sales would have contributed to the plaintiff’s
income is determined and then is multiplied by the volume of lost sales. In the
second method, the plaintiff’s overall profits, both before and after the illegal
act, are computed, the difference between the two being the extent of damages
suffered.
Damage measurements also span a finite period of time, starting generally
from the date of infraction to either the date of restraining order (to halt the
illegal acts, as in restraint of trade activities) or the current period. In cases
where damages are expected to occur in the future, a finite number of future
years is used, in much the same way a financial forecast or a budget is
developed.3
12.
The American Institute of Certified Public Accountants (“AICPA”) provides further
confirmation of the approach generally used in quantifying lost profits. For example, its
practice aid, Business Valuation and Forensic & Litigation Services Section, Calculating
Lost Profits, discusses what is commonly referred to as a “But for” damages model.
According to the AICPA practice aid, “damage analyses are prepared to provide an
estimate of the detriment suffered by the plaintiff as a result of a wrongful act of the
defendant. In order to prove damages the plaintiff must show that: the wrongful act of
the defendant caused a loss; and the amount of the loss can be estimated with reasonable
certainty. In addition, for contract claims, the plaintiff must show that the loss incurred
was foreseeable at the time the contract was entered into by the parties. Only lost ‘net’
profits are allowed as damages. Lost ‘net’ profit is computed, in general, by estimating
the gross revenue that would have been earned but for the wrongful act reduced by
avoided costs.
Avoided costs are defined as those incremental costs that were not
incurred because of the loss of the revenue. After the net lost profits are determined, any
actual profits earned are deducted to compute the damages.”4
13.
This methodology of calculating lost profits is also described within The Handbook of
Advanced Business Valuation. This handbook states that “the discounted cash flow
method is probably the most common method used to calculate a plaintiff’s lost profits.
3
Financial Valuation: Businesses and Business Interests, James H. Zukin, page 9-57.
AICPA Practice Aid 06-4, Business Valuation and Forensic & Litigation Services Section, Calculating Lost
Profits, Richard A. Pollack, Scott M. Bouchner, Craig M. Enos, Colin A. Johns, and John D. Moyl, Chapter 2,
paragraphs 3 and 4.
4
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Typically, a damages expert estimates the difference between (1) the plaintiff’s cash flow
or other measure of economic income in the ‘but for’ world and (2) the plaintiff’s cash
flow or economic income in the ‘actual’ world.”5
14.
Quantification of lost profits requires that financial experts make reasonable and
supportable assumptions in order to calculate damages. Several sources regularly relied
on by experts in the field support this approach.
15.
For example, Financial Valuation: Businesses and Business Interests, notes that:
While the objectives of lost profit measurement are quite simple, the
quantification of lost profits is another matter entirely. The root of this
difficulty, common to most valuations, is that of prediction. In lost profit
computations, the expert witness is faced with predicting what the plaintiff’s
profits would have been without the alleged illegal acts. This estimation is, in
turn, the product of two other predictions: plaintiff revenues and plaintiff
costs without the illegal acts. As discussed later, these predictions are based
on upon numerous assumptions, each requiring clear and logical justification
by the expert witness.6
16.
An additional damages framework that the Plaintiffs could utilize to calculate alleged
damages is to perform a valuation of the businesses at the time of the alleged breach
under a going-concern premise of value.
Valuing a Business, another commonly
considered treatise, explains that “[v]irtually all businesses or interests in businesses”
may be appraised under either a going-concern or liquidation premise of value.7
17.
This methodology for calculating damages is furthered in Financial Valuation:
Businesses and Business Interests, which explains that when calculating damages in
instances where an alleged act has been determined to have effectuated a loss of going
concern value, “the basis for determining damages is logically the value of the entire
company.”8 As such, value “has often been defined to be ‘going-concern value’ or ‘the
price a willing buyer would have paid and a willing seller would have accepted for the
business if the anti-competitive practices had not diminished or destroyed his business.’
5
The Handbook of Advanced Business Valuation, Robert F. Reilly, Robert P. Schweihs, page 274.
Financial Valuation: Businesses and Business Interests, James H. Zukin, page 9-57.
7
Valuing a Business 5th Edition, Shannon Pratt, pages 47 – 48.
8
Financial Valuation: Businesses and Business Interests, James H. Zukin, page 9-61.
6
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In such cases, valuation methods applicable to any other valuation setting with similar
objective should be applied.”9
18.
Valuing a Business, further notes that “an ‘income approach,’ a ‘market approach’ (sales
comparison approach), and an ‘asset-based approach’” are the three primary approaches
used to value a business.”10
19.
Within each of these approaches are distinct methods which “refer to more specific ways
to implement a business valuation within one of the three broad approaches.
For
example, discounted cash flow and capitalization of cash flow may be considered
methods within the broader category of the income approach, and the guideline public
company method and the transaction merger and acquisition method would fall within the
market approach.”11
20.
The Litigation Services Handbook – The Role of the Financial Expert provides additional
discussion of available approaches that practitioners utilize when measuring the business
value within this context.
[P]ractitioners usually measure business value by comparing the before-andafter values of the business using one of three approaches:
(1) Discounted cash flow approach: measures the present value of future
earnings that the owners of the business would receive.
(2) Market approach [Guideline public company method]: evaluates what
informed capital market investors would pay for shares in the company
(generally, the market capitalization for publicly traded companies).
(3) Comparable company transaction approach: refers to recent transactions
involving the purchase or sale of comparable companies within a reasonably
recent period of time.12
21.
As explained above, the discounted cash flow method, a derivative of the Income
Approach, is one of the most common methods used to calculate the value of a business.
Valuing a Business explains the underlying premise of the discounted cash flow method:
9
Financial Valuation: Businesses and Business Interests, James H. Zukin, page 9-61.
Valuing a Business 5th Edition, Shannon Pratt, page 62.
11
Valuing a Business 5th Edition, Shannon Pratt, page 62.
12
Litigation Services Handbook – The Role of the Financial Expert, Fifth Edition, Roman L. Weil, Daniel G. Lentz,
David P. Hoffman, page 4.17.
10
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When someone buys a company or an interest in a company, what is that
person really buying? Management? Markets? Technological skills?
Products? Although each of these factors may be involved in the investment
decision, what is actually being bought is a stream of prospective economic
income…. In theory, the value of a business or an interest in a business
depends on the future economic benefits that will accrue to that business, with
the value of those future benefits being discounted back to a present value at
some appropriate discount rate.13
22.
By projecting the future economic benefits that would accrue to the businesses but for the
alleged breach through projected net cash flows, the Income Approach, and more
specifically the discounted cash flow method, could be utilized to determine the value of
the business prior to the alleged breach.
23.
While Valuing a Business notes that the Income Approach is “the core of valuation
theory,” it also notes the great merit in the Market Approach explaining that “actual
market transaction data can provide compelling empirical evidence of value.”14 Two of
the most prominent applications of the Market Approach are the Guideline Public
Company Method and the Market Transaction Method.
24.
The Guideline Public Company Method can indicate the value of a company by
comparing it to similar businesses, business ownership interests, or securities.
explained in Valuing a Business:
The public capital markets in the United States (as well as in other countries)
reprice thousands of stocks every day, mostly through transactions among
financial buyers and sellers who are well informed (because of stringent
disclosure laws, at least in the United States) and have no special motivations
or compulsions to buy or sell. This constant repricing gives up-to-the-minute
evidence of prices that buyers and sellers agree on for securities in all kinds
of industries relative to the fundamental variables perceived to drive their
values, such as dividends, cash flows, and earnings. Pricing multiples of these
and other relevant financial variables are important investor valuation
yardsticks.15
13
Valuing a Business 5th Edition, Shannon Pratt, page 175.
Valuing a Business 5th Edition, Shannon Pratt, page 262.
15
Valuing a Business 5th Edition, Shannon Pratt, page 264.
14
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25.
A second commonly utilized variation of the Market Approach is the Market Transaction
Method. The Market Transaction Method provides an indication of value of a company
by comparing it to precedent transactions in similar lines of business. Valuing a Business
explains that while the Guideline Public Company Method deals “with data on day-today trading prices of securities”, indications of value can also be appropriately derived
“from the prices at which entire companies or operating units of companies have been
sold or the prices at which significant interests in companies have changed hands.”16
When information from comparable transactions is available, the Market Transaction
Method is a common approach to valuing a going concern business. In these cases, “the
general notion of merger and acquisition analysis is the same as guideline public
company analysis – one relates the price at which the transaction took place to financial
fundamentals that affect the value.”17 The multiples derived in this process are then
applied to the fundamentals of the business being valued.
26.
To illustrate both (a) the process by which a financial expert could calculate damages in
this matter and (b) the considerations that would be applied to assumptions that would be
made, I have described two possible financial damage scenarios which utilize this
commonly applied But for damages approach. As outlined above, this methodology
prescribes calculating damages, assuming liability, as the difference between the value
that the plaintiffs would have enjoyed, but for the alleged actions of the defendants, and
the value the plaintiffs actually received (or will receive).
Scenario 1 – Loss of One Year’s Operations
27.
Damage Scenario 1 assumes that (a) the Defendants complete the planned installation of
the 2,200-square foot video board which obstructs the views from the Plaintiff’s
properties, (b) the Plaintiffs do not operate for the 2015 season or operate with less
business than in the previous year, (c) the Plaintiffs prevail at trial and the video board
located in right field of Wrigley Field is removed before the beginning of the 2016
season, and (d) the Plaintiffs are open for businesses for the 2016 season.
16
17
Valuing a Business 5th Edition, Shannon Pratt, page 310.
Valuing a Business 5th Edition, Shannon Pratt, page 310.
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28.
One financial damages framework that would be available in this matter is a comparison
between the profits that the Plaintiffs would have earned assuming that their respective
businesses operated during the 2015 season without an obstruction (“Scenario 1 But for
Profits”) and the profits that the Plaintiffs will earn assuming that their respective
businesses are closed during the 2015 season or operate during the 2015 season with an
obstruction (“Scenario 1 Actual Profits”). The difference between the Scenario 1 But for
Profits and the Scenario 1 Actual Profits would be the Plaintiffs’ financial damages under
this scenario.
29.
To calculate the Scenario 1 But for Profits, the Plaintiffs could estimate the Gross
Revenues that they would have earned during the 2015 season, but for the construction of
the video board, by creating a projection of 2015 revenue using their individual historical
financial performance (“Scenario 1 But for Revenue”). In projecting revenue, it is quite
common, and considered standard practice, that projections consider historical financial
performance (e.g., revenue and expenses) and related performance metrics (e.g., numbers
of tickets sold per game, average ticket prices, etc.) as inputs into estimating future
performance such as would be required in this case.
30.
It is also possible to calculate Scenario 1 But for Profits by analyzing the actual financial
performance of other rooftop businesses that will operate during the 2015 season without
an obstruction, and to consider the actual financial performance of these other rooftops in
past years.
31.
After calculating the 2015 Scenario 1 But for Revenue, the Plaintiffs would subtract from
this amount the incremental costs that were avoided as a result of not operating, or
operating with an obstruction, which could include employee salaries, food costs,
marketing costs, and any other costs that would have otherwise been incurred to generate
the 2015 Scenario 1 But for Revenue. The result of this calculation would the Plaintiffs’
2015 Scenario 1 But for Profits.
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