Once the Magic pixie dust settles, the debate kicks up on how the pending sale of the Dodgers really makes the franchise stand firm as a long-term, financially solvent business for years ahead in Los Angeles.
The numbers tossed around — $2.15 billion or more, in cash, which will go down as the most ever paid out for a sports franchise in North America – just don’t add up on face value, according to droves of sports business experts.
Not for a team whose worth is listed at $1.4 billion, second to the New York Yankees’ $1.85 billion, according to Forbes. And that was reached even after factoring in a boost in the Dodgers’ worth based on a pending local TV rights deal that hasn’t even been done yet.
What are we missing that Magic Johnson and something called the Guggenheim Baseball Management LLC knows, and outgoing Dodgers owner Frank McCourt stands to handsomely and obscenely profit from?
It’s simple math, once you look at the big TV picture, and where you hang those flat-screens in the surrounding vicinity.
“If you’re just buying the Dodgers based on a traditional transaction, it’s nowhere near that value,” said David Carter, the executive director of the USC Sports Business Institute. “But it’s because they didn’t buy a baseball team, they bought a team that happens to anchor a lot of opportunity to make money from TV to real estate to converting Chavez Ravine into an entertainment center.
“One way to think of it is that the Dodgers are the hardware that McCourt just sold, and the software will be the TV and all the other pieces that come with it.
“Now it’s just a matter of whether they can get their money back.”
Dr. Mark Rosentraub, the co-director of the Michigan Center for Sport Management at the University of Michigan, put it this way:
“Usually you run a 10- or 20-year model to see how an investment can work. Some of my colleagues ran a 100-year model and were able to conclude that even if the Dodgers hit the average percentage growths that Major League Baseball has traditionally done – and that’s something that really cover a lot of sins – it doesn’t make sense. Especially when you’ve got hundreds of million of stadium expenses coming up, and you’re in a market that competes with the Angels.
“Right away, it looks like a cash negative. Can you generate revenue that makes it work? There is a lot of stress in this deal. There must be something we don’t know.”
There are some media experts who predict that a regional TV sports deal, coming from a bidding war between likely candidates Fox Sports Net and Time Warner Cable, will generate a package in the $4-to-$5 billion range, but that would spread out over decades.
Time Warner recently blew Fox Sports Net away by signing the Lakers to a 25-year TV deal worth a reported $5 billion.
Stan Kasten, who stands to be the Dodgers’ new CEO, told USA Today that the “price was impacted by the TV rights and land deal, but we would have done this just for the baseball team.”
McCourt had insisted that he could have remained as the owner of the Dodgers – a team he paid $420 million for in 2004 – if baseball commissioner Bud Selig would have just approved a shared-ownership offer from FSN’s Prime Ticket that went for as much as $3 billion covering 17 years.
Selig rejected it when it was apparent, from McCourt’s own court filings, that too many mega millions of that upfront money would have gone back to his personal account to pay for court expenses related to his pending divorce from wife Jamie.
Selig also thought the value of that deal was not a good business transaction based on how TV rights could increase even more than that at some point sooner.
A contributing factor to this whole scenario is the fact that the winning bid by people who are considered to be otherwise smart businessmen, pending the closing process in bankruptcy court, will also include McCourt as a business partner. McCourt is said to be teaming up with “certain affiliates of the purchasers” to form a joint venture that will buy up Chavez Ravine property for $150 million more and eventually develop it. McCourt will still own half of the parking lot property valued at $300 million.
“McCourt’s track record isn’t great,” said Rosentraub. “He has screwed a lot of people. How can anyone work with him without getting into a lawsuit? That’s got to be a factor.”
Some of the previous ownership groups that dropped out from the bidding early on said that McCourt’s insistence on continuing to own the surrounding parking lot was a deal breaker.
The Guggenheim group was the one of the three bidders that Major League Baseball approved for McCourt to pick as the new Dodgers owner. Once that trio was determined on Tuesday night, McCourt closed the deal quickly, and there has been no verification as to how much Guggenheim, with controlling partner Mark Walter, outbid the other two – one was St. Louis Rams and Denver Nuggets owner Stan Kroenke, and the other was led by hedge fund billionaire Steven Cohen and biotech billionaire Patrick Soon-Shiong.
The Wall Street Journal reported that a source indicated the two other groups made bids in the $1.5 billion range, but were never given a chance to match the Guggenheim bid.
Questions about how the inflated sale price could affect ticket prices (the average price of $30.59 was seventh highest in the majors last season), team salary (the roster budget is currently at about $100 million) and future free-agent signings (the team had none of any consequence last off season) always boils down to supply and demand, Carter says.
“Ownership can’t increase the price of tickets unless there’s a demand for it,” he said.
Carter says the wildcard in this whole deal is how Anschutz Entertainment Group reacts.
“You can imagine that nothing happens without their imput, and AEG can’t be thrilled that their buddy Magic Johnson all of the sudden is involved in rolling out retail that could fight with the traffic they’ve generated already at L.A. Live,” he said.
Most expensive sports franchise purchases:
Dodgers: $2.15 billion (2012)
Manchester United soccer team: $1.47 billion (2005)
Miami Dolphins NFL team: $1.15 billion (2009)
Chicago Cubs baseball team: $845 million (2009)
Most expensive Major League Baseball franchise purchases:
Dodgers: $2.2 billion (2012)
Chicago Cubs: $845 million (2009)
Boston Red Sox: $700 million (2002)
Houston Astros: $651 million (2011)
Texas Rangers: $561 million (2010, via auction)
The major players:
== Magic Johnson: Forbes valued the worth of the former Lakers star and entrepreneur as about $500 million back in 2009, but he has not disclosed how much that his minority share of the team will be. His value to the ownership group is measured more in charisma. The Marketing Arm, a sports marketing firm, determined that Johnson’s marketability ranks at 90 on a scale of 100, which puts him in the same ballpark as billionaire Richard Branson and New England quarterback Tom Brady. Current Lakers owner Jerry Buss calls Johnson “probably the most beloved sports figure in Los Angeles history.” His two highest-profile business ventures prior to this was a 4.5 percent ownership stake (for $10 million) with the Lakers (which he sold in 2010 for $27 million), and a stake in Starbucks that he sold, also in 2010.
==Mark Walter: Listed as the controlling partner of private Guggenheim Partners, a $125-billion investment management firm. He lives in Chicago, but has a company office in Santa Monica. His partners are Bobby Patton, an oil and gas investor, and Todd Boehly, present of Guggenheim Partners.
==Stan Kasten: The former president of the MLB’s Atlanta Braves and Washington Nationals will supposedly take the CEO title with the Dodgers.
== Peter Guber: The head of Mandalay entertainment is reported to have a net worth of $400 million. He and Magic Johnson have been partners in a minor-league baseball team, the Dayton Dragons. Guber is also co-owner of the NBA’s Golden State Warriors.