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High price tag on Dodgers nets concerns about wisdom of the deal
Some say group headed by Magic Johnson paying $2.15 billion is too much, too risky and just too dependent on TV deals.
Los Angeles Daily News
LOS ANGELES — Once the Magic pixie dust settles, the winds of debate kick up on whether the pending sale of the Los Angeles Dodgers really makes the franchise stand firm as a long-term, financially solvent business.
The numbers tossed around — $2.15 billion or more, in cash, which will go down as the most ever paid 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 television-rights deal that hasn't even been completed.
What are we missing that Magic Johnson and something called the Guggenheim Baseball Management LLC know, and outgoing Dodgers owner Frank McCourt stands to handsomely profit from?
It's simple math, once you look at the big TV picture.
"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 covers 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 experts who predict a regional television sports deal, coming from a bidding war between likely candidates Fox Sports Net and Time Warner Cable, will generate a package between $4 billion to $5 billion, but that would spread out over decades.
Stan Kasten, who stands to be the Dodgers' new CEO, told USA Today 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 he could have remained as the owner of the Dodgers — a team he paid $420 million for in 2004 — if MLB commissioner Bud Selig would have 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 millions of that upfront money would have gone back to his personal account to pay for court expenses related to his pending divorce.
A contributing factor to this whole scenario is the fact 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 venture that will buy Chavez Ravine property and develop it. McCourt will still own half of the parking-lot property, valued at $300 million.
"McCourt's track record isn't great," Rosentraub said. "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 said McCourt's insistence on continuing to own the surrounding parking lot was a deal-breaker.