MORE THAN FACE OF DODGERS - The Dodgers have the best record in Major League Baseball, lead the National League West by 7½ games, and have a 90.7% probability of making the playoffs.
Attendance is up 7%, no shows are probably down, and parking prices have been lowered by a third to $10.
And to top it off, no more Boston Frankie, at least as far as the team is concerned.
While there are a number of questions surrounding the deal between the Dodgers and The Boston Parking Lot Attendant, very little is known about the relationship between Guggenheim Baseball Management, the investment vehicle that was formed to buy the Dodgers and 50% of the surrounding real estate, and Chicago based Guggenheim Partners (a privately held global financial firm with over $125 billion in assets under management), its CEO Mark Walter, and the other named investors, including Magic Johnson.
More than likely, it is structured like any other private equity investment where Guggenheim Partners is entitled to a deal fee at closing, an annual management fee, and a nice chunk of the profits when the Dodgers are sold, recapitalized, or taken public.
At the closing, Guggenheim Partners was probably paid a deal fee of at least $20 million, equal to about 1% of the transaction value of $2.15 billion.
Guggenheim Partners will also enter into a long term management contract with the Dodgers where it will be paid an annual management fee in the range of $20 million (possibly deferred depending on the team’s cash flow) and deal fees when the team completes a significant transaction such as the sale of the media rights, a stadium naming contract, the $250 million renovation of Dodger Stadium, a refinancing, or recapitalization.
And finally, Guggenheim Partners may also have a “promote” equal to 20% of the profits after the investors in Guggenheim Baseball Management receive a modest preferential rate of return.
So if the profits upon a “realization” event (a sale, a recapitalization, or an initial public offering) are $1 billion after taking into account the preferential rate of return, then Guggenheim Partners would earn $200 million.
While the terms of this deal may vary from the norm, especially given that the financial investors may be affiliated with Guggenheim Partners, the incentive is to significantly increase the value of the Dodgers and the surrounding real estate.
But Guggenheim Partners needs to really hustle to harvest the anticipated billions in anticipated profits, especially since it paid $500 to $700 million more than the other prospective purchasers.
And this is where Magic’s star power comes into play.
Magic and his smile have been the public face of the new Dodgers, fronting for the new out of town owners, encouraging all of Southern California to support the new owners who are committed to investing the necessary resources to make the Dodgers a perennial contender.
But Magic is not just another pretty face promoting the Dodgers, working the crowd and the media.
More than likely, he will be leveraging his star power and media presence with either Fox Sports or Time Warner Cable as Guggenheim Partners and the Dodgers negotiate a long term media rights deal with a value of around $200 million a year. This will result in a significant increase in annual revenue and, more than likely, a significant equity interest in one of the regional sports networks.
Magic will also add considerable value to Guggenheim Partners in its efforts to monetize the real estate assets surrounding Dodger Stadium, especially when it comes to the zoning changes and traffic issues that require the approval of the City Council.
He is also a partner of Canyon-Johnson Urban Funds, a successful, well capitalized operation with access to unlimited amounts of capital, a key ingredient to help offset the poor reputation of the ethically challenged Boston Frankie.
Magic will also provide value in helping recruit top talent to the Dodgers, pointing out opportunities to free agent stars that will help to offset California’s high tax environment and costly real estate.
So what is Magic’s deal, especially given that he is risking his very valuable reputation?
While there is not any public information, Magic most likely has the opportunity to participate in Guggenheim Partners’ river of fees, probably in the range of 20%.
He may also have the opportunity to buy equity at a discounted price to reflect his active involvement with the Dodgers.
And finally, Magic may have the opportunity to participate in and possibly have Canyon-Johnson manage the capital intensive development of the parking lots.
Whatever Magic’s deal is, the specifics, while more than interesting, are probably not any of the public’s business, at least not for now.
But who cares if the Dodgers are winning.
(Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com. He can be reached at: [email protected]) –cw