30 Mar 2012
- Written by Jack Humphreville
SALE EASES DODGER BLUES - It is not even Easter, but Dodger fans of all faiths are standing together, lifting their arms, singing Handel’s Hallelujah Chorus, rejoicing at the good tidings of joy now that they have been magically saved from the devilish Boston Frankie, the most despised person in all of Southern California and the world of baseball.
And Dodger fans have reason to rejoice, even if the looting Boston Parking Lot Attendant walked away with over $750 million after taxes.
The Dodgers’ prospects for the upcoming season are the best in years, even though they did not acquire any big bats during the off season. Matt Kemp and Clayton Kershaw are on board and the speed merchant Dee Gordon may threaten Maury Wills’ stolen base record and drive opposing pitchers to distraction.
The Boys in Blue also had a successful spring training, building on the team’s successes of last year after the All Star break when they were one game short of playing .600 ball. [Note: Arizona won the National League West with a .580 record.]
And most importantly, the new owners, led by hometown favorite Magic Johnson, have pledged to make the Dodgers one of the best teams in baseball, willing to increase the payroll so that the Dodgers can compete with the Yankees, Phillies, and Red Sox for top talent.
And do not be surprised if the Dodgers pick up a potent bat or two during the season.
But as we all know, there is no such thing as a free lunch, especially when Guggenheim Baseball Management, a limited partnership consisting primarily of wealthy out of town investors and large financial institutions, invested a record breaking $2 billion for a team that is barely profitable and suffered a major league drop in attendance.
And this $2 billion does not include another $150 million for a 50% interest in the surrounding real estate, an estimated $150 million to $300 million to renovate Dodger Stadium, or $150 million to fund an increased payroll over the next two seasons.
Underlying this $2.5 billion investment (equal to over eight times 2011 revenues) is the value of the team’s future media rights, estimated to be worth $4 billion over the next 20 years once the existing deal with Fox Sports expires at the end of the 2013 season.
At $200 million a year, that represents an increase of almost $160 million a year!
And, interestingly, pursuant to the Settlement Agreement between Major League Baseball and Boston Frankie, at least $84 million is required to be invested in the team, a clause designed to make sure that the new owners did not pull a “McCourt” and to insure that there is money subject to MLB’s revenue sharing formula.
There has been considerable speculation about whether the Dodgers will sell the media rights to either Fox Sports or Time Warner Cable or whether the Dodgers will form their own regional sports network, similar to the Yankees and Red Sox.
While the actual media rights deal has not been determined or negotiated, you can rest assured that we will end up footing the bill through higher fees for our basic cable service. The Wall Street Journal estimated that a Dodgers network would net about $300 million a year if the network charged the cable companies $3.50 a month to a subscriber base of 7 million homes in an area that stretches to Las Vegas and the Central Coast.
Interestingly, proceeds from regional sports networks are not subject to MLB’s revenue sharing rules. And in the case of the Dodgers, their sports network would be able to capture all revenues over the $84 million requirement mandated in the Settlement Agreement.
Of course, we would be hit for about $700 million ($84 a year for each household) since our consumer friendly cable companies like to operate on 50% margins.
In addition to the subscriber fees, a Dodger network would also benefit from significant advertising revenue from the Dodger games and other sports programming.
Once again, the escalating cost of sports entertainment raises the issue of whether all of these sports channels, including ESPN which nets more than $4.50 per month per subscriber, should be bundled into our basic cable service, or, as many people have suggested, sold in a separate premium package.
The new owners will also have other opportunities to increase revenues, including the sacrilege of selling the naming rights to Dodger Stadium.
There is also the ability to raise ticket prices, although that maneuver might be a very risky strategy that would definitely alienate Dodger fans. And who knows, fans may head to Anaheim to see Albert Pujols pulverize the ball at prices that are 40% lower than they are in Los Angeles.
There is also the possibility of developing the land around Dodger Stadium, a source of worry for the local residents who feel that their communities will be threaten by increased traffic and out of character overdevelopment. And this fear is justifiable knowing that the litigious Boston Frankie owns 50% of the land surrounding Dodger Stadium.
On the other hand, Chicago based Mark Walter, the new “controlling partner” of the Dodgers who happens to have season tickets to the Cubs, has indicated that our boy Frank has only an economic interest in the land and will not be involved in the decision making process. Of course, just having a litigious dirtball like McCourt as an investor is cause for great concern.
There are also many unanswered questions about the Dodgers and Guggenheim Baseball Management: who are their investors and how much debt will the Dodgers have to service.
But probably the most important question involves the exit strategy for these wealthy out of town investors and large financial institutions that will be looking for liquidity. Or put another way, will the Dodgers be for sale in another five to ten years? Or will the Dodgers be the subject of numerous debt fueled recapitalizations that are so popular with the private equity gang. Or will the Dodgers have a public offering of stock?
Despite the financial implications of this off the charts transaction and the many questions that it raises, Dodger fans are excited. All you have to do is look at front pages of The Los Angeles Times and its Sports section with bold across the sheet headlines and pictures of Magic Johnson. And Opening Day is sold out and season ticket sales are up.
And if long time baseball executive Stan Kasten and his management team can deliver winning teams, attendance will soar, revenues will be plentiful, and the $84 a year in extra cable fees will be cheap at twice the price.
Hopefully, we have been blessed. Hallelujah.
Tags: Jack Humphreville, LA Watchdog, Dodgers, Dodger sale, Magic Johnson
Vol 10 Issue 26
Pub: Mar 30, 2012