Magic Johnson, part of the consortium that offered $2.15 billion for the… (Gary Friedman, Los Angeles…)
The people behind the $2.15-billion bid for the Dodgers haven't been especially forthcoming with details about their plans for the team and Dodger Stadium, but one conclusion is easy to reach: Fans and taxpayers alike will be well advised to keep their eyes on their wallets.
It will be very difficult to make an investment on this scale pay off without two things happening. One is a cable or pay-TV deal that could be unprecedented in size, just like the bid for the team itself. The other is real estate development linked to the team and the site, the way downtown's L.A. Live feeds off the Lakers and Staples Center.
The first means higher cable bills. As for the second, it can't be achieved without the blessing of the local community and the political establishment, and the pathways to mulct the public for tax abatements, infrastructure improvements and other benefactions are unlimited.
The Dodgers may present an even greater opportunity for raids on the public purse than the downtown NFL stadium that Phil Anschutz's AEG has proposed for the neighborhood of L.A. Live and the Convention Center; the latter is a project designed around an as-yet-nonexistent franchise, but the Dodgers are already seen as a community asset, albeit sadly tarnished and in dire need of a high-gloss detailing job. SoCal politicians have fallen all over themselves to slaver over a league that they don't even like; how will they behave toward a team they love?
How the prospective new owners, a consortium out of Chicago, featuring fan favorite Magic Johnson and Hollywood mogul Peter Guber as L.A.-centric adornments, expect to make the deal pay is perhaps the key question raised by the $2.15-billion offer.
That's especially true given that it is nearly double the price tag of the previous record sale of a U.S. pro team ($1.1 billion for the Miami Dolphins) and more than twice that of the top baseball deal ($846 million for the Chicago Cubs). At first blush, it was even more remarkable that the winning bid was reportedly a preemptive $500 million higher than the next-highest offer. That's the way you play "Storage Wars," not bid for a first-class business asset. But as my colleagues Bill Shaikin and David Wharton reported subsequently, the other bidders weren't given a chance to match it; who's to say how the auction would have played out otherwise?
This new benchmark for a major market team has people wondering whether a reset has been mandated for the valuations of all pro teams. What am I bid for the Pittsburgh Pirates? The Washington Nationals? The Kansas City Chiefs? I thought so, until I was dissuaded by David Carter, a sports business expert at USC. He thinks the price is significant for a very small subset of elite franchises with lots of upside potential.
"You have to look at the totality of this, the unparalleled market size and the tremendous upside for non-shared revenues," he told me. Not only do the Dodgers address the second-largest TV market in the land, they do so in a league in which the teams get to keep more than two-thirds of their local or regional broadcast income. That's a big distinction from the National Football League, where the fat television contracts are national and shared among all the teams.
In fact, expectations for the big cable payday awaiting the Dodgers after the expiration next year of their current deal with Fox may well have helped fuel the $2.15-billion offer. Fox and Time Warner are expected to bid against each other to feature the Dodgers in their regional sports cable networks, with the threat of a self-created Dodgers network, a la the New York Yankees' YES Network, keeping them nervously at the table. A $4-billion cable offer over 15 years or so isn't considered out of the question. And who knows — the excitement generated by the purchase bid alone might help push the cable offer even higher.
Carter believes that although the size of the broadcast deal is a key to the ownership bid's potential, the real upside may lie in developing Chavez Ravine in the style of L.A. Live. "I don't think they bought the Dodgers," he says, "but an entertainment platform that included the Dodgers and Dodger Stadium. It just so happens that the Dodgers are the anchor tenant in that mall." This is a major departure from the traditional model for sports investing, which is that you didn't care about racking up big profits year to year, but cashed in a big gain when you sold the franchise after a decade or two. The underlying idea of the Dodgers deal may be to squeeze every piece of the enterprise for maximum return.