$2 Billion Seems Like a Lot for the Dodgers, Just Sayin’
A group led by Guggenheim Partners (private equity) CEO Mark Walters and featuring Los Angeles icon Magic Johnson bought the Dodgers for $2 billion this morning. You read that correctly, $2 billion. If that seems like a lot for a sports team, especially one in as dire straits as the Dodgers — whose owner is bankrupt, has been running through bridge financing like pez, and spent last summer fighting with baseball over his TV contract — it’s because it is
The price would shatter the mark for a sports franchise. Stephen Ross paid $1.1 billion for the NFL’s Miami Dolphins in 2009, and in England, Malcolm Glazer and his family took over the Manchester United soccer club in 2005 in a deal then valued at $1.47 billion.
Neither of those teams is a great analogue for the sale of the Dodgers. The Dolphins, despite being the most pathetic franchise in the NFL, are still an NFL franchise, which ensures them consistent profitability. Manchester United is an international sports behemoth, a mothership — if you will allow me a stretched analogy — that sucks money from all the feeble minded people who want to seem urbane by feigning a love for soccer, but don’t want to actually watch the sport. The Dodgers are a team in LA, which means people wear their hats and show up for four innings of their games.
But wait you say, Los Angeles is a large market, and the Dodgers are still beloved by many, and inflation! that has to be part of it right? Well sure, how’s this for a comp:
The current record for a baseball franchise is the $845 million paid by the Ricketts family for the Chicago Cubs in 2009.
The Cubs and the Dodgers are pretty similar actually — big market team, bankrupt owner, recent (or longer) history of semi-competence, cash cow stadium, strong fanbase — I don’t see how two years make the Dodgers worth twice as much. In case you’re wondering, core inflation has been more or less flat since 2009 and inflation would be a weak explanation anyways. Additionally, the Dodgers don’t have a structure in place like the Red Sox and Yankees who own and operate their own regional sports networks, significantly enhancing their values considerably. In fact, the Wilpons — who own the Mets and their network SNY — should probably consider selling right away, who knows they could make $4 billion or something.
As for the aforementioned broke owner, Frank McCourt, he’s making out like a bandit.
McCourt paid $430 million in 2004 to buy the team, Dodger Stadium and 250 acres of land that includes the parking lots, from the Fox division of Rupert Murdoch’s News Corp., a sale that left the team with about $50 million in cash at the time. The team’s debt stood at $579 million as of January, according to a court filing, so McCourt stands to make hundreds of millions of dollars even after a $131 million divorce payment to former wife Jamie, taxes, and legal and banking fees.
McCourt bought the team after failing in his bid for his hometown Red Sox (he made his bones building parking structures in Boston). What the article failed to mention was that $579MM in debt exists largely because McCourt spent much of his ownership tenure treating the Dodgers like his own personal credit card, which was fine until his wife divorced him for being insane and he had to fight a protracted court battle in an attempt to keep the team along with a good chunk of his wealth. Just goes to show you kids, that if you’re rich, you can buy yourself an expensive bauble, leverage yourself to the teeth, and generally behave like a reprehensible tool, and someone else with a lot of money will come along and make you rich again.
This whole debacle speaks to exactly how opaque the market for Major League teams is. If at the start of the bidding process for the Dodgers you set the final sale price at $2 billion you’d likely be laughed out of the room. Most reasonable commenters would have predicted something around what the Ricketts bought the Cubs for, maybe a little higher. At the same time, MLB allows people like McCourt, Jerry Reinsdorf, the Wilpons, and Jeff Loria (look them all up) to buy and sell teams, but basically forced Jeff Moorad to drop his bid for the Padres (he’s already a minority owner) by giving him the silent treatment. Moorad’s proven to be an effective manager during his years as a minority owner and CEO with Arizona and San Diego, so why wouldn’t baseball want him to be an owner? He’s a former player agent, which is way too unsavory for Bud Selig and his cronies, but I digress.
As for Dodgers fans, they should be happy. Having this type of professional investor as an owner is generally a good thing, at least if the Red Sox are to be used as an analogue. Private equity folks get a bad rap — deservedly so in some cases — but one thing that they do know is how to delegate, which is important when running a baseball team. It’s pretty safe to say that Ned Colletti’s days in Chavez ravine are numbered. In any case, after spending $2 billion to get the team, it would be pretty strange for the new owners to get stingy all of a sudden. Also, Angelenos get to have Magic Johnson as their teams’ owner.
Maybe I’m missing something, still, $2B seems like a lot to pay for the Dodgers, just sayin’.
Update: The consensus seems to be that the sale price is based on the ability to build a YES or NESN style network for the Dodgers, which is a very plausible explanation. I still believe the number is high, but it seems like the new owners really wanted the team.