Wednesday, March 28, 2012

A Rising Tide Floats All Boats

According to Forbes Magazine, the Los Angeles Dodgers are valued at $1.4 billion, second only to the New York Yankees.

So by that measurement, the Guggenheim Capital group and their most prominent (though not main) member Magic Johnson, got quite a deal.

But by any other measure, $2 billion for a professional sports franchise is an unbelievable, perhaps outrageous, amount of money to spend. Yesterday the Los Angeles Dodgers became the most expensive sports franchise in North America and the record setting $2 billion price tag more than doubled the previous MLB record ($845 million by the Ricketts family in purchasing the Chicago Cubs).

This is the ARod contract of purchasing sports franchises. It's outrageous but it also sets a new bar for the valuation of a sports franchise. The question of whether the Dodgers are in fact worth this amount of money is impossible to answer right now. They are without question one of the storied franchises in baseball. They have just signed a new television contract which has rapidly increased their value. Frank McCourt is no longer an albatross around the franchises neck (though he is looming right outside the stadium in the parking lot). But they are the second most interesting baseball team within a 30 mile radius and their popularity is paltry in comparison to that of the Lakers and, this year, the Clippers. All of that is likely to change.

But what does this purchase price mean for the rest of baseball? As you are likely aware if you are reading this blog, Jeff Moorad stepped down as CEO of the Padres last week, effectively ending the layaway plan purchase Moores had set up. Per the North County Times, the Moorad group can still complete the purchase the team by 2014. Though it would seem a more likely scenario is that both John Moores and the Group Formerly Known as the Moorad Group will attempt to find one buyer for all 100% of the ownership stake. If you were John Moores, and the team roughly 100 miles north of you just sold for $2 billion, suddenly the landscape has changed.

The Padres are no doubt more valuable then they were in 2009. The new television deal could be worth close to $1 billion over 20 years. Forbes Magazine has valued the team at $458 million, up 13% from last year, thanks in part to the television deal. The Padres are poised to be contenders in the near future, and have very little committed money to the current on the field product.

Tom Krasovic tweeted last night that an MLB insider said the Padres price could reach $700 million due to the Dodgers price. Unrealistic? Who's to say? The landscape has changed. What seems to be clear is this? John Moores sold the Padres for $525 million in 2009. He will certainly receive more than that this time around.


BonnieSue12 said...

I agree this changes the landscape but not in a good way. This price tag is outrageous to say the least and we will never stay or get back to professional sports teams being owned by 1 or a family, it will all be by conglomerates and given that has failed America in the work force it certain will do the same here. I realize many teams are owned by conglomerates but in the case of the Green Bay, the fans can have part ownership; the era of someone like Leon Hess, the once owner of the Jets, is gone and teams are just better under the right ownership, I have yet to see the opposite happen. Whats needed is ownership with passion for the game first, the $$ second. What happens here is teams that aren't worth the price tag think they are, a group of high priced business people come in and buy with the very worst of intentions. We are getting further and further away from the "love of the game" and it's a business like any other. It started with stadiums being funded by and named after corporations and now this. Where does it end. Ironic how it seems in every other aspect we are going backwards in America but in this one we have gone forward in worse way possible.

GTH said...

Not all franchises are owned by conglomerates but it is heading that way. The downside to having one person or family own them is that they become more susceptible to financial strain. For example the McCourts and their divorce or Moores and his divorce. The Steelers are still owned by the Rooney family, the Yankees by Steinbrenner (though technically by Yankees, LLC). I will say that Magic is an LA guy and cares about the city. And that's positive. Of course it will always be about making money for the owners. I don't know if I think that's a new thing. Comiskey owned the White Sox for profit and less for the love of the game one could argue. I think its more about ego. A sports franchise is a toy. Not often a toy that makes money, but a fun toy. I do agree the price tag is pretty high. But what's scary is that ultimately Magic's group will come out ahead in this deal I think.

gloccamorra said...

One little correction: The Dodgers DIDN'T sign a new TV contract, their Fox contract run through 2013. Fox and Time Warner want to make the Dodgers the centerpiece of a regional sports channel, so there will be a bidding war. That's a major reason for the price.

A second reason was voiced by the Guggenheim director, who stated that the franchise has value that transcends financial considerations. IOW, it's a trophy acquisition for Guggenheim, and the benefit to the investment group can't be quantified.

That probably means the club can compete with big bucks that are internally generated (TV contract), while the investment firm builds up goodwill and influence by trotting its clients to games, getting autographs, etc.

GTH said...

However if it's being treated like a trophy that would concern me as a Dodgers fan. Splashy free agency signings are fun. But smart baseball moves are better. You can't just put together a super team and expect championships. You will get a ton of attention. I wonder how willing the Guggenheim group will be in listening to their staff when $2 billion is at stake.