Dodgers’ Magic trick means money, not necessarily wins



Everyone was shocked to see the selling price of the Los Angeles Dodgers last week; $2.15 billion. It was over $500 million more than the second highest bid and the most for any sports franchise ever. The most money previously paid for a franchise in the U.S. was $1.1 billion for the Miami Dolphins in 2009. Worldwide, it was $1.47 billion for Manchester United in England in 2005. The Chicago Cubs were bought for an MLB record $845 million in 2009. To say that the new ownership group overpaid is an understatement.

Former Los Angeles Laker great Magic Johnson is the big name involved because he is the most recognized. His role in this transaction, outside of the small percentage that he owns, is that of pitchman. The details of the deal will be revealed in court filings on April 6, so that’s when we will know the specifics of how much of a stake Magic will actually have. It may be similar to the 1 percent, or $25 million, stake of the Lakers that he used to own. Don’t be fooled by what you have seen on TV. Magic is little more than a talking mannequin put outside a store dressed in Dodgers gear.

Mark Walter, the CEO of Guggenheim Financial, is the controlling partner. Guggenheim Financial, a financial services firm based in Chicago with $125 billion in assets, is heavily involved, along with the CEO of Mandalay Entertainment, which runs a movie and television picture company and some minor league baseball properties. These are the actual people putting up the majority of the money.

This has to come as a great delight to former owner Frank McCourt. He paid $430 million in 2004 to buy the team and as of January, the Dodgers have a debt of $579 million, according to court records. McCourt stands to make hundreds of millions of dollars even after a $131 million divorce payment to former wife Jamie, along with taxes and legal and banking fees.

The biggest question is, “How do you make money after spending over $2 billion?” The winning bid isn’t so much about purchasing the Dodgers as it is the lucrative TV deal that is on the horizon.

“This deal is all about the likely TV rights,” said Brian Goff, distinguished university professor of economics at Western Kentucky University and contributor to The Sports Economist.

MLB local TV rights are a big deal. For example, the Padres signed a 20-year deal worth $75 million per year. The Rangers and Angels both recently signed 20-year deals with FOX worth a reported $3 billion. The Dodgers deal, which the new owners can sign in 2014 and beyond, will likely be in this neighborhood or maybe a little more.

McCourt had a similar deal in the works worth a lot less money, but he was desperate in his attempt to keep the Dodgers this past year. MLB did not approve McCourt’s TV deal because they suspected that he would use some of those funds in his divorce proceedings.

“In essence, the likely TV deal is worth the price paid,” Goff explained. “The owners then stand to profit, in the long run, from the value of the team at the gate/concessions and from their share of MLB TV revenues. There are also side deals with McCourt on developing the land around the stadium.”

So, in theory, the new ownership paid $2.15 billion to receive a $3 billion TV deal over a 20-year period starting in 2014.

That is still a couple years away, so what will and can the Dodgers do in the mean time?

“It would seem they can very likely turn a profit in the long run,” Goff said. “The issue will be in the shorter term. Are they going to have enough cash to fund baseball operations over the next few years in a way to make the team better?”

A lot of it will come down to the details of the TV deal, because they will. Reportedly, McCourt had $400 million of his TV deal coming in up front, which would have allowed him to pay down part of his debt, to the team and his wife, along with keeping the Dodgers a viable product on the field. The new TV deal and the money that will be given to the new owners up front will be a huge factor when it comes down to the financial future of the team.

Just know that when you see Magic on TV playing his role as celebrity pitchman talking about restoring the winning tradition of the Dodgers, it’s all a charade. They buy teams for the purpose of making money, not making history.