Magic Johnson and Guggenheim Partners must have really wanted the Dodgers and I know that they will probably start their own TV network (which will require an investment of more $$$) and they are partners with McCourt in developing the land around Dodger Stadium (which may take more $$$, depending upon the plan and that could be a REALLY GOOD thing, but it takes more capital). Dodger Stadium needs renovation and I would assume that will cost $250,000,000 to $350,000,000.
Of course, the Plan could be to raze Dodger Stadium and build a NFL Stadium for the Chargers, Jaguars, Vikings or Rams. Maybe Magic is the front man because he could get the city of LA to build New Dodger Stadium downtown. Would the citizens of LA do that? Would they authorize public funds to the tune of $1.1 Billion dollars for Magic? They wouldn’t for everyone, but they might for the Magic Man.
Yesterday, Ken wrote this:
“Insurance companies have annual requirements to hire auditors and actuaries prior to filing annual reports with the insurance companies domiciled state’s Insurance Commissioner’s Office. So the Guggenheim investment in the Dodgers will be subject to annual review of personnel hired by the insurance company and employed by the Insurance Commissioner’s Office. Therefore, you can expect the Dodgers to be distributing more to the insurance company than the Dodgers did inthe past to Frank“
Now, I don’t know how much that will be, be I assume it will be a lot. Maybe Ken could give us and idea of how much to expect.
What I am worried about is this type of big corporate ownership where there are lots of people involved. That can be problematic. Some of you have said “these guys are billionaires and know what they are doing.” The landscape of American Business is littered with colossal failures of “can’t miss” opportunities.
I’m not saying that this will be a failure – it has a lot going for it. Stan Kasten is a guy who knows how to runs a sports franchise. Magic characterizes him as a “Baseball Guy” and I do disagree with that. He has never shown baseball acumen, but is adept at running the business side of a team, which is vitally important. He will need a good “Baseball man” as general manager, like he had when he was president of the Atlanta Braves. Is that Ned Colletti? It could be, or not! Ned will have a shot whether we like it or not.
Magic is the face of the organization – he’s the PR guy, the marketing guy – he’s the brand and will be loved for it. Fans are excited, but Magic has very little to do with what happens behind the scenes. Here’s are the questions I have:
- Will Guggenhiem spend to upgrade the Dodgers scouting and international player development department?
- Will they upgrade the Stadium?
- Will they authorize a payroll of up to $150 million?
- How much will ticket prices go up (and they will as they are currently one of the lowest in MLB)?
Arash Markazi of ESPN/LA raises some of these same questions:
While Los Angeles sports fans celebrate the sale of the Los Angeles Dodgers to a group headlined by Magic Johnson for a record price of $2 billion, several sport economists believe the group paid close to twice as much for the team than it is actually worth and question the viability of the deal.
“It was an extraordinary and surprising price,” said Andrew Zimbalist, a professor of economics at Smith College. “I rarely admit to not anticipating these things but I did not anticipate a $2 billion price. Keep in mind, in addition to the price, the new ownership group will have to invest something in the neighborhood of $300 million to refurbishing Dodger Stadium and that price does not include $150 million for the surrounding real estate. At the end of the day, you have to question this deal.”
No one realizes more than I do that the experts are not always right. Many of the experts criticize because they can’t “DO.” But, you at least have to consider it. He also reports this:
“It’s the craziest deal ever; it makes no sense. That’s why you saw so many groups drop out,” said Mark Rosentraub, a University of Michigan sports management professor. “I don’t get it. The numbers just don’t work. It doesn’t make business sense. Nobody came up with this number. Under the most favorable circumstance you broke $1.1 billion with $1.4 billion getting crazy. Now you’re up in the $2 billion range, which is over $800 million more than what pencils out for a profitable investment for a baseball team. If making money doesn’t count, this is a great move. But now we’re into buying art and I can’t value art. I can just run the model numbers and this doesn’t make sense.”
Now comes the scary part:
One of the biggest reasons the Dodgers sold for $2 billion is the regional sports network battle currently being waged in Los Angeles between Fox and Time Warner. Last June, commissioner Bud Selig rejected a proposed 20-year, $3 billion deal between the Dodgers and Fox. The decision, according to Dodgers owner Frank McCourt, pushed the team into bankruptcy and forced him to sell the team. Last December, the Angels agreed to a new deal with Fox worth at least $3 billion over 20 years, which helped the team land Albert Pujols and C.J. Wilson in free agency. Last year, the Lakers announced they would be leaving Fox to join Time Warner for a deal reportedly worth $5 billion over 25 years.
The Dodgers are expected to sign a similarly lucrative deal with Fox or Time Warner, or they could simply start their own regional sports network like the Yankees have with the YES Network. The problem economists have with the sale of the team being tied to the television contract is teams use their television deals as revenue to improve the team, not to offset the costs of overpaying for a franchise.
“One of the things that commissioner Selig was trying to avoid when he did not authorize the contract between McCourt and Fox was he thought McCourt would take the money and pocket it instead of using it to build the Dodgers,” Zimbalist said. “That indirectly will happen anyway because McCourt is going to get his money and the new ownership will have to use a good chunk of the television money to pay off their asset purchase.”
So, before you go all bombastic on me, contemplate what that means. Read it carefully and try to understand. I am hopeful, but I remain skeptical. Please convince me otherwise with facts, not accusations. I’m glad you are all happy and giddy because “Magic is the owner of the Dodgers”, but I am not ready to drink the Kool-Aid, although I want to.
The article ends like this:
Johnson, however, still can’t make all the numbers of the record sale of the team add up for many economists, who are skeptical that this deal will prove to be a success in the end.
“If they can figure out a way to put a basket above the pitcher’s mound maybe it will be a great match,” Zimbalist said. “Look, Magic is an icon in L.A. It creates a new energy that will be positive for the club, but this group has a big challenge ahead of them and it remains to be seen if the price they paid for the club was a good choice or not.”
I’ll leave it on that note. Convince me I should drink the Kool-Aid. Please convince me!