Dodgers

Success Of Guggenheim's Dodgers Deal Depends On Real Estate Projects, TV Rights

Published April 2, 2012

The success of the Magic Johnson-Guggenheim Partners group's $2.15B deal to purchase the Dodgers "hinges on an array of factors, including how much money can be squeezed from TV rights and whether the adjoining land could be developed with shops, homes or other projects," according to a front-page piece by Bensinger & Shaikin of the L.A. TIMES. The Guggenheim team "may view the Dodgers as a distressed asset, with significant revenue -- including hundreds of thousands of unsold tickets -- left on the table thanks to unpopular decisions" by former Owner Frank McCourt. Sports Value Consulting Founder Michael Rapkoch said that Guggenheim Baseball Management has "already taken steps to right the ship by enlisting one of the country's best baseball minds in Stan Kasten" and by making Johnson the frontman. Rapkoch said of the purchase price, "The people behind this deal are pretty astute and have made good assumptions of how much they can make." Bensinger & Shaikin reported most analysts agree that the buyers' "big payday must come from cable television." Huge deals struck in the last two years by the Angels, MLB Rangers and Lakers "have shown that regional sports networks such as Fox's Prime Ticket can pay enormous sums for TV rights because of the growing importance of local sports." But the Internet could "disrupt the pay television model, just as it did with movies and music." If Fox or Time Warner Cable buys the Dodgers rights, that risk "is theirs alone." But if the Dodgers "take a stake in the networks, as has been the trend, then the team will bear part of that exposure." Another way the new owners could "squeeze value out of the deal is by developing the land around the stadium." A source said that Guggenheim Baseball Management and McCourt will each "own half of the joint venture and will split profits." The source said that that "values the real estate around the stadium at $300 million." McCourt paid $100M for the land (and the stadium) as part of his '04 purchase of the team. That valuation "could be justified if the owners develop residential projects, a shopping mall or even a football stadium on the land." But any development "faces potential hurdles" (L.A. TIMES, 4/1).

TV IS THE KEY: In L.A., Michael Hiltzik noted it will be "very difficult" for Guggenheim Baseball Management 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." Univ. of Southern California Sports Business Institute Exec Dir David 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." Carter said, "I don't think they bought the Dodgers, 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" (L.A. TIMES, 4/1).

STAN THE MAN: In N.Y., Bill Madden wrote, "One would think Kasten is in for a bit of a culture shock running a $2 billion operation." In all his "previous years as a chief executive in baseball, he was commissioner Bud Selig’s pit bull against the union in the various labor wars, as well as being an outspoken critic of wild spending owners, particularly the Yankees, as being the ruin of baseball." Kasten said, "Deep into my core, I’m a scouting and player development guy and we will emphasize that even more here. ... At the same time, we understand the expectations and that our resources (in L.A.) are more than a lot of teams. We’re not gonna wait eight years to build a champion. It’s what (Dodger fans) expect and demand." Meanwhile, Madden noted there are "no plans to build a new stadium or sell the naming rights to help finance the estimated $300 million it’s going to take to get Dodger Stadium up to par with all the new stadiums that have been built over the last 20 years" (N.Y. DAILY NEWS, 4/1).

RIPPLE EFFECT: In Boston, Nick Cafardo noted the Red Sox owners "don't believe that $2 billion for the Dodgers will have a big trickle effect on the value of the elite franchises like Boston and New York." The feeling is that the sale "was a unique circumstance, the Dodgers in the Los Angeles market" (BOSTON GLOBE, 4/1).