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Chavez Ravine Agonistes

Sports fans were breathless yesterday with the news that a group publicly headed by Magic Johnson made the winning bid to purchase the Los Angeles Dodgers baseball team. Almost immediately, baseball fans rejoiced at the departure of the least popular owner in the history of professional sports in Southern California and the ascension of the most popular sports popular sports figure in the city.

Almost immediately, fans seem sure that Magic Johnson will deliver the team and its fans from the ignominious state of recent history—a middling record, atrocious public relations disasters, and an owner who seemed eager to enrich himself at the expense of the team. Euphoric comments abound, with many fans certain that the former Lakers point guard and five-time NBA champion will restore the luster of the Dodgers brand and personally direct the team’s operations. Johnson’s role, though, will probably be mostly as a figurehead since the majority of the winning ownership bid is controlled by Chicago-based Guggenheim Partners, the main source of the winning $2.15 billion bid (supposedly to be paid in cash). Of course, Johnson and his winning smile are a PR coup for the group, which also includes seasoned baseball man Stan Kasten and Hollywood producer Peter Guber.

In fact, the composition of the bid and its murky ownership motivations is reminiscient of a another recent ownership group featuring a savvy athlete/entertainer turned businessman backed by powerful business interests. New York developer Bruce Ratner used the purchase of the New Jersey Nets (with the promise of moving them into new digs in Brooklyn) to enable the lucrative commercial development of the Atlantic Yards area, picking up native son Jay-Z as a partner to smooth over the eminent-domain land grab. As detailed by Malcolm Gladwell piece last year, it was a very shrewd navigation of loopholes in real estate law and exploitation of public appetite for prestige, celebrity, and sports.

The over-the-top price paid for the Dodgers indicates that like the Brooklyn development, the sports team itself is only a lesser byproduct of the deal. Sports economist Andrew Zimbalist and Mark Rosenstraub seem to think the Guggenheim group significantly overpaid for reasons that are unclear.

“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.”

Clearly, a skilled financial operator from Chicago is not buying a Los Angeles sports team for its emotional and nostalgic appeal. Part of the reason lies with the escalating profits and influence of regional sports networks.

According to SNL Kagan, affiliate-fee revenue for all regional sports networks rose 44% in the past five years, from $3.2 billion in 2007 to $4.6 billion in 2011. At the same time, affiliate revenue for non-sports cable networks has climbed nearly 41% in the same period, from $12.3 billion in 2007 to $17.3 billion in 2011… Some reports have said based on the estimated $3 billion TWC paid the Lakers for rights to air their games for 20 years, the MSO will need to charge as much as a combined $3.50 per subscriber per month for the two networks to turn a profit. 

This comes on the heels of Time Warner Cable’s $3 billion deal for the rights for the Lakers, which seemed astronomical. With similar deals now in place with for the nearby Angels, the Texas Rangers, and even the San Diego Padres, among others, professional sports has shifted into an incredibly high-priced race to obtain television channels, cable subscriptions, and control of other content-delivery systems. (Some of this may be due to the proliferation of devices to watch games, with some viewers keeping track on multiple screens.)

The staggering amount of the total sale is surprising in that it makes previous owner Frank McCourt an overwhelmingly winner, with the Los Angeles Times estimating that he may clear a billion greenbacks at the end of the day. Major League Baseball also comes out looking good, affirming the value of its teams in comparison with other professional sporting leagues. The National Football League’s Miami Dolphins were sold for $1.1 billion a few years back, and the sale of the Dodgers eclipses even the sale price of the English Premier’s league’s flagship club, Manchester United by at least $700 million (and the Manchester squad is considered perhaps the greatest sports brand in the world).

An offer that exceed expectations by such a large margin seems to suggest that even more than cable TV is at stake. Even with the mind boggling sales price, McCourt wrangled a stake in the land surrounding Dodger Stadium, which is currently being used for parking. Before his divorce curbed his development ambitions, he had envisioned a series of condominiums and retail space to occupy the area, with Dodger Stadium either being renovated or torn down to accommodate the new development. His continue involvement in the land indicates that some form of development will probably go forward, much to the chagrin of fans of open space and local residents. But an area full of condominiums, movie theaters, or retail outlets that congregrate in perverse shopping malls like the Grove and the Americana only makes the original eminent domain seizure that drove out the existing community seem even more shameless.

 

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  1. 30/03/2012 at 12:14 am

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