Magic Johnson's ownership group ponied up an astronomical fee for the Dodgers, so they'll need some big TV money to make up for it
Magic Johnson hit a home run with his purchase of the Los Angeles Dodgers. If he can pull off a potentially huge TV rights sale, it could be a financial grand slam.
Johnson’s group, backed by Guggenheim Partners and sports exec Stan Kasten, paid an astronomical fee, $2.15 billion – the highest price for any North American sports franchise in history.
So how can the team’s potential new owners make that money back? Television rights.
“It’s an extraordinarily high price,” Marc Ganis, president of consulting firm SportsCorp Limited, told TheWrap. “It’s not worth those numbers today, but it might be worth that amount some years form now.”
Despite a lengthy back and forth in bankruptcy court, the Dodgers and Fox still have a TV deal that runs through 2013. Fox holds exclusive negotiating rights until Nov. 30, at which point the Dodgers can consult with other bidders.
After that, it’s anyone’s guess, but rest assured, the money will be good. Estimates for the team’s rights have already hit $4 billion.
“This whole deal is dependent on the broadcast revenues,” Ganis said, echoing former Dodger bidder Mark Cuban. “In many ways it was not a baseball team being marketed; a broadcast property was being marketed.”
Ganis said the Dodgers' new owners must already have a clear plan for the team’s broadcasting future. Kasten is a well-respected businessman and sports executive, and you don’t pay that price unless you have an idea of how you’ll recoup all that money, he said.
Higher ticket prices may be one route, but that would further alienate a fan base the Dodgers are looking to reclaim and wouldn't bring in that much money. TV revenue will be the real cash cow.
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The TV choices in front of the Dodgers fall into three categories – Fox, other cabler stations and a regional sports network.
The Dodgers already have a deal with Fox, which has a huge presence in the regional sports market. Reports say Fox has already offered $3 billion for 17 years, though Fox has not confirmed that.
Bloomberg has reported that Fox is set to launch a national sports network – though insiders say it isn't imminent — that would seem to make a deal with parent company News Corp. even more attractive. Fox declined to comment for this story.
The Dodgers could go in another direction and make a deal with another cable network.
“Fortunately for the Dodgers, what really matters is the presence of multiple bidders in the local marketplace,” Scott Rosner, affiliated faculty member at the Wharton Sports Business Initiative, told TheWrap. “They have that with the new Time Warner Cable channel and the incumbent Fox. There’s a real opportunity for them to leverage two bidders off of each other.”
Rosner was referring to a deal between Time Warner and the Lakers, whereby Time Warner has launched a pair of regional sports networks that will feature a preponderance of Lakers-related content.
Rosner thought a similar deal giving the Dodgers some kind of equity in the network was the most likely option. Time Warner did not respond to a request for comment.
But a third option also exists – the Dodgers can start their own regional sports network. That is what the owners of the New York Mets did with SNY and the Boston Red Sox did with NESN. For each of them, it has proven incredibly lucrative.
It is the high-risk, high-reward situation. Signing up with an existing company provides more shelter, minimizing costs and ensuring a certain level of money thanks to the rights deal.
Yet while Ganis insists Johnson, Kasten and others have a plan, that doesn’t mean they will take the lowest-risk route.
“These guys have not been playing it safe,” Ganis said. “At $2.15 billion, I don’t think anyone would say they’ve been conservative.”