It wasn’t the most cash in the deal that won the day, but rather a whopping total, and maybe—just maybe—some goodwill for Frank McCourt.
Late Tuesday night, the Dodgers and Frank McCourt announced they had reached an agreement under which Guggenheim Baseball Management LLC (“GBM”) will acquire the Dodgers for $2 billion upon completion of the closing process. The purchasing group includes Mark R. Walter, who is the CEO of Guggenheim Partners, a privately held global financial services firm with more than $125 billion in assets under management , as its controlling partner. However, it’s former Los Angeles Laker great Earvin “Magic” Johnson who will likely be the face of the Dodgers. The group also includes Peter Guber (the Golden State Warriors co-owner who is also the chairman and chief executive of Mandalay Entertainment, which is invested in the successful Dayton Dragons minor-league team); Stan Kasten (former Washington Nationals and Atlanta Braves president), Bobby Patton (oil and gas investor), and Todd Boehly (president of Guggenheim Partners ) as other key investors.
McCourt and members of the purchasing group, including Johnson, will also be forming a joint venture that will acquire the Chavez Ravine property, parking lots and all, for an additional $150 million. The parties in the deal for the land would mutually agree to any development, with Johnson being able to veto any plans, according to Bill Shaikin of the LA Times.
All told, the deal is worth a record-breaking $2.15 billion—the most ever paid for a sports franchise. To place that total in perspective, it is $1.05 billion more than the prior record amount paid for a North American sports franchise: $1.1 billion, paid by Stephen Ross for the Miami Dolphins. The prior record price for an MLB club was $845 million for the Cubs, Wrigley Field, and a 25 percent interest in Comcast SportsNet Chicago. The Dodgers sale will total nearly three times that, eclipsing other recent MLB club sales by a staggering margin.
The massive increase over the Cubs sale is tied directly to the potential for a lucrative broadcast deal. A lesser, but still crucial factor is the Dodgers’ strong brand, which has languished during McCourt’s tenure. Upgrades to Dodgers Stadium and the presence of Magic Johnson—the highest-profile African-American owner in league history—have the potential to pay dividends on a number of levels and revitalize the organization quickly. Another factor in driving up the price was the bankruptcy auction process. While McCourt ultimately selected Johnson's group without a true auction involving the three finalists, the process itself inflated the price considerably.
"I am thrilled to be part of the historic Dodger franchise and intend to build on the fantastic foundation laid by Frank McCourt as we drive the Dodgers back to the front page of the sports section in our wonderful community of Los Angeles," said Magic Johnson.
“This agreement with Guggenheim reflects both the strength and future potential of the Los Angeles Dodgers, and assures that the Dodgers will have new ownership with deep local roots, which bodes well for the Dodgers, its fans and the Los Angeles community,” said Frank McCourt in a statement.
The deal is not yet quite done, and there are still some questions about the funding.
According to sources, the deal does not leverage future television rights for the Dodgers, which could garner anywhere between $4-$5 billion. Both FOX and Time Warner are interested in partnering with the Dodgers in a new regional sports network or purchasing broadcast rights. That future cash infusion bodes well for both the Dodgers’ player roster and for the team’s ability to make improvements to Dodger Stadium.
However, there certainly will be debt. How could there not be? Steven Cohen, who was seen as a strong contender to win the right to close the sale, reportedly had the highest amount of cash equity in his offer at $900 million. If the Magic/Kasten group had had that same amount of cash in play, there would still have been $1.25 billion to fund.
That’s where Guggenheim Partners comes in. They will be the major investment wing of the group, which explains why Walter will be the controlling owner.
What will be interesting to see is how Kasten deals with the player roster and to what extent Ned Colletti continues to function as GM. There is no word as to whether Kasten will be replacing Coletti (unlikely), or if he will simply act as club president as he has before with the Nationals and Braves. In both of those instances, Kasten was not a big spender on player talent, something that most everyone following the Dodgers sale believes the club will be no later than 2013, after the media rights deal is completed.
What last night’s announcement means is that the Magic/Kasten group has entered into an exclusive agreement to get the deal done. It’s possible that MLB could ask to review the sale structure of the deal if there are concerns abound the amount of debt being carried. McCourt was supposed to auction off the Dodgers, but did not, selecting Johnson’s group just a few hours after MLB’s 30 owners approved each of the three finalists (Cohen and Rams owner Stan Kroenke were the other two). By April 13, a US Bankruptcy Court must approve the deal, and by April 30, the deal needs to close. That is the same day that McCourt must pay his ex-wife Jamie $131 million as part of their divorce settlement.
By any measure, Frank McCourt will go down as one of the worst owners in league history. The decision to not only take the offer involving less cash, but to select a group with deep LA ties in Johnson and operational excellence in Kasten and Guber, while throwing in a partnership on the land surrounding Dodgers Stadium, makes McCourt’s exit the best—and possibly most lasting—move of his tenure. As I wrote on March 19, when handicapping the sale, “McCourt has a chance to go out a winner in selecting the Magic/Kasten group. While the cash piece is critical, unless it is so far out of skew as to not be competitive, it would be smart to take the goodwill and operational excellence that comes with Magic/Kasten, which is head and shoulders above the others in this regard.”
Wake up, Los Angeles. It’s Showtime… Dodgers style.
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McCourt and members of the purchasing group, including Johnson, will also be forming a joint venture that will acquire the Chavez Ravine property, parking lots and all, for an additional $150 million. The parties in the deal for the land would mutually agree to any development, with Johnson being able to veto any plans, according to Bill Shaikin of the LA Times.
This is only a great day in LA if you don't mind the higher price you are going to pay.
Now, it could be said that you were going to pay a higher price no matter who owned the Dodgers, and that may be true. But the future media deal is going to be a huge expense that everyone is going to pay. Right now there are two Regional Sports Networks in L.A. New York has 4. The Lakers network comes next fall. The Dodgers network likely comes Spring 2013. FSN and FSN Prime Ticket (or whatever they are calling it today) aren't going to go away. There will be 4 RSNs in LA and that cost will be passed on to all customers whether they like watching the Dodgers/Angels/Lakers/etc or not.
And for those of you who aren't in Los Angeles - you're next.
On ticket prices... Not so sure you see a massive uptick, at least initially. Johnson understands how the situation has been with not only McCourt, but prior when News Corp. owned the club. Variable ticket pricing? Maybe. If luxury seating is somehow added in (although, McCourt went there early on in his ownership), then maybe you see a solid increase there. It's all going to be interesting to watch over the next 12-18 months.
(BTW- facts like these means that one should never side with sports owners in labor disputes or public funding of stadiums. the owners will always make their $)
You're right that the product matters most, but in all honesty, McCourt had a fairly successful product until the divorce mess. Still, people hated him and didn't trust anything he did. If Magic asks people to be patient, they will be - Magic is a winner and fighter and there is trust there.
“I believe that a man of Magic’s remarkable stature and experience can play an integral role for one of the game’s most historic franchises, in a city where he is revered. Major League Baseball is a social institution with important social responsibilities, and Magic Johnson is a living embodiment of so many of the ideals that are vital to our game and its future."
Magic has said that he's leaving the baseball matters to Kasten. But, he'd be active in luring free agents to the Dodgers. You ask yourself: as a competitive athlete, if you sit down with the likes of Magic Johnson, you're going to listen. He's been there. He's iconic to other athletes. That will pay dividends.
Also, think of this thread: Dodgers... Jackie Robinson... Magic Johnson... Robinson broke the color barrier with the Dodgers, as Johnson does with the club now. Go back and read (closely) that last sentence of Selig's quote.
As counter-evidence, I would point to the fact that Michael Jordan owning the Bobcats hasn't appeared to help them in any way in luring free agents. Nor were players flocking to play for the Clippers due to Elgin Baylor being the GM (although to be fair Sterling wasn't helping). As a non-sports celebrity example, the supposed effect that Jay Z was going to have on enticing players to want to play for the Nets hasn't exactly panned out (especially as it looks that Williams is going to leave).
I think that players (and especially agents) will continue to do as they always have and seek the biggest payday - I doubt Magic telling them how great the Dodgers are is going to get them to go there for less.
I'd also expect him to be active in the RBI initiatives and encouraging African Americans to play baseball which I think Selig is alluding to in his statement.
If I remember correctly MLB has a big inner city academy in LA which no doubt Magic will be involved in publicising
That's funny. Funny because it relies on a huge elision, that of the idea that the ownership group won't seek to use the TV rights money to pay themselves back (i.e., pay down equity) rather than feed the team. The truth is, we really don't know WHAT the new ownership group will do, but I have little doubt that they'll fail to operate it as a business. And that means they will want to see returns on their investment.
My thoughts on the matter are here:
http://bit.ly/HflyvR
The short version is that this seems to me to be a new bubble, a bubble in cable TV viewership. Cable subscribers are disappearing at the same time sports networks are making huge bets on their ability to pay. I think the Internet will win this round, with Fox and the Dodgers as losers.