$2 billion for the team plus $150 million for real estate plus an estimated $250 to $500 million in Dodger Stadium renovations = an investment of $2.4 to $2.65 billion. Incredible.

This is a fair deal. Then consider real US inflation is closer to 10% than 5%.

This is a fair deal. Then consider real US inflation is closer to 10% than 5%.

Inflation doesn't benefit them anymore than any other business. They just paid over $2B for a team that lost money on what, $180m in total revenues? Assuming $90m ticket sales, $20m parking, $60m TV rights.

The media rights mirage can't justify the deal; because most of those revenues are in the back of the deal and highly contingent. The Dodgers aren't starting at $200m per year on their next deal, more likely $100m. unless ratings continually improve at a strong rate for the next 20 years they won't be sniffing anywhere near $4b from the deal, and stil need to tap it to fund yearly operations.

Look at it this way. If the Dodgers start at $200m a year from their next TV deal, that's roughly $30 per core LA cable subscriber per year. it's like $5 per month per sub during baseball season. How could the RSN ever make money?

So starting at $100m still means a massive boost in tv revenues, and you have to grow it 7% per year to make a 20 year deal $4b. but meanwhile the extra TV revenues might help the team net $50m in yearly profits to start, a horrific return on $2.1b +, and danger will rogers if there is debt involved.

There are far better inflation hedges than wildly overpaying for a sports team.

Look at it this way. If the Dodgers start at $200m a year from their next TV deal, that's roughly $30 per core LA cable subscriber per year. it's like $5 per month per sub during baseball season. How could the RSN ever make money?

The RSN's sell advertising as well in addition to carriage fees. I'm not sure how their revenue split breaks down, but ad revenue has to be substantial.

Edit: you also didn't include national tv deals, merch, payments from mlb.com etc.

I wonder if they're buying the team like people bought houses in 2007, "Even if the revenue streams don't work out, someone will just come along and pay an even higher sale price!"

Sure, I'm missing a few much more minor revenue sources, but is it enough to matter? Other RSN deals pay less than $1 per month per subscriber, some way less, because that's what the RSN can typically earn from advertising/carriage, etc. Suddenly the Dodger are worth nearly $4 per month per subscriber? Seems like fantasy.

But let's assume this fantasy is true and the Dodgers deal is now worth $200m a year in actual cash flow to them. They took over a negative cash flow team that had what, $60-70M in local TV revenues? So all those ticket sales, merchandise, mlb.com payments, parking revenues, etc weren't enough to get within $60M of break even, even with only a mid-level market payroll.

In the fantasy of increasing local TV revenues $130M-140M at a drop of a hat, they can now make $120M or so a year, on a $2.5B investment (with stadium improvements). Pretty spendy, but if revenues continue to grow over time, it could work out. If they backdoor borrow $1B, they will be making $50M a year on a $1.5B investment, and have to make cash calls to the partners during bad years.

The reality is the Angels deal was wildly over-sold by a team and a media partner that had huge incentives to, reports are the Angels will start out far below the deal's reported yearly average and it's only pie in the sky future estimates that get them to the gross deal value. Of course, it's possible that the Dodgers will be able to front load revenues just like the MLB prohibited McCourt from doing, as long as they aren't loaded with other debts. But that's just robbing Peter to pay Paul. If you expect revenues to grow 5% per year for 20 years, that's around a 165% increase, so if present day value were $100M a year, you'd end at $265M per year. I'm sure your partner would be happy to pay you $140M a year with no increases for 20 years instead.

I'd be surprised if the Dodgers see much more than a $50M increase in annual revenues in the next media deal. This appears to be nothing more than a huge ego driven vanity purchase.

The Dodgers 2011 revenue was $230 million according to Forbes. Their current local TV deal pays them $40 million a year.

Also, the Dodgers are only negative cash flow from the standpoint that McCourt is sucking off somewhere between $30-50 million a year into third party companies.

This is a fair deal. Then consider real US inflation is closer to 10% than 5%.

Actually around 2%, far below even 5%.

he Dodgers 2011 revenue was $230 million according to Forbes. Their current local TV deal pays them $40 million a year.

Also, the Dodgers are only negative cash flow from the standpoint that McCourt is sucking off somewhere between $30-50 million a year into third party companies.

$45M according to Forbes.

And if the team isn't really negative cash flow, then it isn't being sold? Cause Frank could have just turn off the sucking for a few years and skated through the crisis.

Obviously the Dodgers are at best, break-even on that $230M in revenues, even if you blame Frank for his "diversions". The new buyers still need a "magic" $150M a year in new TV revenues to justify their purchase. And remember, in these RSN deals, teams are ascribing value to their equity in the RSN. So even if the Dodgers new deal pegs out at $200M annually, a big chunk of that is likely to be speculative value locked in a minority ownership stake with massive sale restrictions. The Dodgers and their partner can get an accountant to claim the equity is worth $150M per year and it won't go one iota towards covering present day bills, and the claim won't be validated for decades.

VA, i hear you but i think you're minimizing the 'much more minor revenue sources'. i go to a lot of games, and i am not a big spender but its virtually impossible to walk out of the stadium without having paid out $30 for food and drink for me and my date. and i never buy merchandise. have you been to a MLB game lately? people are eating and buying like there's no tomorrow.

btw, where did you hear that the dodgers had a negative cash flow last year? from MLB? i don't believe a word they say.

considering that the dodgers only drew 64% of their capacity last year, and still managed just under 3 mil in attendance, i have to think the new owners are taking that into consideration. they are going to get a big bump this year just for the curiosity factor alone.
#7 says the reported gross was more like $230 mil last year. even if that's a high figure, the gross seems will within money-making range, and it only looks to get higher. it's not a slam dunk -- to mix our sports metaphors -- but none of those involved seem shy of hard work.

i know it sounds like a copout, but i tend to think the johnson-kasten-walter group know what they are doing.

I wonder if they're buying the team like people bought houses in 2007, "Even if the revenue streams don't work out, someone will just come along and pay an even higher sale price!"

This must factor in to some degree.

And if the team isn't really negative cash flow, then it isn't being sold? Cause Frank could have just turn off the sucking for a few years and skated through the crisis.

Apparently you are living under a rock and do not know that Frank and Jamie McCourt are getting divorced.

Inflation doesn't benefit them anymore than any other business.

It would benefit them if they were highly leveraged with long-term, fixed rate debt.

But, since I don't think that's true, no it won't help.

Fox has to worry about keeping its two sports networks on the cable tiers. The Lakers switched to a new network, as did the Pac 12. Without the Dodgers, they won't have enough content for two RSNs.

Five years ago the team was purchased, was mismanaged, and underperformed. Its owner was a major embarrassment, a notorious crime was committed at the park, attendance dropped. Meanwhile the national economy cratered. One can understand why a new ownership group thinks they can do better. Yet through it all, the estimate that the value of the franchise tripled turned out be be highly pessimistic.

It's a helluva brand.

Inflation doesn't benefit them anymore than any other business.

It would benefit them if they were highly leveraged with long-term, fixed rate debt.

LA times today reporting that it is a cash deal.

snapper, you and VA always have deep insight into the economic aspects of these transactions. we already know VA has sided with those who think its an overpay. do you feel that way too? i'll admit to being out of my depth here ... so talk to me like i'm a 4-yr old.

is it a bad deal? why? is it because guggenheim partners will never make their money back? they won't make it back as fast as they would if they had bought, say, a pharma co. or invested in bonds? what?

i have to say i've just never believed any owner or owner rep who says a MLB or NFL franchise is losing money or is a bad investment or whatever. it doesn't pass the smell test when you see these guys lined up around the block every time a franchise goes up for sale.

It seems like the last few ML team sales have been for amounts that were 20% - 30% over the Forbes valuation of the team. Does that mean we aren't seeing profit expectations that the buyers and owners know? Does it mean there is bubble for buying ML teams? Are there tax efficiencies for the buyers figured into these deals that our view doesn't take into account?

Is it just me or isn't a purchase like this meant for the long game? In other words, they are buying for what happens - and what they will try and make happen - by 2022 (or later), not 2014.

LA times today reporting that it is a cash deal.

I wonder if this is simply an "all cash" deal because Guggenheim has $2 billion in cash on hand, with Guggenheim intending to issue debt down the road. These deals are above my pay grade, but it seems unlikely that a financial company like Guggenheim would simply park $2 billion in the Dodgers in perpetuity. Somehow, somewhere, money will have to flow back from the Dodgers to Guggenheim or else this makes little sense for Guggenheim's shareholders and/or clients.

It seems like the last few ML team sales have been for amounts that were 20% - 30% over the Forbes valuation of the team.

The Dodgers deal is a huge outlier, but I believe Forbes was accurate re: the Astros sale. Keep in mind, the assets considered for the Forbes valuations aren't always the exact same assets bought and sold. The Astros deal, for example, included the team *plus* a large chunk of the new Houston RSN, which apparently wasn't part of the Forbes valuation.

the article in today's LA times that says the deal is a a cash deal. lots of links on that page to other info about the sale of the team. putting it here because i don't see the point in posting all this and starting a bunch of threads ...

Apparently you are living under a rock and do not know that Frank and Jamie McCourt are getting divorced.

then give Jaime her half of the team, don't sell your money machine!

Clearly it's reasonable to assume McCourt wasn't anywhere near the best operator in baseball. so it's likely the new guys find ways to boost existing revenues. But the fact that McCourt was forced to choose bankruptcy strongly says the numbers weren't that close to working. Obvoiusly we know the McCourts didn't squirrel away much of the loot they pirated. But he couldn't find another source of cash other than raiding future broadcast revenues. all of those ancillary revenues weren't enough to save him.

So I'm skeptical of the actual values and cash fliows in these new media deals. I'm skeptical that a better operator is going to find a ton of missing revenues. that doesn't mean I'm right, they certainly know many things I don't. But they also allegedly outbid the opposition by a huge margin, that doesn't seem savvy at all. I think it's a case if everything goes perfectly, they'll do well, but any significant glitch makes this deal sour quick. Im also not a PE expert, but I doubt many of their deals price as high as 10x sales, and the record of deals in that ballpark is pretty poor.

is it a bad deal? why? is it because guggenheim partners will never make their money back? they won't make it back as fast as they would if they had bought, say, a pharma co. or invested in bonds? what?

Whether or not the $2.15 billion price is justifiable depends almost entirely on the terms of the new TV deal. VA thinks that the new deal won't be dramatically different than the deal the Angels signed with Fox. If that is the case then this deal doesn't make sense. For this deal to make sense the new TV contract is going to have to be enormous ( probably $4.5-5 billion over ~20 years).

For this deal to make sense the new TV contract is going to have to be enormous ( probably $4.5-5 billion over ~20 years).

well the way the funny money is being thrown around here that wouldn't surprise me. fox needs the dodgers pretty bad, for one.

If the Dodgers really do sell for 2.15 billion I wonder how many other owners are going to cash out in the near future.

then give Jaime her half of the team, don't sell your money machine!

You are looking at the situation rationally. They were both more interested in screwing each over than maximizing the value of their assets. Although, it seems things are going to work out fine for Frank (I imagine Jamie will feel short changed).

So I'm skeptical of the actual values and cash fliows in these new media deals. I'm skeptical that a better operator is going to find a ton of missing revenues. that doesn't mean I'm right, they certainly know many things I don't. But they also allegedly outbid the opposition by a huge margin, that doesn't seem savvy at all. I think it's a case if everything goes perfectly, they'll do well, but any significant glitch makes this deal sour quick. Im also not a PE expert, but I doubt many of their deals price as high as 10x sales, and the record of deals in that ballpark is pretty poor.

I agree that there are not a lot of untapped revenues remaining. McCourt actually did a pretty good job of increasing revenue, but he did a better job of spending frivolously. I disagree that the Guggenheim bid is dramatically more than what the other final bids would have been. McCourt consummated this deal before the other groups presented their final offers.

The big change is the new TV deal and I would be surprised if Guggenheim hasn't already talked to Fox and Time Warner and gotten a pretty good estimation of what a new deal is going to look like.

If the Dodgers really do sell for 2.15 billion I wonder how many other owners are going to cash out in the near future.

If you're Fred Wilpon, wouldn't you at least have to consider selling? Guys like Cohen don't like losing out on major deals like the Dodgers. There might never be a better time to sell the Mets than right now. Has there even been a rumor of anyone else with Cohen's net worth sniffing around the Mets? (I suppose Wilpon might figure Cohen will always be a phone call away.)

How do you give her half? He's gonna have to give her cash and I doubt he has 700 million dollars laying around.

How do you give her half? He's gonna have to give her cash and I doubt he has 700 million dollars laying around.

It seemed like McCourt waited too long to pursue minority investor(s). By the time that idea came up, it seemed like MLB had already had enough of the McCourts. From the outside, it looked like McCourt was all-in on the TV idea until it was too late.

(And as poker pros like to say, all-in is a great play ... except once.)

Frank initially thought that he could get away with giving Jamie nothing because of the post-nuptial agreement. Once he realized that the agreement was worthless because Bingham McCutchen had blown it; it was too late to settle quietly because they had been torching each other in the press for months.

Once he realized that the agreement was worthless because Bingham McCutchen had blown it;

I had forgotten this issue was still pending. Is McCourt likely to collect from Bingham McCutchen on top of the sale windfall? Could he argue that, despite the $2.15B, he preferred to keep the team but couldn't because of the legal error?

I had forgotten this issue was still pending. Is McCourt likely to collect from Bingham McCutchen on top of the sale windfall? Could he argue that, despite the $2.15B, he preferred to keep the team but couldn't because of the legal error?

It seems like he could claim that he wouldn't have had to pay Jamie $131 million if the post-nup had been properly executed. Judging by McCourt's past he will definitely try.

But the fact that McCourt was forced to choose bankruptcy strongly says the numbers weren't that close to working.

Well McCourt did have some reasons for filing bankruptcy which had nothing to do with insolvency. For instance, MLB had appointed its own "trustee" and was blocking him from negotiating a television rights deal that would buy out his wife.

How do you give her half? He's gonna have to give her cash and I doubt he has 700 million dollars laying around.

Why would he have to give her cash? He could give her 50% of his Dodger stock. Or sold a portion to a tie breaking investor to generate cash, and split the remaining ownership with Jaime. He could have sold the team, and gave her half the proceeds. A judge can't force him to pay with imaginary net worth.

Well McCourt did have some reasons for filing bankruptcy which had nothing to do with insolvency. For instance, MLB had appointed its own "trustee" and was blocking him from negotiating a television rights deal that would buy out his wife.

Yes, but he arrived there because of the negative cash flow during his tenure, obviously if the team was significantly profitable, he never has any problem other than divorce.

But one important point I inadvertently missed was if the magic group was really paying cash, they don't have McCourts debt payments and that's got to be another big chunk of positive cash flow. But from what ive read no one really thinks they can do it without debt. If this was a dispassionate investment I think the bidding stops at $1.3B, around 6x existing revenues and maybe 4x potential revenues. But no pro sports franchise purchase is that way, these are extremely wealthy men with more money than they can ever spend, and don't want to leave it all to their kids and he government. There probably isn't anything that will give them more pleasure in their autumn years than this.

VA thinks that the new deal won't be dramatically different than the deal the Angels signed with Fox

Actually, I don't doubt it will be larger than the Angels deal, I'm just doubting the Angels deal is as big as they've claimed.

I disagree that the Guggenheim bid is dramatically more than what the other final bids would have been. McCourt consummated this deal before the other groups presented their final offers.

Why was the auction stopped early? First, it would seemingly open the auction to charges of favoritism. The only way it wouldn't is if the other bidders were informed of the magic offer and voluntarily declined to match it. Reports still have the other parties around $500m below the magic group, which makes sense, think they ask for time to huddle up to give adequate consideration to going higher if they were within 10%.

A judge can't force him to pay with imaginary net worth.

I didn't claim he would but I don't see McCourt or his wife being in a sharing mood. I also don't see how some share sale scheme would work. It wasn't working for the Mets and I doubt it would for the Dodgers either. At the end of the day what would happen is what happens in almost all divorces. You put your illiquid assets up for sale so that you can divvy up the cash.

If you're Fred Wilpon, wouldn't you at least have to consider selling?

No. He's 75 years old and presumably has enough money (or can siphon enough from the Mets as necessary) to live his desired lifestyle, he has no incentive to sell the baseball team he enjoys owning just because he can get a ton of money for it. One thing that VA is definitely correct on in this thread is that owning a major sports franchise is for many of these guys a decision where the monetary ROI is a secondary thing.

Why was the auction stopped early?

I thought the auction would end at 11:57 PM on March 31 (or three minutes before the deadline, if it wasn't midnight April 1). At first, I thought the news reports announcing Magic/Kasten/Walter as the winning bidder were premature, like an obituary that gets released by mistake. Per media reports, at least one of the other two finalists hadn't even arrived in NYC yet, and Bill Shaikin, who probably covered this saga and sale better than any reporter has ever covered a team sale, was on a flight to NYC when the deal was announced. (Talk about Murphy's Law: Two years of work and he was apparently on a flight with no WiFi when Magic/Kasten won.)

Interestingly, a fact that has been all but lost in the Magic/Kasten news is that McCourt reportedly tried to introduce a new bidder on Monday but was rejected by the mediator. I wonder who that could have been.

***

38 — Understood, but there's a big difference between enjoying owning a team and being able to afford to own a team. Per media reports, the Mets still have something like $400 million in debt coming due over the next year. I suppose the Dodgers' sale price might make it easier for the Mets to refinance debt, but unless that $400 million number is wrong, neither the Madoff settlement nor the recently sold minority shares appears to be enough to get them out of the woods.

No. He's 75 years old and presumably has enough money (or can siphon enough from the Mets as necessary) to live his desired lifestyle,

Family.

McCoy — Are you a Dodgers fan now? I remember two or three months ago you mentioned your employer might invest in an MLB team, but I thought you were talking about the Mets.

Only if he is handing out free tickets.

It wasn't working for the Mets

Wasn't that because of the potential Madoff liability? At least the debt to Jamie was known.

Why was the auction stopped early? First, it would seemingly open the auction to charges of favoritism.

It wasn't really an auction. McCourt wasn't under any obligation to choose the highest bidder, but it was assumed that he would sell to whoever offered the most money. The winner does need to be approved by the bankruptcy court, but since all of the creditors will be made whole there will be no issue there.

The Guggenheim groups's previous bid was for $1.6 billion which is also about $500 million less than the accepted offer. It isn't clear why McCourt chose to bypass the auction, but it is safe to assume: 1) he didn't leave much (if any) money on the table and 2) he thinks that the Guggenheim group is offering something the other groups weren't.

I can think of two possible explanations:

- Selling to Magic helps McCourt rehab his image. It doesn't really help, but maybe McCourt might think it helps.

- Guggenheim let's him be involved in the development of the Dodgers Stadium parking lots and the other groups would not. McCourt thinks of himself as a real estate developer even though he has never successfully developed anything. Being a partner in this development is important to his ego and trumps a little extra money.

Yes, but he arrived there because of the negative cash flow during his tenure, obviously if the team was significantly profitable, he never has any problem other than divorce.

He never had any problem other than his divorce.

ESPN is reporting that Frank McCourt will see no revenue from the parking lots unless there is 'future' development. In other words, he doesn't see any of the current parking lot money. http://espn.go.com/los-angeles/mlb/story/_/id/7752934/frank-mccourt-receives-no-parking-revenue-los-angeles-dodgers-sources-say

There are far better inflation hedges than wildly overpaying for a sports team.

No kidding. But who says these investors have all of their money in the Dodgers basket? Likely not. Wealthy people diversify. In just the past few years it has become clear sports media is going to go for a premium in the digital media age.

Inflation doesn't benefit them anymore than any other business.

Not true. There is significant real estate involved here.

I wonder if they're buying the team like people bought houses in 2007, "Even if the revenue streams don't work out, someone will just come along and pay an even higher sale price!"

This has to be the biggest factor. Nearly all NFL and MLB franchises have rapidly grown in value, well outpacing the general market for decades. We are bound to see the growth slow or end at some point. I do believe there is still room for sports revenues to double one more time before slowing.

I'm waiting for the education bubble to pop. Higher education has been inflated to absurd levels due to unlimited federally backed loan money.

#19 I wonder if the depreciation allowed is significant. Now that I think about it, assuming the use a 5 year schedule (which is common), you're talking about ~200 million a year. Or more than the team's payroll. Unless the rules have changed, it doesn't actually matter what the payroll is, the allowable depreciation is simply a function of the purchase price.

This has to be the biggest factor. Nearly all NFL and MLB franchises have rapidly grown in value, well outpacing the general market for decades. We are bound to see the growth slow or end at some point. I do believe there is still room for sports revenues to double one more time before slowing.

I was sure sports revenue growth was already slowing, but these media deals are saying that was just the recession, and your guess is probably a good one. When the real slowdown occurs, the last buyers won't be too happy.

Interesting question in Simers' latest column, which I haven't seen answered anywhere:

I still don't understand this investment firm's arrangement in owning the Dodgers. Can the firm fire Mark Walter? Or does the firm have to disappear before Walter disappears?

Maybe some of the money guys here know more about Walter and Guggenheim.