The Dodgers' new ownership team paid $2 billion for the team and have a payroll over $200 million for 2013. They need a huge broadcast contract.
Better, it turns out, than they were a few weeks ago. The Dodgers — purchased by Guggenheim Baseball Management for $2 billion and with a 2013 payroll of almost $211 million — need to bring in a lot of revenue from a new broadcast contract. The team's current deal with Fox Sports, which concludes in 2013, is for $350 million.
That's peanuts compared to the crackerjack (Sorry! Ballpark humor...) deal that Fox and the Dodgers concocted and presented to Major League Baseball a couple of weeks ago, says Forbes' redoubtable sports business correspondent, Mike Ozanian: $6.1 billion, to create a hybrid regional sports network/renewal deal with Fox.
The size of that jump in the numbers should surprise no one. Guggenheim Baseball Management — a sort of sports-oriented private equity sub-firm created by Mark Walter of Chicago-based Guggenheim partners, Stan Kasten, and Magic Johnson — paid $2 billion for the Dodgers on the assumption that the broadcast contract would be ginormous.
However, as Ozanian points out:
[T]he next deal between the Dodgers and Fox, the baseball team’s current local television rights holder, may not provide enough revenue to the team because the annual dividend that would be paid by the broadcaster to the Dodgers would be subject to MLB’s 34% revenue-sharing tax.
He also reports that the Dodgers could skip out on another deal with Fox — and in any case, Fox's exclusive window to do the deal has closed, sending the Dodgers over to Time Warner Cable for discussions — and engineer their own regional sports network, along lines similar to what the New York Yankees have with the Yes Network. The unlikely hinge around which this would swing is...wait for it...Dick Clark Productions. Guggenheim Partners bought the company for $370 million last September. New Year's Rockin' Eve to Chavez Rockin' Ravine! Think about it.
It might not come to that, although the Yankees have seen Yes become highly profitable; it's more than tripled in value since 2001, to $3 billion from $800 million. Here's where an interesting wrinkle comes into the picture. Fox bought a 49-percent stake of Yes in November, so a deal with the Dodgers, if it happens, would Fox to broadcast both teams' games.
The bottom line is that whatever deal the Dodgers do has to justify the purchase price - $500 million over what many observers had expected and set a record for big-time sports team transactions. A bit of quick math reveals that that premium was $150 million more than the Dodgers' entire expiring deal with Fox.