Business Update with Mark Lacter

How the Dodgers' sub-par season could affect team finances

KPCC's business analyst Mark Lacter says poor performances on the baseball field don't necessarily mean a financial burden for the Dodgers.

Steve Julian: If you've been following the Angels and Dodgers, you know neither team's above .500; in other words, they've lost more games than they've won.  But, it's the Dodgers who have a new ownership group that's poured a LOT of money into the team.  Mark, they can't be too happy with the season so far.

Mark Lacter: They actually played very well last night, Steve, coming from behind to beat the Angels 8 to 7.  But, that still leaves them with a record of 21 wins and 28 losses - and, it still leaves them in last place in the National League West.  What makes the story especially bleak is that the new owners, led by the investment firm Guggenheim Partners, paid a crazy amount of money for the team last year ($2.15 billion, which is way more than anyone has ever paid for a sports franchise).

Julian: 
And then the players.

Lacter: 
Oh yeah.  They paid more crazy amounts of money for a bunch of free agents - giving the Dodgers the largest payroll in baseball.  Of course, deal-making is never a sure thing - Rupert Murdoch certainly discovered that when he bought MySpace in 2005, and then the social media site took a nosedive in popularity because of a little outfit called Facebook.  There also was the disastrous purchase of AOL by Time Warner, and the even more disastrous purchase of Countrywide Financial by Bank of America.

Julian: 
Now, to be fair to the Dodgers, it's still early - sort of.

Lacter: 
It is - not just for the season, but for the ownership.  And, let's not forget the huge number of injuries the team has faced, along with a couple of key players off to a bad start.  Of course, to succeed longer-term (and this is true for any business), you need more than a few breaks - the folks who follow this stuff say the real answer is to develop a strong farm system (as the Dodgers used to have), but that could take several years, and that's not fast enough for the fans who have been without a World Series championship for 25 years.  So, for now, they're trying to become competitive by signing the most talented players they can get their hands on.  The strategy makes sense, except that it doesn't seem to be working very well.  Money always helps, but it's never enough.

Julian: 
Let's keep things in perspective: this is just one season.  Does it really affect the owners?

Lacter: Frankly, not much.  The Dodgers remain an extremely valuable franchise, even if it turns out that the new owners overpaid a little.  That's because the purchase has been predicated on the massive amount of money available from television rights - $7 billion over the next 25 years.  Those are the basic terms of a partnership deal between the Dodgers and Time Warner Cable that would go a long way towards recouping what the owners paid for the team.  The Dodgers will effectively own the channel carrying the games - that's as of next season.  Time Warner Cable figures it won't have to renegotiate TV rights deals with the Dodgers every few years, which has been a real problem because the teams keep demanding more money.

Julian: 
It's not a done deal.

Lacter: 
No, it still needs approval from Major League Baseball, which might not be thrilled by the way the Dodgers have structured this partnership.  In a nutshell, baseball franchises are obliged to share about one-third of their local TV revenue with the other teams in the league.  But, the Dodger owners are trying to keep more of the money.

Julian: 
You have a piece in the June issue of Los Angeles magazine that lays out the strategy for Time Warner Cable.

Lacter: That's right - and it's not just the Dodgers.  You might recall that a similar deal was worked out with the Lakers, which has a channel called SportsNet that carries all the Laker games.  The cable company considers live sports to be a good bet for ad revenue because the viewer base is loyal, and the games are not available anywhere else.  Of course, any commitment going out so long - and involving so much money - has to be considered a risk.  You just never know how the sports or television landscape might change longer term.  But, for now, both the Dodgers and Time Warner Cable obviously figure it's a risk worth taking.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


blog comments powered by Disqus