The new owners of the Los Angeles Dodgers will need more than great play on the field to justify the record $2.15 billion they paid for the baseball team. They may need to transform the real estate surrounding Dodger Stadium into a money maker, succeeding where their predecessors failed.
Exploiting the property’s value will take years, more capital and lengthy government review, said David Carter, sports business professor at the University of Southern California’s Marshall School of Business. Television rights alone won’t be enough, said Lee Ohanian, an economics professor at the University of California, Los Angeles.
“The most likely source could be development of that land,” Ohanian said in a telephone interview.
New owners led by Guggenheim Partners LLC Chief Executive Officer Mark R. Walter, sports executive Stan Kasten and former Los Angeles Laker Earvin “Magic” Johnson haven’t outlined plans for the 250 acres (101 hectares) near downtown. Past owners including Frank McCourt, who agreed to sell on March 28, unsuccessfully proposed everything from a team museum to a football stadium, leaving the area little changed since 1962.
“It’s a vital piece,” Carter said in a telephone interview. “It’s a longer slog to get there — they will get there — as opposed to licensing and media rights, which take a year or so.”
As part of the purchase, parking lots and undeveloped land surrounding the stadium were sold for $150 million to a joint venture of McCourt and affiliates of Guggenheim Baseball Management LLC.
The new owners will need to generate about $50 million in additional earnings a year, beyond baseball operations and TV rights, to produce an annual return of about 8 percent on their investment before taxes, Ohanian said. That’s because they paid $650 million more than the $1.5 billion he estimates the team to be worth.
“I was surprised by the $2.15 billion,” Ohanian said. “It didn’t seem to make sense.”
The Dodgers reported earnings of $11.3 million before interest and amortization in the 12 months ended March 2011, according to court documents. Ticket sales accounted for $102.9 million of the $286.5 million in revenue, followed by $49.9 million for broadcast rights.
McCourt had been seeking at least $1.5 billion for the team, people familiar with the bidding who asked not to be named because the process was confidential, said in February.
The $2.15 billion price tops the $1.1 billion Stephen Ross paid for the National Football League’s Miami Dolphins, a record for a professional sports franchise. The previous record for a Major League Baseball team was the $845 million that Joe Ricketts, founder of TD Ameritrade Holding Corp., paid Tribune Co. in 2009 for the Chicago Cubs and Wrigley Field.
Media rights have provided the biggest source of new revenue for major-league teams, said Michael Rapkoch, president of Sports Value Consulting LLC, who has provided studies for about 80 baseball, football, basketball and hockey franchises.
The Texas Rangers signed a 20-year, $3 billion TV contract with News Corp.’s Fox Sports in 2010 and reached the World Series the last two seasons. Last year, the Los Angeles Angels of Anaheim signed a similar contract with Fox, allowing them to acquire free agents Albert Pujols and C.J. Wilson. (credit Bloomberg)