DODGER GREEN-What a difference a year makes.
As the Dodgers begin a critical three game series against the second place Giants, they lead the National League West by a half a game. Attendance is up 13% as enthusiastic fans have returned to Dodger Stadium now that Boston Frankie is out of the picture, at least for the time being. And the payroll has increased by over $20 million since the beginning of the year as the new owners have signed Andre Ethier to a long term contract and have aggressively sought out other high priced talent.
There is also lots of action going on behind the scenes as Guggenheim Baseball Management, the investment partnership that purchased the Dodgers and 50% of the surrounding real estate, seeks to maximize the return on its investment.
Underlying the bonkers $2.15 billion purchase price for the Dodgers is the perceived value of its broadcast rights and the ability to reach almost 15 to 20 million people in baseball crazy Southern California.
And this value is further enhanced by the fact that there are two competing buyers, Fox Sports and Time Warner Cable SportsNet, both of which are determined to be the leading regional sports network for Southern California.
Fox Sports is currently the leader. It has the rights to the Dodgers through the 2013 season. They also have the rights to the Anaheim Angels, the LA Kings, the Anaheim Ducks, the Clippers, and Chivas USA as well as to selected college sporting events.
Time Warner, on the other hand, just swiped the Lakers from Fox Sports by agreeing to 20 year deal with a reported value of $3 billion. And while Time Warner has the MLS Galaxy and the WNBA Sparks, they need the Dodgers and their 162 games a year to round out their offering so they can be competitive with Fox Sports.
But Fox Sports has a significant advantage in that they have the broadcast rights to the Dodgers through the 2013 season. They also have exclusive negotiating rights through November 30, 2012. These circumstances will allow Fox Sports to bump the payment for the 2013 season, resulting in an instant cash infusion of over $125 million into the Dodgers’ coffers that would help fund the increased payroll, the anticipated improvements to Dodger Stadium, and payments to its lenders and investors.
On the other hand, Time Warner is a less established player in the Southern California media market. As such, the Dodgers would be able to own a significantly more equity in this relatively new venture.
The Dodgers also have another advantage relative to other media rich teams in that its revenue sharing is capped at $84 million as a result of the settlement agreement between Major League Baseball and Boston Frankie. Therefore, any revenue over $84 million is not subject to the 33% MLB revenue sharing tax. This will result in a “savings” of $40 to $50 million a year, depending on the value of the media rights.
Of course, this provision resulted in a higher purchase price, probably adding $400 to $500 million to the value, much to the benefit of the most hated man in all of baseball who unfortunately still has an ownership interest in the real estate surrounding Dodger Stadium.
Regardless of whether the media rights are sold outright or whether the Dodgers are major equity participants in a regional sports network or whether the Dodgers form their own Dodger Network, the value of the broadcast rights will most likely exceed $200 million a year, substantially more than the $150 million that Fox Sports is reportedly paying for the lesser rated Angels.
But who will foot the bill for this $200 million ticket?
Very simply, you will, provided that you are a cable TV subscriber. And not only will you have to pay for the media rights, but also for the production expenses and the substantial profits of the regional sports network. Overall, we will eventually get tagged for about $400 million, double the cost of the media rights, or about $6 or $7 a month.
One of the questions is whether the regional sports network subscriber fees should be buried in our basic cable rates, where all the programming costs are bundled into a single monthly rate, where you have no clue about the cost of individual channels.
Or should the regional sports network be a premium channel like HBO and the NFL Network that requires an additional payment each month?
More than likely, the subscriber fees for the regional sports network will be buried in our basic cable rate along with the fees for ESPN (by far the most expensive channel), TNT, AMC, CNN, Fox News, Fox Sports, and all the over the air broadcast networks. This will allow the regional sports network to charge higher rates for its advertising since there will be more viewers.
But after a while, subscribers will rebel at the never ending increases in their monthly cable bills and pressure the politicians to allow consumers to “unbundle” or select only those channels that they want.
Over the next few years, we can expect to see significant changes in the Dodgers as it morphs into a well run franchise with a big city payroll, a remodeled stadium and parking lot, and hopefully, a World Series ring or two.
And we can also expect a number of transactions from the financial wheeler dealers from Guggenheim Partners and its undisclosed owners as they are able to monetize the Dodgers’ success on the field.
But who cares, as long as we have a winning team with affordable ticket prices that can help us block out the financial fiasco that is driving the City and the State to insolvency.
(Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com. He can be reached at: [email protected]) –cw
CityWatch
Vol 10 Issue 67
Pub: Aug 21, 2012