December 24, 2012 in Sports

Clueless or clued in, only time will tell

New Dodgers owners appear to be out of control, but are they?
Bill Shaikin Los Angeles Times
 

LOS ANGELES – Guggenheim Baseball bought the Dodgers this year for $2 billion, more than twice the amount ever spent on a baseball team. The new owners have not stopped spending.

Just last weekend, the team committed more than $200 million to two pitchers, one of whom never has thrown a pitch in a major league game. The projected player payroll next year stands at about $225 million, which means the Dodgers would dethrone the New York Yankees as the biggest spenders in baseball history.

In all, the Dodgers’ new owners have invested close to $1 billion in player contracts, stadium renovations and the purchase of controlling interest in the stadium parking lots.

Is this the folly of novice owners, or a shrewd business model?

Sports business analysts run the numbers, and they see red. Marc Ganis, a sports business consultant, said the Dodgers have to keep the payroll in line, attract more fans and corporate sponsors, and get them to pay more.

“They need a lot of things to happen right,” Ganis said.

Todd Boehly, one of the owners, said he has no doubt that Guggenheim will profit from the Dodgers. The ownership is poised to negotiate a record-setting local television contract that could bring three times what Guggenheim paid for the team.

When the local television windfall is added to the team’s share of the league’s national broadcast and Internet sales revenue, the Dodgers might be able to cover much of their payroll – perhaps all of it – without selling a single ticket, hot dog or beer.

Boehly said the team is already worth $3 billion.

Most industry analysts disagree, Ganis said, and do not believe Guggenheim would get back what it paid for the Dodgers if the team were sold today.

“It’s like your house being underwater,” he said. “It’s not worth what you paid for it. Five years from now, it could turn out to be a wonderful investment. No one knows.”

Boehly, in his first in-depth interview since Guggenheim took over the team, said the owners hope to extend the Dodgers’ reach into Mexico and Asia and use the team as a marquee property in what could become a sports and entertainment empire. Next up could be the acquisition of AEG, which could make Guggenheim the kingmaker for sports and concerts in Southern California.

“Our core strategy will prove itself out,” Boehly said. “We’ll be able to hold our heads really high.”

Timing is everything

The key owners of the Dodgers are Boehly and Mark Walter.

Boehly grew up in Virginia, a fan of the Baltimore Orioles. Walter grew up in Iowa, hundreds of miles from the nearest major league ballpark. The men run Guggenheim Partners, a Chicago-based financial services giant that controls more than $160 billion in assets.

When the Houston Astros went up for sale in the fall of 2010, Boehly and Walter took a look. In the six months that the Astros were on the market, two events persuaded the men instead to focus on the Dodgers.

First, Bud Selig, baseball’s commissioner, signaled his intention to oust Frank McCourt as the Dodgers owner. Second, Time Warner Cable signed the Lakers to a television contract that could be worth as much as $5 billion.

The Dodgers’ current television contract, which expires after the 2013 season, is worth $350 million.

“The timing made it very different than any other sports franchise,” Boehly said.

The winning bidder for the Dodgers would get to negotiate a new television contract in the first year of ownership, in the second-largest media market in North America, with Fox Sports and Time Warner Cable competing for the rights to the only marquee Los Angeles team available before 2032.

“There is only one Dodgers,” Boehly said. “It’s not, ‘Oh well, if you don’t get this one, you can go get that one.’ ”

Boehly, president of Guggenheim Partners, and Walter, the chief executive, each contributed $100 million of their own money toward the purchase of the Dodgers. Three other investors put in a total of $175 million, according to records obtained by The Times. The majority of the money used to buy the team – more than $1 billion – came from insurance companies managed by Guggenheim Partners and controlled by Walter.

Since the season ended, Guggenheim Baseball has poured $100 million into renovations – new scoreboards, new clubhouses, reliable Wi-Fi and cellphone service, and more – without deciding whether to build a new ballpark.

If Walter and Boehly were to buy AEG, they would have full ownership of the Dodgers and Kings, partial ownership of the Lakers and control of Dodger Stadium, Staples Center and L.A. Live. They could consider building a football and baseball stadium downtown, then leveling Dodger Stadium and developing what would be the largest chunk of vacant land close to the city center.

Criticism nothing new

The Dodgers purchase was not the first time Walter and Boehly had been criticized for overspending.

Guggenheim Partners last year bought Dick Clark Productions for $370 million, a price deemed wildly high by entertainment industry analysts. With Dick Clark Productions came the Golden Globe Awards and American Music Awards.

Walter and Boehly first branched into entertainment and media in 2009, looking for new places to invest their growing pool of billions. They bought Billboard magazine and revived the Billboard Music Awards.

“The only way to be relevant in this world, in my opinion, is to own live content that brings people together – not physically, but through networks,” Boehly said. “That type of interactivity is programming that is extremely valuable. It’s not like it’s the box talking to you. And it’s only going to get more interesting as the interactivity develops.”

Sports was the perfect match for the two partners. Fans devour team programming, buy tickets or merchandise on the team website, and follow the games with other fans via blogs or Twitter. The Dodgers could tie into the other businesses, too – for example, Dick Clark Productions shows could be included in a team television deal.

There’s a widely held belief in baseball circles that Walter and Boehly need the money from a new television contract to reimburse the insurance companies for their contribution toward the Dodgers’ purchase price.

In reality, Boehly said, the Dodgers are an investment for the insurance companies – one that will be repaid over time, with interest, rather than with $1 billion from the TV deal.

So here come the upstarts, declaring that they will make a profit on baseball – not by fixing the Dodgers up and selling them, but by turning an operating profit.

“We absolutely will,” Boehly said.

Walter is the name atop the Dodgers franchise now, the controlling owner. To talk about a legacy less than one year after entering the world of pro sports ownership might be premature to some, but not to Boehly.

“At the end of the day, I think Mark probably is going to be one of the most enlightened owners in sports franchise history,” Boehly said, “because of how thoughtful he is about how the pieces work together.

“So he is perfectly aligned with giving the fans the best experience, because that is what creates the most value.”

Boehly was asked how he would define successful ownership of the Dodgers.

“You’re not really asking me that, are you?” he said. “The more World Series we win, the more valuable a franchise it is, right?”

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