LOS ANGELES -- While Los Angeles sports fans celebrate the sale of the Los Angeles Dodgers to a group headlined by Magic Johnson for a record price of $2 billion, several sport economists believe the group paid close to twice as much for the team than it is actually worth and question the viability of the deal.
"It was an extraordinary and surprising price," said Andrew Zimbalist, a professor of economics at Smith College. "I rarely admit to not anticipating these things but I did not anticipate a $2 billion price. Keep in mind, in addition to the price, the new ownership group will have to invest something in the neighborhood of $300 million to refurbishing Dodger Stadium and that price does not include $150 million for the surrounding real estate. At the end of the day, you have to question this deal."
Pricey Acquisition
The $2 billion dollar price tag for the Dodgers is the largest sale price paid by any current MLB owner. Here's that list:
Team Year Price
Dodgers '12 $2B
Cubs '09 $845M
Red Sox '02 $700M
Astros '11 $615M
Rangers '10 $561M
Prior to the sale, many economists believed the price-tag of the Dodgers would surpass the $845 million the Chicago Cubs sold for in 2009, which was the most ever for an MLB team. Most figured it would be around the $1.1 billion figure the Miami Dolphins fetched three years ago, which was a record price for a professional sports team in North America. In the end, the sale of the Dodgers shattered both marks and set a world record, surpassing even the $1.47 billion Manchester United went for in 2005.
"It's the craziest deal ever; it makes no sense. That's why you saw so many groups drop out," said Mark Rosentraub, a University of Michigan sports management professor. "I don't get it. The numbers just don't work. It doesn't make business sense. Nobody came up with this number. Under the most favorable circumstance you broke $1.1 billion with $1.4 billion getting crazy. Now you're up in the $2 billion range, which is over $800 million more than what pencils out for a profitable investment for a baseball team. If making money doesn't count, this is a great move. But now we're into buying art and I can't value art. I can just run the model numbers and this doesn't make sense."
One of the biggest reasons the Dodgers sold for $2 billion is the regional sports network battle currently being waged in Los Angeles between Fox and Time Warner. Last June, commissioner Bud Selig rejected a proposed 20-year, $3 billion deal between the Dodgers and Fox. The decision, according to Dodgers owner Frank McCourt, pushed the team into bankruptcy and forced him to sell the team. Last December, the Angels agreed to a new deal with Fox worth at least $3 billion over 20 years, which helped the team land Albert Pujols and C.J. Wilson in free agency. Last year, the Lakers announced they would be leaving Fox to join Time Warner for a deal reportedly worth $5 billion over 25 years.
The Dodgers are expected to sign a similarly lucrative deal with Fox or Time Warner, or they could simply start their own regional sports network like the Yankees have with the YES Network. The problem economists have with the sale of the team being tied to the television contract is teams use their television deals as revenue to improve the team, not to offset the costs of overpaying for a franchise.
"One of the things that commissioner Selig was trying to avoid when he did not authorize the contract between McCourt and Fox was he thought McCourt would take the money and pocket it instead of using it to build the Dodgers," Zimbalist said. "That indirectly will happen anyway because McCourt is going to get his money and the new ownership will have to use a good chunk of the television money to pay off their asset purchase."
http://espn.go.com/los-angeles/mlb/...onomist-2b-los-angeles-dodgers-makes-no-sense
