On Saturday, a federal bankruptcy court approved owner Frank McCourt’s sale of the Los Angeles Dodgers to a group led by NBA Hall of Famer Magic Johnson and former Washington Nationals President Stan Kasten for a hefty $2.15 billion.
After contentious divorce proceedings with his estranged wife, McCourt declared bankruptcy in 2011 after he failed to meet baseball’s June 30 payroll requirements.
But despite that failure, McCourt will make more than $100 million from the sale, due to the Dodgers’ surprisingly exorbitant price tag. The franchise had been appraised at $1.4 billion — high already — but the Dodgers were considered to be an even stronger investment. But why?
In the wake of the sale, the Dodgers expect to sign a new television deal approaching $4 billion with Fox, Time Warner and others competing for exclusive broadcast rights. While this may on the surface appear to be an extraordinarily high price, sports — especially baseball — are increasingly lucrative targets for advertisers. Online television and recording has reduced much of the live viewing market, so sports is one of the last places advertisers can capture the attention of viewers.
While the NFL has recently inked the most valuable television deals, it is still limited by its 16-game schedule. Baseball, on the other hand, offers a 162-game season that spans a six-month period in a multitude of markets — including a variety of age, gender and ethnic demographics — and advertisers have started to take notice.
As a result, more TV money is flowing into Major League Baseball, already yielding noticeable effects on the game. As a result, the Cincinnati Reds, in anticipation of a new rights deal, signed franchise player Joey Votto to a 10-year, $225 million deal.
Votto is only the fourth player in history to sign a contract worth over $200 million, joining Alex Rodriguez (who has received two deals of that caliber), Albert Pujols and Prince Fielder. The deal has sent shockwaves through the league. It’s hard to find anyone who believes that Votto is worth almost as much as Rodriguez, Pujols and Fielder are, especially given the fact that Votto had yet to hit the open market.
But judging the deal now is unsound. Votto’s contract figures are being compared to deals made in a different economic climate. As teams have deeper pockets, contracts in the coming weeks, months and years will likely be larger as a whole.
Just like similar long-term commitments, though, it seems unlikely that a declining Votto at the end of his contract will still be worth $20 million a year, regardless of baseball’s overall financial condition. Still, mid-market teams often need blockbuster deals to hold onto their stars — just look at the Cardinals and Brewers’ losses of Pujols and Fielder, respectively.
With more money for owners and players, though, should fans expect anything different? Not likely. Given the exclusivity of the product, it’s hard to imagine that teams will cut ticket or concession prices. Unfortunately for those who fill the stands, the status quo will likely remain.
Still, an influx of money is good news for baseball. The expansion of playoffs has allowed more teams to remain in the hunt later in the year, and relatively small-market clubs, like the Rays, are fielding competitive teams, so baseball is in a solid position and should have a bright future.
Preston Barclay is a sophomore in the McDonough School of Business. TURNING TWO IN 202 appears every Tuesday.
