Thursday, March 29, 2012

Magic Johnson saves the Dodgers

Late Tuesday evening, Frank McCourt sold the Los Angeles Dodgers for $2 billion to an ownership group led by Magic Johnson. The purchasing group includes Mark R. Walter as its controlling partner, as well as Johnson, Peter Guber, Stan Kasten, Bobby Patton and Todd Boehly. McCourt and certain affiliates of the purchasing group will also form a joint venture to acquire the Chavez Ravine property for an additional $150 million.

The once-proud franchise had been driven into bankruptcy protection by McCourt last June when they couldn't meet player payroll or pay bills after MLB Commissioner Bud Selig declined to approve a $3 billion agreement between FOX and the Dodgers to extend their television broadcast rights.

Based on a settlement with MLB and overseen by the bankruptcy court, McCourt had until April 1 to identify a winning bidder. The deal must close by April 30, the same day McCourt must pay his former wife, Jamie McCourt, a $131 million divorce settlement.

There were three final bidders in the auction conducted by Blackstone Advisory Partners on behalf of McCourt -- the winning group of Guggenheim, Johnson and Kasten; billionaires Steven Cohen and Patrick Soon-Shiong and agent Arn Tellem; and Stan Kroenke, owner of the St. Louis Rams.

The McCourts bought the Dodgers in 2004 from FOX for a net price of $371 million. With the $2 billion for the team and stadium, plus $300 million for the surrounding land and parking lots, the selling price is a total of $2.3 billion, just shy of $2 billion appreciation in eight years.

A spokesperson for the Los Angeles Dodgers stated, “This transaction underscores the Debtors’ objective to maximize the value of their estate and to emerge from Chapter 11 under a successful Plan of Reorganization, under which all creditors are paid in full.”

Frank McCourt stated, “This agreement with Guggenheim reflects both the strength and future potential of the Los Angeles Dodgers, and assures that the Dodgers will have new ownership with deep local roots, which bodes well for the Dodgers, its fans and the Los Angeles community. We are delighted that this group will continue the important work we have started in the community, fulfilling our commitment to building 50 Dream Fields and helping with the effort to cure cancer.”

Earvin "Magic" Johnson stated, "I am thrilled to be part of the historic Dodgers franchise and intend to build on the fantastic foundation laid by Frank McCourt as we drive the Dodgers back to the front page of the sports section in our wonderful community of Los Angeles."

The sale represents a game changer for the sports industry. Before Tuesday night’s $2 billion sale, Stephen Ross’ $1.1 billion purchase of the Miami Dolphins in 2009 represented the most a North American based sports franchise had ever been sold for.

The $2 billion sale of the Dodgers increases the value of many sports franchises. If the Dodgers were sold for $2 billion, what could the Steinbrenner family sell the New York Yankees for? If Jerry Jones was interested in selling the Dallas Cowboys, Jones could expect to sell the team for more than $2.5 billion, based on the selling price the Dodgers. The Yankees and the Cowboys represent stability, and like the Dodgers, brand power. Both the Yankees and Cowboys have strong leadership and ownership in their respective front offices. The Dodgers, under Frank McCourt, are at the other end of the spectrum, a sports franchise forced into bankruptcy protection.

After a failed attempt to purchase the Boston Red Sox in 2002, Frank and Jamie McCourt bought the Dodgers in 2004 for $377 million. The Dodgers, one of sports more fabled sports franchises, went from baseball’s penthouse to the sports’ outhouse in one short year, largely because of McCourt’s very messy and public divorce from his ex-wife Jamie.

“The Dodgers are in bankruptcy because Mr. McCourt has taken almost $190 million out of the club and has completely alienated the Dodgers’ fan base,” one baseball attorney wrote.

The Dodgers bankruptcy reeked of a business run amok under Frank and Jamie McCourt.

"Frank and I enjoyed the many perquisites and benefits that come with owning a Major League Baseball team," Jamie McCourt wrote in a court declaration.

In court documents, Jamie McCourt wrote of combined salaries for both McCourts in excess of $7 million a year, $46 million to buy side-by-side oceanfront estates in Malibu, $27 million to buy side-by-side homes near the Playboy Mansion, additional properties in Massachusetts, Montana, Colorado, Wyoming and Mexico, $400 dinners and $1,000-a-night hotels, private jet travel around the world, even house calls from hairdressers and makeup artists.

Their lifestyle was Lavish, perverse and completely over-the-top, to say the least. Whatever Jamie and Frank McCourt believed it took to own a sports franchise, they seemed to have forgotten the responsibility that comes with owning any sports franchise. You own the franchise in name only, the real owners are the fans who support and believe in their team.

The Dodgers represent a great deal to MLB. Based in Brooklyn, Dodgers General Manager Branch Rickey signed Jackie Robinson to a contract in 1946, breaking baseball’s color line. Appropriately, Magic Johnson becomes MLB’s first African-American owner.

As a businessman, Magic represents what the Dodgers need to restore their credibility. He runs Magic Johnson Enterprises, a company that has a net worth of $700 million; its subsidiaries include Magic Johnson Productions, a promotional company; Magic Johnson Theaters, a nationwide chain of movie theaters; and Magic Johnson Entertainment, a movie studio.

In 1994, Johnson became a minority owner of the Lakers, having reportedly paid more than $10 million for part ownership. He also held the title of team vice president. Johnson sold his ownership stake in the Lakers in October 2010. In 2006, Johnson created a contract food service with Sodexo USA called Sodexo-Magic.

The Dodgers day-to-day baseball affairs will be managed by Stan Kasten, who was the Atlanta Braves general manager during the 14 consecutive years the Braves made the playoffs. Kasten played a key role in MLB’s return to Washington for three years after he left the Braves.

"When you're talking about Magic and Stan Kasten, you're talking about people that have been a part of many championship clubs," current Dodgers General Manager Nick Colletti told "Magic and Vin Scully are two of the biggest names in the history of Los Angeles sports. It's important how deep in L.A. roots this group brings. In Magic, he's not only a Hall of Fame basketball player, but a great businessman in the city. It's a great combination.

“You think about Stan and Magic, they are guys that have won a lot. It's paramount with what they do," Colletti said. "They are all about winning. We're a good club with a chance to be better than good. Look at what Stan did in Atlanta, it's pretty impressive. Magic, in a lot of areas, has been remarkable. This group, and what I know of Guggenheim, they're about top-shelf people, top-shelf entertainment. They are very, very focused on being the absolute best."

John Henry, Tom Werner and Larry Lucchino purchased the Boston Red Sox in 2002. In the ten years the trio has owned the Red Sox, the franchise won their first World Series in 86 years in 2004 and again in 2007. Fenway Park, the home of the Red Sox, has been sold out for every game since May 16, 2003, a streak that is now at more than 700 games. Henry, Werner and Lucchino bought the Red Sox from the Yawkey Foundation and have increased the Red Sox’s brand and value from $380 million to $1 billion, per Forbes has listed as the 2012 valuation.

Forbes determined the 2012 Dodgers are worth $1.4 billion. Did the new owners pay more than they should have for the Dodgers? Yes and no. An auction for the Dodgers had been scheduled for Wednesday. McCourt negotiated an agreement that “satisfied” the team’s creditors. McCourt will make a great deal of money from the proposed sale.

According to Forbes: starting with the $2 billion sale, subtract $70 million for expenses associated with selling the team and $573 million in team debt; taxes of about 25 percent – bringing the subtotal down to just over $1 billion. Then McCourt owes his wife $131 million in the divorce settlement and another $25 million in legal fees.

There are tremendous possibilities for the Dodgers new ownership group. The owners will be able to sell the Dodgers local television rights. McCourt had sold the Dodgers local media rights to Fox Sports for more than $3 billion last April. The new group will be free to negotiate a new agreement with Fox Sports or Comcast cable, which are in the midst of launching their own Southern California-based regional sports network, or create their own regional sports network along the lines of what the Yankees did with the YES Network ten years ago.

The sale of the Dodgers for $2 billion, the right people in the right place at the right time, buying the right sports franchise, is a grand slam for the Dodgers, their fans and Major League Baseball.

For Sports Business News, this is Howard Bloom

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