The Los Angeles Dodgers – what message are they sending to Major League Baseball
A year ago, the Dodgers were in Chapter 11 bankruptcy protection before Guggenheim Baseball Management, a group led by Mark Walter, CEO of Guggenheim Partners and Mandalay Entertainment chairman Peter Guber, Guggenheim Partners president Todd Boehly and Texas energy investor Bobby Patton paid $2.1 billion for the Dodgers.
The baseball side of the Dodgers are managed by Stan Kasten the team president and the Dodgers General Manager Ned Colletti. The Dodgers spending spree while not unprecedented, has left the baseball world wondering what message the Dodgers are sending out to the baseball universe. The World Series may be played in October, the Dodgers are telling the baseball universe the World Series is paid for in December.
The Dodgers parent company Guggenheim Partners, LLC is a privately held, global financial services firm that engages in investment banking, capital markets services, investment management, and investment advisory. The firm is headquartered in New York City and Chicago with over 2,200 professionals located in 20 cities throughout the United States, Europe, and Asia. It has more than $160 billion of assets under its supervision.
Are the Dodgers using Guggenheim Partners considerable financial clout to build a World Series winner? The Dodgers are close to a local television right agreement that will pay the Dodgers between $6 and $7 billion over the 25-years of the proposed contract with Fox Sports Net, an incredible $280 million annually. Once the Dodgers local television agreement is complete, it will not only represent the largest local revenue stream any MLB has, the $280 million will be more revenue than all but five MLB teams generate from all of their revenue streams.
"I like our roster," Dodgers CEO Stan Kasten told USA TODAY Sports in the understatement of the winter. "Ned has tools now. If he wants to start making other moves, he can.
"Look, we would like to rely on a scouting and development system and copy what (the Tampa Bay Rays do), but we're not there yet. We're trying to do this right.
"There's not a one-size-that-fits-all road to success."
Major League Baseball remains the only sport of the four major North American sports to not employ a salary cap as part of its collective bargaining agreement (CBA). Major League Baseball uses a luxury tax (also called a competitive balance tax) with no salary cap to discourage high payrolls. Teams whose overall payrolls (40-man roster) exceed a pre-determined threshold must pay a tax on the amount by which they exceed the threshold.
The threshold for the 2012 season is $189 million. Teams who exceed the threshold for the first time must pay 22.5% of the amount they are over, teams who are over for the second time must pay 30%, and teams that have been over more than twice must pay 40%. Only four teams have ever exceeded the luxury tax threshold prior to the 2013 MLB season, the Boston Red Sox, the Los Angeles Angels of Anaheim, the Detroit Tigers, and the New York Yankees. Only the Red Sox and Yankees have exceeded it twice with the Yankees having contributed 95% of the total contributions, since the competitive balance was introduced prior to the 2003 MLB season.
The Dodgers began their spending spree acquiring Hanley Ramírez from the Miami Marlins in a trade on July 25. There are two years left on Ramirez’s current contract, $15.5 million in 2013 and $14 million in 2014.
The Dodgers woke up the baseball gods on August 25 when they picked up Josh Beckett, Carl Crawford and Adrian Gonzalez and their contracts from the Boston Red Sox. The Red Sox traded away $270 million in contractual obligations.
Beckett’s contract has two remaining years; Beckett will be paid $17 million per season for the 2013 and 2014 seasons.
The long team commitments the Dodgers have made:
Zack Greinke is about to earn approximately $147 million through 2018.
Adrian Gonzalez is owed $127 million through 2018.
Carl Crawford is due $102.5 million through 2017.
Matt Kemp has $108 million coming through 2019.
Andre Ethier is owed $85 million through 2017.
Ryu Hyun-jin is owed $36 million through 2018.
The Dodgers team payroll stood at $95.1 million in 2010, $104 million in 2011 and jumped to $154 million in 2012 after the Guggenheim Baseball Management purchased the franchise and the late season acquisitions of Ramirez, Gonzalez, Beckett and Crawford were factored in.
Frank McCourt and his wife Jamie took control of the Dodgers at the start of the 2004 season, the Dodgers payroll that year $89.6 million. The Dodgers payroll dropped to $81 million in 2005, rose to $98 million in 2006, $108 million in 2007, $118 million in 2008 and fell to $100 million when Frank McCourt began to lose control of the Dodgers in 2009, when his marriage to Jamie fell apart.
The McCourts bought the Dodgers in 2004 from Newscorp for a net purchase price of $371 million. With the $2 billion for the team and stadium, plus $300 million for the surrounding land and parking lots, including the $150 million worth of land contributed by McCourt, the selling price a total of $2.3 billion, just shy of $2 billion in appreciation in eight years.
"After a long and difficult road, the sale of the Dodgers is now complete, and I am pleased that the club can have the fresh start it deserves under new ownership," Commissioner Bud Selig said when the sale was completed on May 1. "I congratulate Mark Walter, Magic Johnson, Stan Kasten and all of their partners, and I look forward to working with them.
"In addition, I want to personally thank all Dodger fans for their patience and loyalty during this trying period. I have said many times that we owed it to them to ensure that the club was being operated properly and would be guided appropriately in the future. It is my great hope and firm expectation that today's change in ownership marks the start of a new era for the Los Angeles Dodgers and that this historic franchise will once again make the city of Los Angeles proud."
Is the Dodgers spending spree good for baseball. World Series are won on a baseball diamond, not on a piece of paper. The New York Yankees 2012 payroll was $197 million; the San Francisco Giants won the World Series, the Giants 2012 payroll $117 million. The Yankees 2011 payroll $201 million; the St. Louis Cardinals and their $105 million payroll won the 2011 World Series. The Yankees 2010 payroll was $206 million; the Philadelphia Phillies and their $141 million payroll won the World Series. The Yankees and their $201 million did win the 2009 World Series.
The Dodgers are it would appear to be committed to winning. They are signing key personal, in hopes of moving their business and the Dodgers brand forward. It remains to be seen if the Dodgers spending spree will be good for baseball, the Dodgers are working within MLB’s established rules to build their roster.
Major League Baseball has a comprehensive revenue sharing program, however the $10.4 million competitive balance tax million the Dodgers will pay in 2013 goes into an 'Industry Growth Fund' that MLB uses for player benefits and to promote the growth of baseball around the world. Money is distributed to smaller revenue teams, but that money comes from MLB's revenue sharing program, which is entirely separate and independent of the luxury tax.
For Sports Business News this is Howard Bloom
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