How does a faded Major League Baseball franchise– one that hasn’t won a championship in 24 years and has fallen into disrepair under consecutive floundering ownership regimes — get moved for the largest team sale price in pro-sports history? It all has to do with the licensing power of regional sports cable television.
The $2.15 billion sale price of the Los Angeles Dodgers this week came as a shocker to some people. But a likely bidding war for the team’s soon-to-expire TV licensing rights should turn more heads than an unassisted triple-play. There was widespread speculation Wednesday that the team’s next TV deal would go for around $4 billion.
Yes, subscriber growth has slowed down for cable and satellite operators, and ratings are down for cable programmers. But operators of regional sports channels are bullish enough about the long-term vitality of the multichannel business to sign sports teams to huge deals.
And the Dodgers, whose current TV deal expires in 2013, are poised to become a major beneficiary of that dynamic. Here’s how the bidding war shapes up:
The incumbent Fox (NSDQ: NWS) Cable Networks recently extended the region’s other Major League team, the Los Angeles Angels, to a 20-year, $3 billion agreement to stay on Fox Sports West, the fourth-biggest regional sports cable network in the U.S., with revenue of more than $282 million last year, according to research firm SNL Kagan. But next year, Fox will lose longtime tenant the Los Angeles Lakers, who signed a 20-year, $5 billion deal to help Time Warner Cable (NYSE: TWC) launch two new regional sports channels.
Losing the Dodgers would have a far-reaching impact on Fox, which could no longer justify charging cable, satellite and telco TV operators hefty carriage fees for spin-off channel Fox Sports West 2. In fact, Fox’s parent company, News Corp., actually bought the Dodgers in 1998 to justify the launch of that second regional channel. (News Corp., whose ownership of the Dodgers was never embraced by local media or fans, sold the team to real estate tycoon Frank McCourt for $430 million in 2004 — another ill-fated ownership run that ended Tuesday night when a private equity group fronted by Lakers legend Magic Johnson made its purchase.)
Fox has an exclusive negotiating window with the Dodgers through Nov. 30, but don’t be surprised if the team waits to test the open market. Time Warner (NYSE: TWX) Cable also wants to be able to charge operators for two channels. And having the Dodgers — whose summer schedule compliments the Lakers’ winter campaign — would justify paying a hefty license fee.
McCourt had a notoriously rocky run as owner of the Dodgers — a term that bottomed out a year ago with the near-fatal assault of a rival fan in the Dodger Stadium parking lot during opening day. His very public, very messy divorce from former wife Jamie, meanwhile, not only hurt his public image, it compromised the financial resources needed to run the team.
But not only is the Dodgers’ brand equity restored overnight by Johnson — who has parlayed local sports heroism into a solid reputation as one of Los Angeles’ bigger business power brokers — the ownership group he fronts seems more than poised to capitalize on the huge TV licensing opportunity.
Not only does Chicago-based investment firm Guggenheim Partners have experience with negotiating media deals, the ownership group also includes former Sony (NYSE: SNE) Pictures chairman and CEO Peter Guber, as well as Stan Kasten, a former baseball executive who has, in the past, carved out TV deals for the Atlanta Braves and Washington Nationals.
So stay tuned to the Dodgers’ upcoming media deals — the team is about to put up some big numbers again.