Major league sports teams are playthings for rich guys, so one way to measure how rich the rich are in 2012 is by the going rate for sports teams. And, judging by the amazing price that Frank McCourt got for the Los Angeles Dodgers from a consortium of rich guys fronted by retired NBA star Magic Johnson, the rich are very rich these days. Economist Andrew Zimbalist told ESPN:
"Here's a guy [McCourt] who borrowed practically all the money to buy the team for $430 million [in 2004] and now he's selling it for $2.15 billion and he's coming out with a healthy capital gain -- it's repulsive. This is someone who doesn't deserve to walk away with a healthy profit after eight years of running the Dodgers in the most egregious, the most inefficient, the most self-interested, and the most vainglorious, idiotic way possible. It really is repulsive that he will still be making a profit in some way."
C'mon, Andy, don't hold back. Tell us what you really feel.
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."
The theory is that the Internet will deliver most pre-recorded entertainment cheaply, so cable TV needs live entertainment to keep charging huge monthly fees, so that means sports. But, baseball is a great game for the age of radio (the Dodgers' announcer Vin Scully, has been with them since 1950 in Brooklyn).Is baseball really the Televised Sport of the Future?
Dodger Stadium, which opened fifty years ago at the peak of Southern California's arc in 1962, is a rare Modernist structure that's beloved by the public. It was designed for a more egalitarian age, with a big seating capacity (56,000) but not a lot of luxury. The trend in recent years has been toward smaller ballparks catering toward the corporate entertainment crowd.
The neighborhoods around Dodger Stadium are gentrifying as interest in urban living continues to grow, so the new buyers might have some kind of plan for home construction on the surrounding parking lots or undeveloped land. But, still, the stadium is on a small mountaintop, so it's hard to see how they could pull that off.
So, either the winners badly overpaid (but even the runners-up in the auction offered more than for Manchester United), or rich guys have a lot of money in 2012.
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When neoclassical economists speak of “inflation,” they mean mainly commodity price inflation (and sometimes wage inflation).
But here is an example of asset-price inflation. An asset is worth whatever banks will lend against it. This is a function not only of the interest rate (which determines the capitalization rate), but the down payment, the maturity (amortization rate), tax policy (how much ebitda is available to be paid as interest and amortization), and of course the (dis)honesty of the loan application.
Asset-price inflation does NOT simply reflect discounted projected earnings. It can be inflated by Bubble Economy policies which is the foundation of contemporary US political economy.
Neoclassical economics looks at the economic system as operating on barter. This is nonsense and a distraction. Credit is created on computer keyboards with a given number of keystrokes, electricity and the legal privilege to create marketable credit, backed by government guarantees.
"So, either the winners badly overpaid (but even the runners-up in the auction offered more than for Manchester United), or rich guys have a lot of money in 2012."
I almost wish I could return to the days when you were such a god to me I hung on your every word as ultimate truth.
Now for present reality.
First, speaking of Manchester United, has the value of US sports teams recently become measurable in euros or pounds or yen? That lot of money the rich guys have could equate to the amount of inflation we are currently experiencing.
Secondly, how much are you paying for gas there in LA.?
Thirdly, are you still driving that crappy Honda?
Fourthly, what happens to clay feet when it rains?
This is someone who doesn't deserve...
So an "economist" is talking about 'deserving' or not where business and profit are concerned. I find that interesting, albeit not unique. Anyone can understand the emotion behind such utterances, which I've always found vaguely ... neo-socialist (not to mention childish), as in 'from each according to his ability, and to each according to his need' -- i.e. exactly what did he do to earn that money?
Anyway, congratulations to Mr McCourt.
I'm sure the Libertarians will be along shortly to point out how much economic value McCourt created for society.
The explanation for the appreciation in the Dodgers value seems to be that, because of DVRs, iTunes, etc. live sporting events have become the only reliable place for advertisers to buy time. So the value of any media property connected with live sports broadcasting is booming. Even if the actual franchise is sucking wind.
"Asset-price inflation does NOT simply reflect discounted projected earnings. It can be inflated by Bubble Economy policies which is the foundation of contemporary US political economy."
Not being a baseball fan (this is the right sport for the article?), I'd still wonder that maybe a third inflationary option is available here. The article describes the team as being badly mismanaged by McCourt. And the dodgers have generations of loyal fans, don't they?
Could it be love driving the price to the moon in the fans' rush to be the one to save their team at any cost? Aye, to be loved like that baseball team!
You missed a possibility: that there is something that is not known about the transaction. Your last option "rich guys have lots of money" doesn't make economic sense unless you think that every sports franchise is undervalued by 40-50%. And not just sports, as rich people also have options to buy art, exotic cars, etc rather than sports franchises.
What I find interesting is the obvious optimism built into their future assumptions of California's economy in the coming years. If the wealthy are really driven away by rising taxes and reduced public services and more crime, there is no way this deal makes sense. Maybe they think that since Latinos like baseball and LA is becoming more latino this is a good bet?
Finally, I wonder if the NFL coming to LA would help or hurt the valuation? IT would be competition for the entertainment dollar and take up real estate on the sports pages but it might be part of the development of Chavez Ravine.
Old-fashioned East L.A. Mexican-Americans love the Dodgers, but baseball is getting squeezed out in Mexico by soccer, so the newcomers aren't as excited by memories of Fernando Valenzuela in 1981.
Other places that play baseball are the Dominican Republic (eh), Venezuela (eh), Japan (have leagues of their own), South Korea (interesting), and Taiwan (very interesting ... _if_ they could somehow talk the Mainland Chinese into following baseball instead of soccer, but I've never heard of any interest in baseball in China at all.)
The general trend over the last 20 years is that team sports don't spread much across national borders, except soccer, which, at present, looks like a juggernaut.
Ironically in the Omar Thornton article you linked to on the sidebar was a photo gallery with photographs of Trayvon Martin and George Zimmerman.
How is that LA has a $2 billion baseball team, but can't keep or get a football team?
It is absurd that Jacksonville, a run down little excuse of a town and the #47 US TV market, has an NFL team but LA does not.
Either they expect the mythological LA NFL franchise to play in Dodger Stadium, or they're going to revive gladiator blood sport.
The second would be awfully fitting for an empire in terminal collapse.
The components of financial and legal capitalism that facilitate this valuation are to be found in what ever tax and accounting breaks Frank McCourt managed to finagle when the Dodgers were circling the drain in bankruptcy.
The mainland Chinese do compete in the World Baseball Classic -- although this may be more as a desire to overshadow the Taiwanese rather than a true interest in the sport.
Baseball works when you're streaming audio, too, like radio. I bought the MLB's app for about $15, and now I can listen to almost any game in the league. It's a great deal. So maybe there's an internet future.
Of course, you have a lot of statistics geeks who are now being pulled in by having all sorts of data at their fingertips.
Here in Houston, the Astros are a cellar team, but they're trying to work on making a ballpark visit something a fun get together for families. They've cut ticket prices slightly, they've cleaned up the stadium, and they're letting people bring their own food. They're also pushing to have kid-friendly tailgating parties.
I don't know if all this is a genius marketing move by the new owners, or just a desperate ploy to make up for moving the Astros to the American League West, where the team is sure to do even worse than it has in the NL Central. I guess we can at least give those '62 Mets a run for their money.
Steve i just saw an la weekly article that says mccourt is holding on to ownership of the parking lots. So he keeps the development upside even after selling
"The general trend over the last 20 years is that team sports don't spread much across national borders, except soccer, which, at present, looks like a juggernaut."
From what I've heard, there's lots of international interest in the NBA, though the only case I'm sure of is the Philippines w/r/t the LA Lakers.
" The article describes the team as being badly mismanaged by McCourt. And the dodgers have generations of loyal fans, don't they?
Could it be love driving the price to the moon in the fans' rush to be the one to save their team at any cost?"
Not that kind of mismanagement mostly, he bought the team with debt then piled on lots more debt to give his family money. The team was bankrupt before the sale, basically. Theyve been ok on the field.
Imagine taking someone's game of monopoly over mid-game, mortgaging all the properties, picketing the money, and then being offered a ridiculously large amount to stop playing.
Nice work if you can get it and have no conscience.
Gottfried on education.
It'll be interesting to see what happens to sports when the sports franchise bubble bursts. Player salaries will have to reverse course... how will the unions react to that?
Most super rich guys don't make stupid investments on purpose, because when they do they don't stay rich for long, which is why this asset bubble is unsustainable.
Unfortunately the old owner split the parking lots into a separate business entity and they weren't part of the sale, so McCourt would benefit from redevelopment of the surrounding parking lots.
Television rights are interesting. Because of the NFL's national contracts, versus MLB's regional contracts, the NFL has lagged behind MLB in their online revenue. Major League Baseball Advanced Media (MLBAM) is the most profitable online arm of any sporting league in the world. Those regional television contracts currently prevent fans from streaming their home town team's game, but fans across the country still have access to around 2,400 games online each season for just $130 (and can be streamed from tablets, smart phones, the Roku and similar products, computers and video game systems).
Steve, in reference to your comment above, Japanese baseball isn't on the rise. Attendance is down and the nation hemorrhages it's top talent to MLB, where Japanese interest follows. Where baseball is growing is in Korea. A gold medal in the last Olympics to feature baseball, followed by a second place finish in the last World Baseball Classic (baseball's equivalent of the world cup) has raised the sport's profile in Korea. Attendance is up significantly and money is now flowing into the professional game.
i've tried to tell you guys about the lie. "Winning is the only thing that matters." totally wrong and not true at all.
but people will continue telling me about how every team is simply trying to win games and every decision they make is based on winning and nothing else. the best players play, always. if they aren't playing, it's because they can't play. every owner is trying to win as hard as he can, every time. every coach is trying to win as hard as he can, every time. every player is trying to win as hard as they can every time. blah blah blah.
in reality there are often rather big market inefficiencies in organized league play professional sports. the inefficiencies have actually gotten larger, not smaller, over time. now some teams are run strictly to make money and there is no attempt whatsoever to win anything.
"It'll be interesting to see what happens to sports when the sports franchise bubble bursts. Player salaries will have to reverse course... how will the unions react to that?"
the NBA sports franchise bubble already burst. that was what the 2011 lockout was about. unfortunately for them, they didn't fix any of their problems. player salaries did not decline enough to prevent many teams from losing tens of millions of dollars a year again.
i've started to think david stern and adam silver and their sycophants at ESPN have begun to believe that basketball is "special". that despite hoops being clearly throttled by reality, and being shown over and over again to not be nearly as popular as they demand we all think it is, they will continue on anyway. the NBA would rather lose 200 million dollars a year forever, than admit, americans just don't want 30 NBA teams, and 2 or 4 teams should disappear from existence right now.
admitting this would be the same as admitting that their 10 africans juggling an orange ball, which is what the NBA offers eastern conference fans in particular, is not by far the most important thing on every american's mind - and the NBA can't have that.
the NBA even pays to keep the WNBA in existance. without that deliberate artificial process, the WNBA would have disappeared from years ago. the market spoke, and it doesn't want women's hoops. in fact, i've been working on an article about the vast, colossal disparity in spectator interest, and salary, between women's tennis, and women's hoops. you could add women's golf as well, but as steve knows, i'm kind of a competitive golf hater.
"rich guys have a lot of money in 2012"
Inflation will do that. $2 billion doesn't buy what it once did. You can't even get an aircraft carrier or chip factory for that!
They overpaid. The Dodgers depend basically on TV deals, really how many White cable-paying fans are left? By contrast the Yankees, have a pricey stadium that charges premium prices, and a big cable base of customers with money who subscribe.
The fan base at Dodger Stadium is a bunch of drunken gang bangers. That's who attends. The Stowe beating was inevitable at some point. The economics don't pencil out.
I saw a game in Chavez Ravine back in 1972. Carlton threw a one-hitter and knocked in the game's only two runs with a triple.
I almost wish I could return to the days when you were such a god to me I hung on your every word as ultimate truth.
Most people gain wisdom as they age.
And then there is you.
Unfortunately the old owner split the parking lots into a separate business entity and they weren't part of the sale, so McCourt would benefit from redevelopment of the surrounding parking lots.
Incorrect, they were sold with the rest.
High-definition has spoiled some of the pleasure I used to take in watching televised baseball, by crisply articulating every last sparkling particle of spit and who-knows-what-else that comes out of players and coaches mouths during play. A Martian who tuned in without understanding the sport would be straining his intellect trying to figure out what how spitting, which takes up as much if not more screen time than play, fits into the game.
The rumor about the parking lots probably stems from the fact that McCourt made his money buying vacant lots in Boston and running them as lots. He then became a major stakeholder in Southie and South End redevelopment.
He had what some considered a choice piece of land in South Boston that he thought would let him get into the deal to by the Sox from Yawkey trust. At the time a lot of people were excited by the possibility of the Red Sox in a waterfront park.
Unfortunately for him, hedge fund Billionaire John Henry didn't need to cut McCourt in, so he bought the Dodgers.
With this deal, he makes Trump look like a chump...
The fact that McCourt has ended up as co-owner of the choice land surrounding Dodger Stadium is remarkable, given that the record $2 billion being paid by Guggenheim Baseball Management will not only pay off McCourt’s huge debts but will make the currently bankrupt developer one of L.A.'s richest people. It appears he'll end up with about $500 million free and clear. As well-known Los Angeles developer Steven Soboroff tweeted: "Mega Millions jackpot grows to $476 million. Shocked Frank didn’t win that too yesterday. He had a great day ;)."
The deal creates a strange parallel to the way in which McCourt first catapulted to wealth in 1997 — thanks to a 24-acre parking lot he owned in Boston. He struck it rich when Massachusetts agreed to pay him $57.5 million after he accused the state of compensating him too little when it borrowed his land for use during construction of the Big Dig and other projects. As L.A. Weekly reported in "Dodger Dog" in 2010, the payout — the costliest eminent-domain settlement ever in the United States — was especially staggering because McCourt got most of his land back from Massachusetts, plus new parcels awarded during a land swap.
This vanity fair article explains how this marital breakdown had a big hand in the way things went down with the dodgers...
http://www.vanityfair.com/society/features/2011/08/mccourt-divorce-201108
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