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The Dodgers are gonna get big media money soon, but let’s not go crazy

Aug 27, 2012, 5:00 PM EDT

old TV

The answer to any question about a baseball team’s increased spending these days is “well, they have a new local TV deal in the offing, and that will bring big money.”  It’s why the Angels could easily afford C.J. Wilson and Albert Pujols in one offseason. It’s why the Phillies, despite a big payroll already, could afford to go big on Cole Hamels.  Local TV money is all the rage these days, so anyone getting a new infusion of it will be flying high.

But one definitely gets the sense that people are overstating this a bit. For one thing, it strikes me that there’s the possibility of a bubble situation here, with the “TV money is HUGE” mantra sounding an awful lot like the “Real estate only goes up!” mantra of a few years ago.  Maybe that’s just my gut talking, but it’s very possible that changes in the industry — direct-to-consumer broadcasting, a la carte cable channel pricing, online streaming — could alter the financial calculus one day soon.

Maybe that means revenues grow even bigger. Maybe it means they crater. Maybe it means they flatten out. Maybe it just shifts. But it has always been the case that the business model for broadcasting never stays static for five years, let alone the 20 years or more that some of these crazy TV deals are supposed to last.

Which brings us to the Dodgers, about whom Patrick Rishe of Forbes writes this today, putting the $271 million in new salary obligations in perspective:

Unquestionably, new ownership in L.A. is a big part of the increased willingness to spend on payroll over the last few months. But when Dodgers chairman Mark Walter said earlier this week that the team could still take on significant money, his inspiration not only stemmed from a combination of his deep pockets, Magic Johnson’s infectious passion for success, and Stan Kasten’s savvy baseball acumen.

Mr. Walter’s penchant for spending is also being fueled by the comfort of knowing that the Dodgers will soon see an explosive increase in their local/regional TV revenues when their current deal expires in 2013 that could reach as high as $8.5 billion over the next 20 years.

$8.5 billion?  That breaks down to $425 million a year in TV revenue. Which is multiple times higher than any other team out there, including that of the Angels, who signed a $3 billion TV deal. And it’s multiples higher than what experts have projected for some other popular teams with deals in the future like the Phillies and the Tigers.

That’s profoundly optimistic, and that’s before you figure in the fact that the Dodgers owners are probably already counting on that financial windfall to finance what still appears to be a massive overpay for the franchise itself, which they bought for around $2 billion. And, of course, before you figure in the possibility that the TV landscape may look very different in 2022 than it does in 2012 and that it may be totally unrecognizable in 2032.

None of which is to say that the Dodgers will go broke having to pay for Josh Beckett and Carl Crawford. I’m sure they can swing it.  It is the case, however, that there is no investment in recorded history that has been such a sure thing that one can responsibly talk about it as if it were a never-ending source of cash.

As such, to the extent there are people around major league baseball who are staking the entire financial future of the sport on the assumption that, eventually, every team is going to land a multi-billion dollar television deal, they had better not be the only ones with voices at the table.

  1. nagrommit - Aug 27, 2012 at 5:07 PM

    They will have Vin Scully for another year, and that counts for something, right?

    • WhenMattStairsIsKing - Aug 27, 2012 at 6:30 PM

      Always.

  2. hansob - Aug 27, 2012 at 5:08 PM

    Non sports fans are at some point going to get sick and tired of subsidizing sports channels via their cable and satellite bills, and they are going to go to Netflix, Hulu, CalcaterraTV, or whatever else is available in the future. Then the whole model that this is based on falls apart.

    Now if I can just figure out how to profit from this bubble….

    • proudlycanadian - Aug 27, 2012 at 5:19 PM

      Invest in CalcaterraTV.

    • lanflfan - Aug 27, 2012 at 5:25 PM

      Depends on if the bundle concept still hangs on, or if channels can be selected a la carte. Once individual selection of channels is common place, I could see a large dip in TV revenue for sports.

      • dkchi - Aug 27, 2012 at 5:58 PM

        Don’t be so sure. Unbundling may actually drive higher local TV sports revenue, ESPECIALLY when large market teams like the Dodgers have the alternative of building their own YES/NESN-style regional sports network. The teams/players/leagues create the product and sports fanatics are willing to pay to see EXACTLY the content that interests them, without paying cover-all subscription fees for the 600 hundred channels we don’t care about. Unbundling will let the teams cash in without sharing with Comcast, etc. Witness MLBN’s success as a premium-pay channel in just a few years.

      • mcsnide - Aug 27, 2012 at 9:48 PM

        I cut the cord and currently have to listen to my favorite team because mlb.Tv, for which I happily plunk down an annual Benjamin, will not stream in-market games. I’d gladly pay $5-10 per month for access to my team’s live video feed. I think a smartly run team could make way more money with video streams than with cable/sat alone. That of course would require mlb to get the hell out of the way.

    • sportsdrenched - Aug 27, 2012 at 5:30 PM

      I ran across this article from the WSJ last week:

      http://online.wsj.com/article/SB10001424052970204083204577080793289112260.html

      I AM a sports fan and I cut the cable. There are enough sources for sports content that you can reach the point of saturation without paying for it, or at least want you don’t want to watch like TebowMania. My last blog post was about that if you want to read it.

      If I were a non-sports fan, I would definalty cut the cable.

    • pasta09man - Aug 27, 2012 at 10:07 PM

      Teach your son how to throw a knuckleball, cash in when he wins the Cy Young

  3. normcash - Aug 27, 2012 at 5:24 PM

    It may well be that there’s a bit of a bubble economy at work. On the other hand, Tigers games
    on FSD have regularly been the highest rated program throughout Michigan all summer
    (the Olympics excepted), beating the major TV networks and every other channel.My guess is that
    when the current deal with FSD is up for renewal, the Tigers will cash in.

  4. jaydoubleyou22 - Aug 27, 2012 at 5:35 PM

    It doesn’t matter what the market looks like in 2022 or 2032. As long as the market yields 8.5 billion (or in that range) when they negotiate the contract with fox or TW then they would be cashing in big time relative to the expectations at the time of the purchase of the team.

    From an investor’s perspective, there’s no problem with a bubble if you sell before the crash!!

    With that in mind, if they do get 8.5 billion, the present value of the increase over McCourt’s 3 billion deal (which was used as an assumption to derive the expected sale price that was reported by the media prior to the sale) easily explains the 2.15 billion acquisition price and more than justifies the current spending spree.

    As a Dodgers fan, I’m perfectly content to ride the TV bubble to the World Series, bad contracts included.

  5. kevinbnyc - Aug 27, 2012 at 6:30 PM

    I know a guy named Bernie who was getting pretty good returns, just in case they need to invest somewhere else.

  6. randygnyc - Aug 27, 2012 at 6:35 PM

    Once the Dodgers sign this tv contract they won’t have the ability to start their own network, like the Yankee’s YES network, for the next 2 decades, btw.

  7. bigjimatch - Aug 27, 2012 at 9:43 PM

    “Magic Johnson’s infectious passion…” Pun intended?

    Dodgers are going to get billions for their tv rights, but it is going to be around $4 billion. The financial decisions they have made (and will make this offseason) will be an albatross, as they follow the path of the 1980s Yankees. Dodgers will be regretting not setting up their own sport network by the end of the third year. Ownership is going to have a high payroll, but its not unlimited.

  8. dl3mk3 - Aug 27, 2012 at 11:17 PM

    for the mlbtv streamer, you need to use a proxy so it appears that you are out of market.
    specific to TV deals: sports TV revenue will continue to rise specifically because of DVR being popular. While people will watch recorded shows later, and thus fast forwards through commercials, fans want to watch sports live-not hear about the score the next day and ‘miss out’ on the excitement, advertisers know this and will continue to pay big $ for sports ad time.

  9. fuddpucker - Aug 28, 2012 at 4:40 AM

    There’s no way the Dodgers spending spree is sustainable. It’s true, NOBODY knows what the TV landscape will be like in ten, let alone 20, years. Really, did I just see the Dodgers acquire over a QUARTER OF A BILLION dollars of mostly has-been talent? I thank my lucky stars I’m a Royals fan. Sure, they’re small ball but the owner isn’t going to drown himself into debt and insolvency.

    The Dodgers are now officially the reincarnation of “The Worst Team Money Can Buy”!

  10. manchestermiracle - Aug 28, 2012 at 9:28 AM

    Gee, I remember back in the day when all the “expert commentators” said the new ESPN network couldn’t possibly work because nobody wanted to watch sports all the time. Population growth isn’t slowing down any time soon and the popularity of U.S. sports overseas continues to grow unabated. The Dodgers are quite popular in many places, particularly Latin America, and will certainly see revenue growth for many years to come. Now if they can just turn their deep pockets towards decent pitching in the lower half of the rotation….

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