Saturday, 14 April 2012

Strike


Last week, a fellow E-Committee member, Mehyar Afkari, wrote a poignant piece on the over $2 billion dollar deal by Guggenheim Baseball Management to purchase the L.A Dodgers. The main question Mehyar brought up was just how this mammoth deal that makes the Dodgers the most valuable franchise in the world would be financed?
Earlier in the semester, Finance Society had the pleasure of bringing in David Becker of Inner Circle Sports to discuss this world of sports investing. Becker used the Dodgers as his primary example in explaining how teams are purchased or sold. Now I do not pretend to have a technical knowledge of investment banking, however, one concept seemed simple: when a person or entity purchases a new sports team, they pile on the maximum debt a team's balance sheet can handle and then pay the difference amongst a group of investors. So with a $2 billion purchase price that analysts believe is $800 million too much, the amount of debt taken on must be staggering. So what's next for the Dodgers?
With the enormous debt that stems from an inflated price-tag, the Dodgers have little room for team investments, the types of investments that win games and fill stadiums. Even with a reported $3 billion regional sports network deal in the works, the team must first win over land rights to refurbish its stadium, rights that were NOT included in that $2 billion figure. Magic Johnson may be loved in L.A; however, without proper investment in the right players, the fans will rebel. The "most valuable team in the world," will be expected to win multiple World Series titles, but with lack of extra funding, the Dodgers will be unable to attract stars that are demanding 6+ year contracts in the $100 million range. With the new management still in its infancy stage, perhaps I am being a little too critical. But for now, I'm calling this deal a strikeout.

-Aureen Sarker (Photo Credit: Fox)

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