Why Hollywood Should Buy the Dodgers (Analysis)
When News Corp.'s Chase Carey told analysts Nov. 2 that the company was not interested in buying the Los Angeles Dodgers, I was surprised. Why should Fox's parent company buy back a baseball team it sold to outgoing owners Frank and Jamie McCourt just seven years ago? For the same reason it bought the Dodgers in 1998: TV rights.
News Corp. paid about $311 million to buy the storied franchise from the O'Malley family as part of a strategy to expand Fox Sports' regional networks in Southern California. It worked. Six years later, News Corp. chief Rupert Murdoch sold the team to the McCourts for $421 million, but only after locking up TV rights until 2013. Now the team, despite being mired in bankruptcy thanks to the McCourts' personal spending and mismanagement, is estimated to be worth $1 billion, the third-most-valuable franchise in Major League Baseball. That skyrocketing value comes largely from -- you guessed it -- TV rights.
These days, for many major-market sports properties, media rights are worth far more than any other piece of revenue. And who better than a diversified media company such as News Corp., Time Warner, Comcast or Disney to exploit those rights?
Let's say the Dodgers' next TV deal is conservatively worth $135 million a year. That, combined with ticket sales, which Forbes tabbed at $107 million for the 2010 season, more than offsets the estimated $100 million-plus in player salaries, in addition to other expenses of running the club. Frank McCourt said Fox was willing to pay him nearly $3 billion for a 17-year TV deal (about $176 million a year) before it was vetoed by MLB. If a media company owned the team, it would still have to pay for those rights, but being the exclusive bidder would slash the price and make the $1 billion spent to buy the team seem like chump change.
Yes, there are hassles of owning a club, such as running a facility and paying star-player salaries. Those factors contributed to News Corp. dumping its team, as have Disney (Los Angeles Angels), Tribune (Chicago Cubs) and Time Warner (Atlanta Braves).
But sports TV rights have become even more valuable in recent years because fans want to watch games live, unlike almost any other TV programming, whose ad value has been diminished by DVRs. That allows rights deals to be richer and longer, which gives media companies used to the fleeting nature of hit movies or TV shows the ability to count on a long-term revenue stream.
So if News Corp. isn't interested, should Time Warner, which recently bought the Lakers' TV rights for $3 billion, go for the kill? It's a move that would devastate Fox's regional investment, soon to be without the Lakers as well as UCLA and USC (both off to the upstart Pac-12 Network). In the sports business, that's called a home run.
Darren Rovell covers sports business for CNBC and hosts CNBC SportsBiz: Game On, which airs on Versus. Follow him on Twitter at @darrenrovell.
Next page: Will Bob Daly Make a Play for the Dodgers?