Los Angeles Dodgers: Defending Adrian Gonzalez Trade with Potential TV Network
While the Dodgers added nearly $250 million in Boston salaries to take on Adrian Gonzalez in their recent acquisitions, the ownership could take in as much as $8.5 billion when their television contract expires with FOX Sports and KCAL at the end of the 2013 season. As much as some may speculate that this trade came from a fear of the Giants and their acquisition of outfielder Hunter Pence, the long-term speculation is that this is a move to increase the overall franchise value of the Los Angeles Dodgers with a profitable television contract.
When asked about a potential ‘spending limit’ after adding nearly half a billion dollars in salaries in the past month, the Dodgers were quick to explain their unique financial situation.
"I haven't found it yet," Dodgers President Stan Kasten told The Los Angeles Times. "I'll let you know when we get there."
Perhaps the lack of hesitation to spend would be in part because they hope to replicate the success of the YES Network in Los Angeles. This is where the Yankees have generated much of their profit, and where they get the money to sign new marque ballplayers.
Arguably the best way to replicate that success is to put the most entertaining possible team on the field for fans to tune in to. With the addition of Ramirez, Victorino, Crawford, Beckett and Gonzalez, the Dodgers are starting to do exactly that. If the Dodgers feel comfortable spending that money to increase the value of their franchise, what should it matter to the fans?
In a recent column about Jeremy Lin, Grantland writer Jay Kaspian Kang made a very interesting observation that seems to parallel the philosophy of Dodgers ownership.
“We have no idea how much money Jim Dolan stands to lose and how that affects the Knicks' future. And Knicks fans shouldn't care,” Kang wrote. “They should just want the most entertaining, best product on the court. A team with Jeremy Lin is a better product for consumers than a team without Jeremy Lin. That should be 99 percent of every fan's calculation.”
At its fundamental core, sports are a medium for entertainment. Like all businesses in the entertainment industry, generating revenue is just as important as it would be in the real estate industry. However, entertaining the fans is the ultimate goal for sports ownership.
What’s the single most entertaining thing that a sports franchise can do?
The answer to that is simple: spend enough money in a unique, game-changing way to maximize talent on the field. With an increased interest in the franchise in the region of Southern California comes an increased profit via ticket sales, merchandise and most importantly, a potentially lucrative television contract.
For those wondering how much money Dodgers chairman Mark Walter was talking about when he told the Los Angeles Times that the team could “still take on significant money” in the future, it’s safe to say that it’s quite a bit.
“The Dodgers could start their own regional sports network. In this scenario, they would essentially "sell" the rights to themselves and compete with their jilted suitors. The team would control production, ad and sponsor sales integration, team-related support programming and distribution of its product,” wrote Ed Desser in the Hollywood Reporter.
“Because of the wide range of potential distribution outcomes, we estimate average annual revenue from as little as $125 million to as much as $425 million. Over 20 years, if everything were to go very well, this could be worth $8.5 billion, including rights, profits and equity value.”
Desser’s piece was published weeks before the Gonzalez trade went through, forcing us to believe that the Dodgers could very well see a number similar to what he predicted.
The Dodgers move is being felt around the league.
"I think the motivation for that deal, to be completely honest with you, it's that [upcoming Dodgers] TV deal," Southern California born star Ryan Braun told MLB.com. “That's going to be a monster TV deal. That's why the Angels signed Albert [Pujols], and [the Dodgers' deal] is going to be bigger than we've ever seen. It's going to be a crazy influx of cash."
In the scheme of things, Braun brings up a good point when looking at the price that an elite first baseman costs in this generation.
Prince Fielder costs the Tigers $214 over nine years, Joey Votto costs the Reds $250 million over ten years, and Albert Pujols costs the Angels $240 over ten years which came from a spending spree inspired by a $2 billion TV deal.
When put into that context, the Dodgers are essentially paying $262.5 million over fourteen total player years to elite first baseman Gonzalez & Co. rather than overpaying for potential signees Adam LaRoche or Kevin Youkilis.
So while Los Angeles may start the 2013 season with an estimated $192.6 million in contract obligations ($73.5 million more than the New York Yankees), Desser estimates that the Dodgers could see up to $425 million a year in television revenue under a new network contract. Ultimately, the Dodgers would still end up in the green from the estimated television rights alone.
Even if the Dodgers don’t start their own network, there will be plenty interested in the newly profitable team including Fox Sports, KCAL and Time Warner Cable (from the same company as Turner Sports, the same company that recently acquired a 5-year, $25 billion television contract with the Los Angeles Lakers as well as a recent purchase of Bleacher Report in the last month) that would all likely pay upwards of a billion dollars for the rights to show the Dodgers on television.
According to the Hollywood Reporter, Fox Sports will have an exclusive 45-day negotiating period with the Dodgers for a renewed television contract that begins on October 15th. Reuters.com reports that preliminary talks with Fox Sports have already began.
The move came in part from a desire to win now, as the Dodgers are 2.0 GB of the San Francisco Giants in the NL West with 34 games left to play. The more drastic motivation for the recent moves, however, came from an increased interest in making the upcoming television deal as profitable as possible.
What do you think the Dodgers will do for a TV contract next season?
“Quite simply, the Dodgers roster moves are designed not just to boost on-field performance but also the team’s market value as a television asset,” said Forbes writer Patrick Rishe. “This Dodger team now feels like can’t miss TV with the stars it has assembled.”
Bryan Kalbrosky is a Featured Columnist for Bleacher Report and covers the New York Mets and Oregon Ducks. The Los Angeles writer is also a passionate SoCal sports junkie and regularly attends Los Angeles Dodgers games. He writes for the Trends N Topics Team at Bleacher Report and can be reached on Twitter. Be sure to follow him to see more of his thoughts, opinions and stories.
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