Sold! For $2.15 billion To The Man in the Back

Last night, Tuesday March 28^th, the Los Angeles Dodgers were purchased for a record setting $2.15 billion by an ownership group that includes Los Angeles icon Magic Johnson.  This price shatters the mark for a professional franchise previously set in 2005 when Manchester United soccer club was purchased for $1.47 billion.  Magic Johnson and his ownership group received in return the second most valuable team in Major League Baseball, current value estimated at $1.4 billion dollars by Forbes, the iconic Dodger Stadium, and real estate surrounding the stadium.  This deal sets a new precedent within professional sports ownership, and has most sports fans wondering if the era of individual and family owned franchises is over.

This agreement ends a struggle between Major League Baseball and previous Dodgers owner Frank McCourt.  McCourt purchased the team in 2004 for $430 million dollars.  However, recently McCourt went through a very public and bitter divorce that left the team bankrupt and filing for Chapter 11 bankruptcy protection.  In November, McCourt and MLB agreed to place the team up for private auction, with McCourt choosing the highest bidder.  Three finalists made initial offers for the team including Johnson’s ownership group.  Reportedly, the other two finalist’s offers were both around $1.5 billion.  McCourt accepted the $2.1 billion figure without giving the other two groups a chance to match. 

Frank McCourt now leaves baseball as the sports most successful owner.  When the team filed for bankruptcy protection their debt stood at $579 million dollars.  McCourt also owes $131 million to his ex-wide in divorce payment, due at the end of April.  Therefore, McCourt will still be walking away with hundreds of millions of dollars and a 26% annualized return, despite running a franchise financially into the ground.

This deal is a case of simple economics; buy low and sell high.  McCourt will be able to pay the outstanding debt on the team and in his personal life, and still have plenty of money to spare.  On the other hand, Johnson and his ownership group are going to need some high immediate returns on their investment to come out on top in this deal (aka World Series Victories).  The joy of an open market!

As a baseball fan, I can only sit back in amazement at the amount of money exchanged for a professional baseball franchise.  It makes me wonder, how much the New York Yankees (the worlds most valuable franchise, estimated to be worth over $1.85 billion) could now be auctioned off for?            

-Morgan-Reese V. Hale