It came as a shock to everyone last year when Magic Johnson and his Googenhiem (or however you spell it, I really don't care) partners bought the Dodgers for a record-setting $2 billion. Everyone, including me, wondered how in the world they would ever make back that kind of money, especially inheriting the dwindling franchise from Frank McCourt, you drove the team into financial oblivion over his tenure, using the organization as his own personal ATM. Now, it looks like we have our answer.
The Dodgers announced Monday they plan to launch a regional sports network that will mostly be funded by Time Warner Cable. The terms were not disclosed, but according to SportsBusiness Journal, it's expected to be a 25-year deal worth $7 billion. Yup, that's $7,000,000,000. That number should cover their ludicrous $300 million payroll for awhile — a payroll which now tops the Majors, even beating out the mighty New York Yankees.
Here is a excerpt from Darren Rovell of ESPN:
The new ownership group, which bought the team out of bankruptcy court in April 2012 for a record $2.1 billion, said it has created a company called American Media Productions that will start broadcasting Dodgers games in 2014 on a channel called SportsNet LA. Time Warner Cable, the largest carrier in the area, will be the network's first distributor.
The deal is subject to approval by Major League Baseball, and one baseball source privy to the negotiations told ESPN.com the team and the league could very well butt heads regarding exactly how much of the deal will be shared with other teams.
TV rights are subject to revenue sharing, and high-revenue teams, including the Dodgers, have to share approximately one-third of their rights fees with low-revenue teams.
As part of the negotiations with the bankruptcy court, MLB agreed that the Dodgers' fair-market value would be set at $84 million a year with 4 percent increases each season.
Time Warner will also be responsible for other programming and will be the exclusive advertising and affiliate sales network of the channel.
In essence, the network will serve as a partner making guaranteed payments to the team.
If the Dodgers are indeed determined to not have much risk in the new network, MLB can charge them revenue sharing on top of whatever the total rights fees are equal to.
That would include the guaranteed payout Time Warner is making to cover the cost of every cable home in the Los Angeles market that doesn't carry the network.
While the Dodgers say the network's carriage fee has yet to be determined, MLB will be focused on what is agreed to, keeping an eye on whether what Time Warner agrees to pay the team per subscriber is unrealistic. SportsNet LA would be the sixth regional sports network in the L.A. market.
Sources also say the deal, at last glance, included a branding fee that Time Warner is paying the Dodgers to brand the new network. "I've never heard of that," one team source said. "That will be included in the revenue sharing bill as well."
The deal could also land the Dodgers back in bankruptcy court for an interpretation of baseball's $84 million-a-year rights-fee promise and whether the Dodgers can keep anything above that amount, regardless of the lack of risk — a decision other big-market teams with sizable TV deals would have their eyes on.
So in a nutshell, the Dodgers could make a lot of money here, but they might have to pay most — if not all — of it back to other MLB teams in revenue sharing and to courts due to the bankruptcy McCourt left them in.
Don't get me wrong; I really like Matt Kemp, Zack Greinke, Don Mattingly and a majority of the other Dodgers hot-shot personnel. That being said, Dodgers fans better hope they win games in 2013. When teams spend this much money and take this much risk only to have a losing season, they turn into the 2012 Boston Red Sox.