Economists Think Magic Johnson’s Group Overpaid For The Dodgers, But Should Fans Care?

As the excitement from getting out from under Frank McCourt‘s reign dies down a bit, we’ll have to start analyzing exactly what the hell just happened, both good and bad. Well, in an effort to do exactly that, Arash Markazi of ESPN Los Angeles talked to economists about the sale of the Los Angeles Dodgers, and he found that the $2 billion price tag has them skeptical about the deal.

“It was an extraordinary and surprising price,” said Andrew Zimbalist, a professor of economics at Smith College. “I rarely admit to not anticipating these things but I did not anticipate a $2 billion price. Keep in mind, in addition to the price, the new ownership group will have to invest something in the neighborhood of $300 million to refurbishing Dodger Stadium and that price does not include $150 million for the surrounding real estate. At the end of the day, you have to question this deal.”

“It’s the craziest deal ever; it makes no sense. That’s why you saw so many groups drop out,” said Mark Rosentraub, a University of Michigan sports management professor. “I don’t get it. The numbers just don’t work. It doesn’t make business sense. Nobody came up with this number. Under the most favorable circumstance you broke $1.1 billion with $1.4 billion getting crazy. Now you’re up in the $2 billion range, which is over $800 million more than what pencils out for a profitable investment for a baseball team. If making money doesn’t count, this is a great move. But now we’re into buying art and I can’t value art. I can just run the model numbers and this doesn’t make sense.”

Johnson, however, still can’t make all the numbers of the record sale of the team add up for many economists, who are skeptical that this deal will prove to be a success in the end.

“If they can figure out a way to put a basket above the pitcher’s mound maybe it will be a great match,” Zimbalist said. “Look, Magic is an icon in L.A. It creates a new energy that will be positive for the club, but this group has a big challenge ahead of them and it remains to be seen if the price they paid for the club was a good choice or not.”

The thing that jumped out at me right away is that they are primarily talking about whether it’s a smart business deal. As in, whether or not Mark Walter and Guggenheim Partners make money off this transaction.

Personally, I think that’s a moot point for fans. In the end, I don’t actually care whether the owners are making a profit hand over fist or are breaking even or are in the red, all I care about is whether the Dodgers will be a better team on the field with them in charge.

Of course, to an extent, there’s a legitimate argument that profitability would be tied to the amount of money they would spend on players, so the question is whether the bid total will affect the amount of money they can inject into the roster.

“One of the things that commissioner Selig was trying to avoid when he did not authorize the contract between McCourt and Fox was he thought McCourt would take the money and pocket it instead of using it to build the Dodgers,” Zimbalist said. “That indirectly will happen anyway because McCourt is going to get his money and the new ownership will have to use a good chunk of the television money to pay off their asset purchase.”

Unlike the Angels and Texas Rangers, which signed a similar 20-year, $3 billion deal with Fox, the Dodgers’ new television deal won’t simply be a nice influx of cash used to upgrade the roster. It will likely be used to pay for the team, pay for improvements to the stadium and pay for developing the land surrounding the stadium.

Maybe there’s a point there, that the Dodgers won’t be able to spend all of the rumored $3 billion to $4 billion that they’re supposed to make through the television deal on roster improvements, but I’m skeptical about Andrew Zimbalist‘s skepticism regarding how the deal with affect what the franchise spends on the payroll.

Basically, I just can’t see how they’d be willing to drop so much money, bank so much on the value of television rights and the fans coming back in droves, and yet fail to take advantage of all that momentum by not investing in the product on the field.

Maybe it’s just me, but it sounds awful farfetched that they would do all of this just to let the team continue to lose.

Oh, and about those parking lots, Bill Shaikin of the Los Angeles Times says that Magic Johnson‘s group will control them.

Parking lots will be controlled by Magic’s group.

#Dodgers deal allows Magic group to control parking lots for games, Magic and McCourt to jointly pursue any development of lots.

Clarification on joint venture in parking lots: Magic and McCourt would have to agree on any development. Magic can veto any plans.

Besides, the thing that jumped off the page to me is Zimbalist’s overt bitterness towards McCourt getting paid.

“It’s problematic,” Zimbalist said. “He was looking for some kind of ongoing income stream and he got it. Here’s a guy who borrowed practically all the money to buy the team for $430 million and now he’s selling it for $2.15 billion and he’s coming out with a healthy capital gain — it’s repulsive. This is someone who doesn’t deserve to walk away with a healthy profit after eight years of running the Dodgers in the most egregious, the most inefficient, the most self-interested, and the most vainglorious, idiotic way possible. It really is repulsive that he will still be making a profit in some way.”

Not many have been as publicly pissed off at McCourt as me, but even I think this little rant makes him appear anything but objective. The emotion in it just makes him and the rest of the story come off as a bunch of angry economists who are pissed that McCourt is getting paid off for his bullshit actions.

It’s not like I’m saying Dodgers fans should be happy about McCourt cashing in, but why should we concern ourselves with the morality of him getting paid? McCourt had a valuable asset and profited from it. No shocker there, and it’s irrelevant to why we enjoy sports and watching the team.

In that same vein, are you honestly going to care whether or not Walter and Magic make billions of dollars in profit if the product on the field is quality?

I won’t care one bit and I don’t think you should either.

About Chad Moriyama