Dodgers TV Rights Could Climb To $8.5 Billion, But Payroll Still Needs To Be Managed

The most talked about news of late regarding the Dodgers is Ed Desser of The Hollywood Reporter estimating that the Dodgers television rights deal could be worth anywhere from $4.5 billion to $8.5 billion depending on the route ownership chooses to go.

Sign a Rights Deal

Most Major League Baseball teams license about 150 regular-season games a year for regional telecast. The Dodgers can extend the license arrangements with Fox and/or KCAL; make deals with other stations in the market; contract with the two Time Warner Cable sports networks that launch Oct. 1; or license a new entity or some combination of these alternatives. Given the competitive marketplace for Dodgers rights, we estimate average annual rights fees between $175 million and $225 million. Assuming a 20-year initial term — the length of a deal recently inked by the L.A. Angels of Anaheim — this low-risk arrangement could be worth $4.5 billion.

Start a Network

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. But it would also undertake far greater risk, effectively “doubling down” rather than outsourcing the risk. Several teams have successfully launched such networks (the New York Yankees/Brooklyn Nets YES Network, Boston Red Sox/Bruins NESN). However, others have been unsuccessful in such endeavors in the past decade (Minnesota Twins, Kansas City Royals). 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.

The Hybrid Model

The Angels, San Francisco Giants and Texas Rangers have partnered with Fox and Comcast regional sports network operators to license their rights and obtain a share of equity ownership. The risks of obtaining distribution are effectively mitigated, and a large entertainment company provides the financial backing. The Dodgers could make such a deal with Fox or TW Cable. They could also take on production, sales, financial and/or distribution partner(s) to gain greater control but with lower risk and upside. With predictable distribution, the difference in value turns on the ownership percentage the team might obtain, the rights fee and the network’s profitability. We estimate the annual value to the Dodgers of $225 million to $375 million. A 20-year deal could be worth $7.5 billion in rights, profits and equity.

That’s all well and good, but I see this being used by people as justification for spending any amount of money on any amount of players, and quite frankly, it’s a bit scary.

While I’m certainly as excited about having payroll freedom as any fan is, I don’t agree with the sudden attitude shift. It’s as if the mindset now boils down to, “OMG! TEAM HAS MONEY! SPEND IT ON ALL THE BEST FREE AGENTS! WHO CARES WHAT IT COSTS?!

Sort of an ironic attitude to adopt as we complain about the Yankees and Red Sox and mock the Giants for Barry Zito‘s deal, no?


Fandom aside, my primary concern lies in the luxury tax serving as a de facto salary cap.

The luxury tax remained relatively unchanged in the new CBA. The threshold level for the luxury tax will be $178 million in both 2012 and 2013 (the same as it was in 2011), and will be raised to $189 million from 2014-2016.

I talk about it being a salary cap because under the new CBA, it has become punitive enough that even the Yankees are looking to head under the luxury tax by 2014. The Red Sox apparently aren’t immune to it either, as they traded their starting shortstop for a situational lefty before the 2012 season in what now appears to be an effort to avoid the luxury tax.

Given that the Dodgers payroll for 2012 now stands at $138,083,695, and that the team has already committed $148,383,716 in 2013 and $93,875,000 in 2014, I don’t think throwing money around wildly as if the Dodgers now have no limits is exactly the wisest course of action for the franchise.

To put the payroll situation in perspective, the Dodgers are already one big ticket signing away from being on the edge of the luxury tax next year, so people suggesting that the team go out and dump money in front of Zack Greinke, Josh Hamilton, and everybody else on the market might want to pump the brakes a bit before the team ends up with as little payroll flexibility as they had before Frank McCourt got evicted.

About Chad Moriyama