Magic Johnson’s $2.3 Billion Dodgers Bid Fueled by TV Potential

Magic Johnson
Earvin "Magic" Johnson, chairman and chief operating officer of Magic Johnson Enterprises Inc., at the Ernst & Young Strategic Growth Forum in Palm Springs, California. Photographer: Francis Specker/Bloomberg

Magic Johnson’s winning $2.3 billion offer for the Los Angeles Dodgers probably was fueled by what one sports economist called a “wild bidding process” that will unfold between Time Warner Cable Inc. and News Corp.’s Fox Sports for the Major League Baseball team’s broadcast rights.

Johnson’s group, which includes Guggenheim Partners Chief Executive Mark Walter and former Atlanta Braves and Washington Nationals President Stan Kasten, gained the franchise with a bid that adds to the team’s long history, more than doubling the amount paid for a major U.S. sports franchise.

Competition for sports programming, which is live and reaches a target demographic for advertisers of men age 18-34 years old, is driving up the price companies are willing to pay for media rights. Keeping the Dodgers is essential for Fox, which might have to scuttle its Prime Ticket unit if it loses the baseball team’s games, said Andrew Zimbalist, a sports economist at Smith College in Northampton, Massachusetts.

“Clearly what’s going on here is that there’s been a battle between Time Warner and Fox to establish regional sports networks in Southern California,” Zimbalist said in a telephone interview. “There’s a wild bidding process going on for sports rights.”

Johnson, 52, and his partners outbid groups led by Steve Cohen, who runs hedge fund manager SAC Capital Advisors LP, and Stan Kroenke, owner of the National Football League’s St. Louis Rams and Arsenal of English soccer’s Premier League. The next highest bid came from Cohen, an investor in the New York Mets, who offered $1.3 billion, according to a person familiar with the situation who was granted anonymity because no one is authorized to discuss the process publicly. Jonathan Gasthalter, a spokesman for Cohen, declined to comment.

Fox Contract

The Dodgers existing broadcast contract with Fox expires after the 2013 season. No talks with a rival to Fox are allowed until after November, according to court documents related to the Dodgers’ bankruptcy.

Kasten said via e-mail that his group doesn’t include a media partner.

“We’ll just do media at the proper time,” he said.

Time Warner Cable entered into a 20-year agreement last year with the Los Angeles Lakers, Johnson’s former National Basketball Association team. As part of the arrangement, Time Warner will launch high-definition regional sports networks in English and Spanish. Lakers games previously were shown on Fox.

Chuck Greenberg, the former managing partner and chief executive of baseball’s Texas Rangers, who also were sold in bankruptcy, said Dodgers owner Frank McCourt couldn’t have picked a better time to sell because of the race to acquire sports programming.

Past Deals

The Rangers signed a 20-year, $3 billion TV contract with Fox in 2010. The Anaheim Angels signed a 20-year, $3 billion contract with Fox last year, allowing the club to acquire free agents Albert Pujols and C.J. Wilson. The San Diego Padres agreed on a 20-year contract with Fox that will give the team an ownership stake in a regional sports network.

The Dodgers have more leverage than all of those clubs, Greenberg said in a telephone interview.

“The Dodgers represent everything we had to work with in Texas but supercharged,” Greenberg said. “Time Warner is a much more immediate threat to Fox. It’s a bigger market with a bigger brand and a greater legacy.”

Previously, the highest price for a U.S. franchise was the $1.1 billion real estate developer Stephen Ross paid for the National Football League’s Miami Dolphins. Johnson’s bid includes the Dodgers, their stadium and the land around the facility.

The Dodgers’ price tag even got the attention of Roger Goodell, commissioner of the NFL, the most visible and valuable U.S. sports league. Goodell called it an “extraordinary price.” The most valuable NFL team is the Dallas Cowboys at $1.85 billion, according to Forbes.

Triple Play

The Dodgers have three options, says Steve Raab, president of SNY, the regional sports network owned by Time Warner, Comcast and the New York Mets, who hold a majority stake. They can start a regional sports network on their own, become a partner with Time Warner or remain with Fox, he said.

“Both Time Warner and Fox badly want it,” Raab said in a telephone interview. “Those two players could bid it up high enough that it’s not worth the risk to start your own RSN.”

Steve Mills, a former president at New York’s Madison Square Garden, which runs basketball’s Knicks and hockey’s Rangers, said the Hispanic community in Southern California also is a factor in the high price. Johnson has expertise in selling to minorities, said Mills, adding that he was surprised the bid was higher than $1.7 billion.

“There’s value to a changing Latino marketplace,” Mills said. “It’s an important audience to advertisers, which makes the demo different to most baseball markets. The potential TV revenue had to be the key driver.”

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