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January 30, 2012

Bizball

The Sale of the Dodgers and the Possible Relocation of the St. Louis Rams

by Maury Brown

I know this is “Baseball” Prospectus, but sports business is a funny thing. There are such a myriad of intersecting factors—sponsorships, television rights, stadium development, digital platforms, and such—that, in a way, it’s like looking at art—you have to stand back from it to get the full picture.

So, while this piece is about baseball, it’s really about something larger. And, if matters land a particular way, it can change the face of not only one market but create a synergy between two sports leagues.

Very quickly, the Los Angeles Dodgers are going to be sold. Well into the vetting process, bidders are now in the second round of the approval process that ferrets out those that can talk of interest but may not have the financial wherewithal to make the deal actually happen. Initially, I had a sale price of $1.2 billion pegged for the club and Dodgers Stadium but not the land and parking lots, which Frank McCourt will likely try to hold onto. It’s being reported that a bid has already come in that high, and when factoring in media rights, $1.5 billion or higher is possible.

It’s a staggering amount when you get past the face of it. The reason the amount is incredible centers on the amount of debt associated with Frank McCourt. Based on court documents, the Dodgers are $573 million in debt (if you think that’s a lot, realize McCourt is also facing a $200 million tax bill and a $131 million divorce settlement with former wife, Jamey).

So, here’s who didn’t make the cut into the second round: Dallas Mavericks owner, Mark Cuban, and exec and former agent, Dennis Gilbert.

So who are some the finalists for the purchase of the Dodgers?  Here’s a list of who is known (MLB has non-disclosure agreements with all the parties involved. It’s being reported that there are now eight finalists):

  • A group led by Magic Johnson that includes Stan Kasten
  • A group led by real estate developer Rick Caruso and former Dodgers and Yankees manager Joe Torre
  • New York hedge-fund magnate Steven Cohen, who at one point was on the cusp of purchasing a large minority interest in the New York Mets
  • Former Dodgers owner Peter O'Malley
  • The family of the late Roy Disney along with Stanley Gold (those thinking that this will become the Angels: Part II, The Walt Disney Company is not involved in bidding for the purchase)
  • St. Louis Rams owner Stan Kroenke

It’s Kroenke that puts that “intersecting” of sports leagues into focus, also bringing about a bit of déjà vu with the last time the Dodgers were sold.

Ownership across sports leagues is something that adds another layer of complexity into sales. Sports leagues have rules about such matters, and the Dodgers keep finding themselves involved it.

As a bit of history, it was not Frank McCourt that was the prime focus of the 2004 sale of the Dodgers from News Corp. In fact, the preferred buyer for FOX was Tampa Bay Buccaneers owner, Malcolm Glazer. That deal bumped into two problems: 1) MLB vets closely who the controlling interest is when the majority owner resides outside the home territory, as well as how the baseball operations background of the group is constructed, and MLB was uncomfortable with Glazer’s son running the Dodgers, and 2) The NFL quashed the deal when Glazer was attempting to finalize the financing by leveraging the Buccaneers.

There’s more at play in this current deal, however—something that could mean the St. Louis Rams would be relocating to LA.

I say “could,” as the NFL’s Constitution and By-Laws (read them here) come into play. A clause within a 1997 resolution reads (emphasis added):

That the controlling owner of an NFL club may acquire an interest in a major league baseball, basketball or hockey ("other major sports league") franchise (subject to prior notice to the Commissioner and to such covenants and safeguards as the Commissioner and Finance Committee may determine are appropriate to address actual or perceived conflicts of interest that may arise in the particular situation), but only if such other franchise is located (1) within the home territory of the owner's NFL club, or (2) within a neutral area, i.e., any area that is not within the home territory of any NFL club;

In speaking with the NFL about Kroenke’s bid and possible relocation of the Rams, the response was, “We have not been presented anything from Mr. Kroenke relative to the Dodgers. Thus, we are not getting into any speculation.”

Which comes back to what happened with Glazer in 2004. While there’s nothing to say Kroenke can’t win the day given the accelerated timeline in the sale of the Dodgers (the owner is to be selected by April 1 and the deal finalized 30 days later), it will be tough. The structure of the deal, along with the NFL’s rules, might not conform to football’s view on a number of levels.

But it’s an interesting situation. One would think that Kroenke would wish to control the land around Dodger Stadium to provide for a new NFL stadium for the Rams (it should be noted that the land around Dodger Stadium is the largest single block of undeveloped land in downtown LA). If McCourt continues to control that land, it’s going to complicate matters further.

So, the Dodgers sale potentially impacting the relocation of the St. Louis Rams, potentially impacts the rules in the NFL and potentially impacts the rules in MLB. It makes for a great conversation that ultimately could fall apart for Kroenke over the convoluted nature of it all. Just ask Malcolm Glazer.

Maury Brown is an author of Baseball Prospectus. 
Click here to see Maury's other articles. You can contact Maury by clicking here

Related Content:  The Who,  Dodgers Sale,  The Process

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