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October 2, 2012

Bizball

Do the Dodgers Really Have a “Secret Deal” to Avoid Revenue-Sharing?

by Maury Brown

It went under the mainstream radar, but an article by Bloomberg News this past week raised the debate about economic parity within the league. The story centers on the lucrative television rights deal that the Dodgers are nearing as part of a potential regional sports network (RSN) and a “secret agreement” that would allow them to “cap income subject to revenue-sharing.” The article’s thrust is that somehow the Dodgers one-upped MLB and have figured out a way to get an advantage over all the other clubs as part of the sale that brought them out of bankruptcy.

From one standing on the sidelines, you’d have to think all the signs were there. After all, Frank McCourt had been sucking funds out of the Dodgers to fuel his lifestyle and sunk the club into bankruptcy. Shortly after the $2 billion sale of the club and an associated $150 million land deal, the team took on $262.5 million contract dollars in the trade with the Red Sox that brought Josh Beckett, Carl Crawford, Adrian Gonzalez, and Nick Punto to LA. This, of course, came on top of their other big acquisitions: Yasiel Puig, Hanley Ramirez, Randy Choate, Shane Victorino, Brandon League, and Joe Blanton.

While the article hits on a larger issue of how club owned RSNs create a revenue-sharing tax dodge, the premise that the Dodgers are somehow not paying revenue-sharing on television rights fees through some kind of secret arrangement is not true. In other words, the problem (if the Dodgers create an RSN) is the same one that has been around with the Red Sox (NESN), Yankees (YES Network), and Orioles and Nationals (MASN), among others: the distributions of equity in these RSNs are not subject to revenue sharing.

In speaking with those that have access to the actual agreement that Bloomberg speaks of, I’ve retrieved this line from the document: “All up-front cash payments and all annual rights fees shall be subject to revenue-sharing under normal principles.”

In other words, every penny of the deal’s upfront money and rights fees would be part of net local revenues that each and every one of MLB’s 30 clubs has to pay revenue-sharing on. You can also think of it this way: would the league’s other 29 owners, in a million years, ever sign-off on such a deal if the Dodgers (already in baseball’s number-two market) got a further leg up?

The article cites television rights consultant Ed Desser who, for better or worse, is not someone that the league exactly likes. The article goes on to say that Desser “projects that the Dodgers’ annual rights fees from a regional network would average $175 million to $225 million over a 20-year contract.” As one insider said to me, “Are you a betting man? Because I’ll tell you that there’s no way that that much is coming out of this deal. Not even close.”