Late last night, the news broke that the Los Angeles Dodgers had been sold at auction, to a group which includes former Los Angeles Lakers great Magic Johnson, for a record-breaking $2.15 billion.
The purchase price is an absolutely mind-boggling number, and appears to be way beyond what any reasonable valuation would yield.
The previous high price paid for a baseball team was the $845 million paid for the Chicago Cubs in 2009.
The previous high price paid for any North American sports franchise was the $1.1 billion Stephen Ross paid for the Miami Dolphins in 2009.
The previous high price paid for a sports franchise of any kind, anywhere in the world, was the $1.47 billion paid in 2005 (before the Great Recession, when valuations for everything were absurdly high) for Manchester United, one of the world's most popular soccer teams, which is said to boast a global brand recognition level on par with, if not greater than, that of the New York Yankees.
To be sure, most observers had expected the Dodgers to fetch a price well above $1 billion, perhaps as much as $1.5 billion. However, this number is well above what anyone would have predicted.
In fact, the Dodgers were sold via an auction process, with the team having filed for bankruptcy protection last year. There were two other bidders, who are believed to have offered something in the $1.5 billion range, but the $2.15 billion bid was so much higher than the other bids that the team was awarded to this investor group immediately, without even going through the trouble of additional rounds of bidding.
In addition to the enormous purchase price, there are some other interesting points to consider:
* On top of the price paid for the Dodgers, the new owners will have to invest something on the order of an additional $300 million to refurbish Dodger Stadium.
* Frank McCourt, who was probably the most reviled owner in all of American sports, is going to walk away with a gargantuan profit. He bought the Dodgers in 2004 for approximately $420 million, so this purchase price represents a profit of more than 400%, or a compounded annual return of about 23%.
* When McCourt bought the Dodgers in 2004, he financed his purchase primarily with debt. Yesterday's winning bid was described as a 100% cash offer, according to the Wall Street Journal.
* McCourt generated these otherworldly returns despite doing seemingly everything he could to destroy his investment, culminating with a bankruptcy filing. He loaded up the team with debt, and proceeded to run one of baseball's most storied franchises into the ground. McCourt hired his wife, Jamie, as CEO of the Dodgers, then fired her in 2009, on the day after the Dodgers were eliminated from the playoffs. She officially filed for divorce shortly thereafter, ending the couple's 30-year marriage. The McCourts went through a very ugly and public divorce, during which it was revealed that they had used more than $100 million from the team to purchase several homes and to finance their lavish lifestyle.
* In October 2011, the McCourts finally settled their divorce, with Frank paying Jamie approximately $130 million, in what is generally assumed to be the most expensive divorce in California history. In return, Jamie relinquished all claims to the Dodgers. Even after paying off all of the Dodgers' creditors, Frank McCourt will walk away with way more than $130 million. Somehow, I get the feeling that Jamie is not quite as thrilled with her $130 million today.
* Speaking of the former Mrs. McCourt, which is more likely, that she files suit in an attempt to get some of the proceeds of the Dodger sale, or that the Dodgers will once again fail to win the World Series? (Before you answer that, remember that the upward limit of a probability is 100%).
* In addition to the amount paid for the team, the purchasers are buying half of the land surrounding the stadium, currently owned by McCourt, for $150 million. Put another way, Frank McCourt valued his half of the real estate at about $20 million more than he valued his ex-wife.
Without a doubt, in the coming days, we'll hear plenty of justifications for the purchase price, as otherwise intelligent people twist themselves into pretzel-like shapes attempting to show how the number makes sense.
Let me save you all some time. The number doesn't make sense, and it never will.
Besides, I've already moved on to more pressing issues:
If the Dodgers are worth $2.15 billion, what are the New York Yankees worth?
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