Those waiting to see just how new Dodgers President Stan Kasten expects to make a return on that big $2.15 billion purchase should get their first good look this offseason.
That’s when the team figures to strike a blockbuster TV rights deal for the 2014 season and beyond – a deal that Kasten, in a wide-ranging interview with the Business Journal, said he believes he’ll know the broad outlines of by Dec. 31.
“Our economics will change,” he said, sitting in a conference room overlooking the field at Dodgers Stadium. “If you’re wondering how fast (finances can turn around), it’s that fast.”
Kasten, part of a new ownership group that bought the Los Angeles Dodgers out of bankruptcy in May, is preparing for a busy fall. On day one of the offseason, he also wants to begin work on stadium renovations, which will be costly but could bring in more sponsorships and sales. He will also look at hiring salespeople and other personnel after the season ends in October.
Indeed, fans and sports industry insiders alike are closely watching what moves he and the team will make. Eyebrows were raised after the March announcement that a group led by Chicago’s Guggenheim Partners LLC and its chief executive, Mark Walter, and which included basketball legend Earvin “Magic” Johnson, film producer Peter Guber and Kasten, would be buying the team for $2.15 billion, reportedly more than $500 million higher than any other offer. Skeptics said the group had wildly overpaid and questioned whether it could make its money back.
But a new media rights deal and new sponsorships were two factors cited by Kasten in explaining the hefty price tag. He also pointed to higher sales from renewed interest in the team, and potential returns from using the Dodgers in the future “as a platform for growing our larger business,” citing as examples Anschutz Entertainment Group, Fenway Sports Group and Maple Leaf Sports & Entertainment Ltd. Though he declined to say what other businesses the Dodgers could branch into, the companies he mentioned have grown to become owners of multiple teams and properties, and in two of the three cases, have marketing arms and TV networks.
“We think there will be a payoff for what we paid,” he said. “We feel even more strongly about it today than we did then.”
Now 60, Kasten has been running pro teams since he was fresh out of law school at age 27, when he approached Atlanta media and sports mogul Ted Turner at a baseball game and asked for a job. Turner put him in charge of basketball’s Atlanta Hawks and later baseball’s Atlanta Braves. After leaving Atlanta around the time of a change in ownership, Kasten worked as president of the Washington Nationals from 2006 to 2010.
He wears his World Series ring from the Braves’ 1995 championship season and a cell phone on his belt. At one point, he paused midanswer to show a phone message to a Dodgers publicist. “He might be baiting me,” Kasten said. “It doesn’t matter. I’m not responding to him.”
Known for being physically restless and a quick thinker, he hardly paused before launching into lengthy answers and all but jumped to his feet when the interview was over.
He’s notoriously on his feet a lot, walking the concourses during games and greeting fans. But he found it difficult to do so due to the long concession lines, leading to one of his first changes – negotiating with outside food vendors to hire more people.
“I couldn’t walk the concourse in the month before I took over,” he said. “I knew we had a problem, because I walk all night. We sat down with Levy (Restaurants) and said, ‘This is something we really need fixed.’ And giving them a lot of credit, we got it fixed in time for our first game. That was just a staffing issue.”
Other changes in the first three months have included on-the-field changes in the form of several player acquisitions, and the addition of more employees, though he declined to say how many.
But the first big piece to a return on investment is the upcoming media rights deal. Fox Sports has the rights to broadcast Dodgers games through next year. With the value of TV rights exploding, the team expects to get a much bigger deal next time around. Some estimates have put the value at more than $4 billion over 20 years.
“This is going to be a market-setter,” said Lee Berke, a sports media consultant in New York.
Fox Sports has a 45-day exclusive negotiating window that will end Nov. 30. After that, the Dodgers are free to talk to other bidders such as Time Warner Cable Inc., which is launching two regional sports networks this fall and recently agreed to pay the Lakers billions for TV rights.
“We are very interested in having the opportunity to have a media-rights exploitation conversation if and when the opportunity becomes available,” said David Rone, president of Time Warner Cable Sports.
The team could also start its own sports network, as the New York Yankees have done with the YES Network, which generated more than $200 million in operating income last year – none of which goes into baseball’s revenue sharing system, which takes 34 percent of a team’s annual rights fees. That option has the most upside, but also the most risk if the network struggles.
Marc Ganis, a sports consultant in Chicago, expects a part-equity, part-revenue deal in which the Dodgers take an equity stake or part of the profits from a network. That way, the team doesn’t have to take on all the risk but still gets higher upside than a typical annual rights deal.
Kasten said the team’s media rights future would be largely figured out within a month of the end of its negotiating window with Fox Sports.
“We don’t know with whom we would make a deal. We don’t know if we make a deal or do things ourselves in-house. None of those things are known today. But they will be known by Dec. 31,” he said.
He added that a baseball-only network was viable.
“If you only have baseball as your sports programming, you will have a successful regional sports network,” he said. “It’s 162 games in the summer when there’s no real sports competition.”
Observers have speculated about other ways to make back that $2 billion-plus purchase, including a naming-rights deal for the stadium, the idea of moving the baseball team to downtown Los Angeles to bring a football stadium to the Dodgers property and developing the parking lots around the stadium.
Kasten said that naming rights were “not something that I regard as particularly likely at all,” that he knew of no plans to move the team downtown and that there were no current plans for property development.
“They’ve been saying it for 50 years, so I guess I feel it’ll come too,” he added of development plans. “But I don’t know when that would be.”
What is coming soon is stadium renovation. Last week, the team hired Janet Marie Smith, who has overseen stadium development projects in Atlanta, Baltimore and Boston, as the vice president of planning and development.
Kasten said renovation priorities include infrastructure such as water, power and data systems. Other considerations include areas for kids, bars, restaurants and historic displays. Kasten did not give a number, but estimates for the cost have varied between $100 million and $300 million.
Consultant Ganis said Marie Smith’s hiring was an indication of a major multiyear renovation, plus a sign that ownership isn’t focused on moving the team downtown.
Renovations could change the sponsorship picture, one reason Kasten said that the team has intentionally held back in courting sponsors. A new team, new stadium amenities and new ownership group could lead to bigger opportunities down the line, said Jeff Marks, a consultant of Premier Partnerships in Santa Monica.
What kind of pressure there is to make a return depends on the ownership structure and where the money is coming from, which remains a murky picture. Kasten declined to say how much of a stake he and the other owners have.
Ganis said that though the team may have paid above market value, it might not matter if it can service its debts.
“If they put it on the market today, they wouldn’t get that number,” he said. “It’s like a house that’s underwater as soon as you buy it. But if you intend to live in that house on a long-term basis and you can cover the mortgage, it doesn’t matter.”
Kasten said the valuation was justified, but that there were other considerations in buying the team.
“Some were doing this as a media play, others were doing this as a real estate play. For us, this was the rare once-in-a-lifetime opportunity to own the Los Angeles Dodgers as a baseball team,” he said. “That was more than anything else our motivation.”
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