By DANIEL TAUB
L.A.’s pro teams are looking awful.
The Dodgers are last in their division. The Clippers won only nine of 50 games in their just-finished season. The Kings finished dead last in their division for three of the past four seasons. The Lakers, while not performing terribly, haven’t won an NBA title in 11 seasons and their internal turmoil has drawn more snickers than cheers.
But from a business perspective, does any of it really matter?
A Business Journal study of local teams’ performance over the past 10 years based on a number of key factors from game attendance to TV ratings to player payroll to team market value shows that both the Lakers and Dodgers are generally impervious to disappointing seasons. For the Kings and Clippers, losing seasons can have more of an effect at the bottom line.
Among the findings:
? While the combined winning percentage of the four L.A. teams has plummeted in recent years, sinking from .530 two years ago to .425 as of late last week, average game attendance has been unaffected.
? The deteriorating win-loss record has come despite a 238.7 percent increase in combined player payroll since 1990.
? In spite of that explosive acceleration in operating costs, the combined market value of the four L.A. teams spiked between 1996 and 1998 by 46.7 percent from $484 million to $710 million.
? Three of L.A.’s four teams have seen their TV ratings hold steady or improve in recent years. As of last week, the average combined broadcast rating for the Dodgers, Lakers and Clippers was 4.1 (percent of L.A.-area TV households), up from 3.6 in 1994. The Kings, meanwhile, have seen their broadcast ratings fall from 2.6 in 1994 to 1.5 in the just-ended season.
Indeed, team performance is a stronger determinant of business success for L.A.’s newer teams than for its deep-rooted franchises.
“(Winning games) matters less depending on the reservoir of goodwill you have how deep and broad that reservoir is,” said David Simon, president of the Los Angeles Sports Council, which bids to bring sporting events to L.A. “It’s fair to say the Dodgers and Lakers have a deeper reservoir. It fills up a little more slowly, but probably drains a little more slowly. (The Kings’ and Clippers’) reservoirs probably fill up and drain more quickly on both ends.”
But what’s striking about the past 10 years of data is how little team performance matters in evaluating the bottom line. The Dodgers have been a .500 team for much of the ’90s, and yet as of late last week average game attendance was 38,811, up 1.8 percent from last year. The lowly Clippers, with one of the worst records in the NBA, still manage to draw around 10,000 fans and the team has a value of about $102 million. And the huge increase in payrolls among all four L.A. teams does not mesh with their revenue growth.
From a business standpoint, little of this makes sense. In virtually any other type of enterprise a factory, retail store or a restaurant a huge jump in expenses with no noticeable improvement in performance would be unacceptable. And a sharp jump in the value of a business would seem far-fetched if its performance were languishing.
But sports franchises in L.A. or any city are not your typical businesses.
For one thing, they tend to generate loyal customers, especially the teams that have been around many years and that have winning traditions.
“I think that history has helped sustain (the Dodgers and Lakers) a little better through the difficult times,” said Dodgers President Bob Graziano. “Even though we haven’t won a world championship in 11 years, (the 1988 World Series) is still very vivid in people’s minds. Kirk Gibson’s home run is very vivid in people’s minds. There’s a history and emotional attachment to this team. And that’s similar to the Lakers.”
People attend Dodger games not merely to see the team win, but for the experience of going to a baseball game being outdoors, eating Dodger Dogs and listening to Vin Scully do play-by-play on a portable radio. “We view team performance as being important, but not being the entire experience,” Graziano said.
Television can play a big factor in the inherent value of a franchise.
The number of television households in the L.A. area watching Lakers games on KCAL-TV Channel 9 rose from an average of 6.5 percent in the 1997-98 season to 7.6 percent last season, even as the team won fewer games and was eliminated earlier in the playoffs. The reason, according to KCAL, was Dennis Rodman’s short-lived stint with the team.
“Our highest-rated games were the games Rodman played in,” said Julianne Pierce, senior analyst in the station’s research department. She added that the Lakers’ hiring of former Chicago Bulls Coach Phil Jackson is expected to have a similar impact. “This year, we’ll probably be doing real well because of the new coach and everything,” she said.
Officials at both KTLA-TV Channel 5 and Fox Sports, which airs games on Fox Sports West 2, said a rise in ratings for Dodgers games this season is a result of the signing of all-star pitcher Kevin Brown for $105 million.
Brown’s signing, as well as the hiring of new Manager Davey Johnson, also have helped keep attendance levels relatively high, Graziano said.
“I think a lot of that has to do with our fans’ expectations of our team’s performance. I think everyone had fairly high expectations going into this season that the team would perform well, and that helped our attendance toward the beginning of the year,” he said.
The Kings and Clippers don’t have quite as much leeway. With little or no winning tradition and far smaller fan bases, L.A.’s newcomers experience far bigger fluctuations in both their attendance and television ratings.
“When we’ve done well on the ice, we’ve had sellout crowds and great ratings on TV. And when we’ve had trouble on the ice, it shows at the gate,” said Kings President Tim Leiweke. “Eventually, it’s very evident that we have to win.”
But in order to win much less make the playoffs or win a championship teams must pay increasingly high salaries in order to attract the best players. Even then, results are far from guaranteed, as L.A.’s teams know only too well.
“Anyone who’s involved in sports teams realizes that you are going to increase your chances of winning by luring the best players available,” said Sean Brenner, editor of Team Marketing Report, a trade publication for the sports marketing industry. “That only increases your chances. That doesn’t guarantee anything.”
The Dodgers’ player payroll has jumped from $20.4 million in 1990 to $79.3 million this year. The Kings’ payroll rose from $9.5 million in the 1989-90 season to $31.2 million last season such a large jump that many NHL teams, including the Kings, are losing money, said Kings co-owner Edward P. Roski Jr.
Despite the red ink, the market values of all L.A. sports teams have been spiking. Those soaring team values are being driven by TV money, not on-field performance, according to David M. Carter, principal of sports marketing consultancy Sports Business Group.
“Teams are valued based on a multiple of their gross revenues,” he said. “To the extent that large revenue streams are known for a long period of time such as with television they know those revenue streams are there. That’s guaranteed cash flow.”
TV contracts for baseball, basketball and hockey all have risen in the last decade.
Carter added that the value of the Dodgers has been further fueled by the team’s purchase by News Corp., which is extracting revenue streams such as increasing sponsorships and planned luxury boxes that former owner Peter O’Malley never did. This just increases the team’s value.
“With O’Malley owning the team, his stated objective was not to commercialize the stadium or the team. So he left some money on the table, so to speak,” Carter said.
Payrolls also are an issue in team valuation, he said, because teams increase their payroll to snag bigger stars with the hopes of increasing interest in the team, and thus grow its revenues.
To help offset those higher payrolls and further enhance market value, many teams are looking to new revenue sources. In particular, the Lakers, Kings and Clippers are all looking to Staples Center, the new downtown sports arena set to open in October, as a golden opportunity. The Dodgers have increased the amount of retail space and advertising banners at Dodger Stadium, and are going to build new luxury boxes before next season.
Of course, even the Dodgers can’t expect to keep losing forever without it having some adverse business consequences. “We clearly understand that we can’t survive on our history or that emotional attachment,” Graziano said. “We have to provide our fans with a winning team.”