Random Baseball Musings

[CubInOK]

Fox Sports is close to clinching the exclusive TV rights for the Los Angeles Dodgers by paying between $6 billion and $7 billion over 25 years to put the team on its regional sports network in Southern California

 

How much did the Dodgers sell for? If the television rights are worth that much money, why didn't Fox Sports just buy the team outright?

Didn't NewsCorp own the team before the McCourts?

[Sammy Sofa]

Really? You asked "why doesn't Fox Sports just buy the Dodgers" in response to the story about them paying between $6 and $7 million over 25 years for the TV rights, seemingly implying that buying and running the team was in some way financially comparable. Why would buying the team make more sense?

 

They just paid more than six billion dollars for the television rights to a team that just sold for two billion dollars. They could have paid the two billion, and gotten the television rights along with the rest of the revenue from the Dodgers. Instead, they decided to pay a lot more to get less.

 

That makes no sense to me.

 

They'd be getting the TV rights revenue price set by themselves...from themselves? How is that working? And again, it's $7 billion over 25 years. That's very different than having to drop $2 billion and then all of the additional ongoing costs. Their projected profit margin is likely very, very different than if they had done what you're suggesting because now they're just paying for the television side of things spread out over a quarter of a century.

[Cubswin11]

Really? You asked "why doesn't Fox Sports just buy the Dodgers" in response to the story about them paying between $6 and $7 million over 25 years for the TV rights, seemingly implying that buying and running the team was in some way financially comparable. Why would buying the team make more sense?

 

They just paid more than six billion dollars for the television rights to a team that just sold for two billion dollars. They could have paid the two billion, and gotten the television rights along with the rest of the revenue from the Dodgers. Instead, they decided to pay a lot more to get less.

 

That makes no sense to me.

 

And it's not like they needed to know how to run the team, either. Every team has presidents and GMs and directors who make the actual baseball decisions. Owners don't need to be active, and typically are not.

 

I'm not really advocating that Fox Sports should have purchased the team. I'm just stunned at the apparent disparity between the sale price of the team and the value of the product. It makes no god damned sense to me.

$6-7B over 25 years is "only" like $250-280mm a year, it's a lot easier to come up with that money than the required debt/equity it would take to come in with $2B +/- up front to buy them. They aren't paying the $7B up front, they probably gave them a percentage up front of the $7B (like under 5%). Plus the $7B is paid off of advertising revenue so they know what the market is going to give them for advertising and the $7B is paid out of that revenue, likely requiring them to commit little to no up front equity/debt to do just the TV deal.

 

Your talking at most for FoxSports to come up with a few hundred million dollars up front to secure that deal, rather than $2B+ it would have taken to buy the team.

[radarluv1]

All this talk of TV megadeals means either TV was getting a really sweet deal for the last few years or is vastly overpaying now. At least for the playoffs, TV viewing has been down some years in a row now.

[Cubswin11]

All this talk of TV megadeals means either TV was getting a really sweet deal for the last few years or is vastly overpaying now. At least for the playoffs, TV viewing has been down some years in a row now.

Probably a bit of both, but this is also the first time in quite a while the major media markets with MLB teams have had their old contracts run out and needed to have new ones signed.

[Hairyducked Idiot]

Advertising is starting to realize that sports are the only thing people watch live and might accidentally watch some commercials.

[J.R.]

All 30 MLB TV deals:

 

http://www.fangraphs.com/blogs/index.php/dodgers-send-shock-waves-through-local-tv-landscape/

[Sammy Sofa]

Only $50 million a year for the Cubs?

 

I want to break something.

[Guest]

Am I reading that wrong, or is that 50M estimate predicated on WGN paying ~5 million a year to air ~60 games, or less than 25% of the CSN rate?

[Pushfrog98]

The $250m+/year the Dodgers will be getting is quite troubling to me. How are small market teams going to be able to compete? I understand that money doesn't always win, but it certainly helps.

[Cubswin11]

The $250m+/year the Dodgers will be getting is quite troubling to me. How are small market teams going to be able to compete? I understand that money doesn't always win, but it certainly helps.

Revenue sharing? With the top teams taking in more won't they have to pay more to the pot to be distributed to the bottom feeder/small market teams?

[Pushfrog98]

The $250m+/year the Dodgers will be getting is quite troubling to me. How are small market teams going to be able to compete? I understand that money doesn't always win, but it certainly helps.

Revenue sharing? With the top teams taking in more won't they have to pay more to the pot to be distributed to the bottom feeder/small market teams?

That helps some, but the Dodgers will still be taking a majority of that revenue, if I'm not mistaken. I hope I'm wrong, though!

[Pushfrog98]

The $250m+/year the Dodgers will be getting is quite troubling to me. How are small market teams going to be able to compete? I understand that money doesn't always win, but it certainly helps.

Revenue sharing? With the top teams taking in more won't they have to pay more to the pot to be distributed to the bottom feeder/small market teams?

That helps some, but the Dodgers will still be taking a majority of that revenue, if I'm not mistaken. I hope I'm wrong, though!

Looks like teams pay in 31%, so approximately $74.4m for the Dodgers (just on the TV deal). That leaves them with $165,600,000/year.

 

On top of that, they will get a % of that back in the revenue sharing until 2016, when the 15 largest markets will stop getting a share.

[Sammys Boombox]

There's an article about Johnny Evers in this week's SI written by his great nephew.

[Geech]

$6-7B over 25 years is "only" like $250-280mm a year, it's a lot easier to come up with that money than the required debt/equity it would take to come in with $2B +/- up front to buy them. They aren't paying the $7B up front, they probably gave them a percentage up front of the $7B (like under 5%). Plus the $7B is paid off of advertising revenue so they know what the market is going to give them for advertising and the $7B is paid out of that revenue, likely requiring them to commit little to no up front equity/debt to do just the TV deal.

 

Your talking at most for FoxSports to come up with a few hundred million dollars up front to secure that deal, rather than $2B+ it would have taken to buy the team.

 

I'm sorry, but that's silly. Sports team purchases are almost always financed with debt. There's absolutely no reason to believe that Fox Sports, or anyone for that matter, would need to check under couch cushions to scrape together 2 billion on day one.

 

I think we're still missing the point, here. I found a present value calculator online that allows you to calculate the present value of an annuity. Essentially, this calculation allows you determine the value today of a group of future payments given a specific rate of return. Now the actual present value of the payments will vary depending on the details of the payments, but even without those it's a very informative exercise.

 

What I found is that a yearly payment of 270 million dollars (this seems to be a common midpoint in reports I have seen), at an 8% rate of return (I pulled this out of my ass, but it's pretty healthy), for 25 years is worth 2.8 billion dollars. No matter how you look at it, Fox Sports just paid more than the cost of the franchise for the rights to broadcast some of the team's games. I don't understand how you can really think that's business as usual. It's completely bizarre.

 

If you're curious to know more, here's a brief definition and explanation of the present value concept:

 

http://www.investopedia.com/terms/p/present-value-annuity.asp#axzz2DfR9MQrF

[Geech]

Fox Sports is close to clinching the exclusive TV rights for the Los Angeles Dodgers by paying between $6 billion and $7 billion over 25 years to put the team on its regional sports network in Southern California

 

How much did the Dodgers sell for? If the television rights are worth that much money, why didn't Fox Sports just buy the team outright?

Didn't NewsCorp own the team before the McCourts?

 

I don't know and I'm honestly not sure what your point is.

[Cubswin11]

$6-7B over 25 years is "only" like $250-280mm a year, it's a lot easier to come up with that money than the required debt/equity it would take to come in with $2B +/- up front to buy them. They aren't paying the $7B up front, they probably gave them a percentage up front of the $7B (like under 5%). Plus the $7B is paid off of advertising revenue so they know what the market is going to give them for advertising and the $7B is paid out of that revenue, likely requiring them to commit little to no up front equity/debt to do just the TV deal.

 

Your talking at most for FoxSports to come up with a few hundred million dollars up front to secure that deal, rather than $2B+ it would have taken to buy the team.

 

I'm sorry, but that's silly. Sports team purchases are almost always financed with debt. There's absolutely no reason to believe that Fox Sports, or anyone for that matter, would need to check under couch cushions to scrape together 2 billion on day one.

 

I think we're still missing the point, here. I found a present value calculator online that allows you to calculate the present value of an annuity. Essentially, this calculation allows you determine the value today of a group of future payments given a specific rate of return. Now the actual present value of the payments will vary depending on the details of the payments, but even without those it's a very informative exercise.

 

What I found is that a yearly payment of 270 million dollars (this seems to be a common midpoint in reports I have seen), at an 8% rate of return (I pulled this out of my ass, but it's pretty healthy), for 25 years is worth 2.8 billion dollars. No matter how you look at it, Fox Sports just paid more than the cost of the franchise for the rights to broadcast some of the team's games. I don't understand how you can really think that's business as usual. It's completely bizarre.

 

If you're curious to know more, here's a brief definition and explanation of the present value concept:

 

http://www.investopedia.com/terms/p/present-value-annuity.asp#axzz2DfR9MQrF

I'm aware all sports franchise buys are financed with debt and that if FoxSports wanted to, they have the means to arrange that debt to buy the Dodgers. My point was maybe they didn't want to take on that debt and/or allocate available equity/capital in a debt financed deal towards a buy as they may see it more valuable to keep their capital/equity available for other business ventures or to expand their existing business.

 

You realize they will see a return on the $270mm a year to broadcast through advertising revenue? I'd assume FoxSports is smart enough to know what to pay for the rights and still leave room for profits on charging for advertising, as Kyle alluded too, sports are one of the only things people watch live on TV anymore and might actually see a few commercials doing so.

 

I would also assume that FoxSports knows they can see a better return through advertising in this deal on their $270mm +/- a year for the rights than through an annuity/investing or else they would be putting that money in annuities/bonds or whatever vehicle was providing the returns.

Edited November 30, 2012 by Cubswin11

[Sammy Sofa]

I have no idea why Geech thinks this is so "bizarre." Just because there are other ways to invest in a franchise doesn't make this deal unusual or bad. That you broke down as you did seemingly to justify the argument for buying the team is the thing that strikes me as odd since an investment as owners of the team for 25 years on top of the $2 billion initial purchase would sure add up to a whole hell of a lot more than the projection you put out there.

[jersey cubs fan]

$6-7B over 25 years is "only" like $250-280mm a year, it's a lot easier to come up with that money than the required debt/equity it would take to come in with $2B +/- up front to buy them. They aren't paying the $7B up front, they probably gave them a percentage up front of the $7B (like under 5%). Plus the $7B is paid off of advertising revenue so they know what the market is going to give them for advertising and the $7B is paid out of that revenue, likely requiring them to commit little to no up front equity/debt to do just the TV deal.

 

Your talking at most for FoxSports to come up with a few hundred million dollars up front to secure that deal, rather than $2B+ it would have taken to buy the team.

 

I'm sorry, but that's silly. Sports team purchases are almost always financed with debt. There's absolutely no reason to believe that Fox Sports, or anyone for that matter, would need to check under couch cushions to scrape together 2 billion on day one.

 

I think we're still missing the point, here. I found a present value calculator online that allows you to calculate the present value of an annuity. Essentially, this calculation allows you determine the value today of a group of future payments given a specific rate of return. Now the actual present value of the payments will vary depending on the details of the payments, but even without those it's a very informative exercise.

 

What I found is that a yearly payment of 270 million dollars (this seems to be a common midpoint in reports I have seen), at an 8% rate of return (I pulled this out of my ass, but it's pretty healthy), for 25 years is worth 2.8 billion dollars. No matter how you look at it, Fox Sports just paid more than the cost of the franchise for the rights to broadcast some of the team's games. I don't understand how you can really think that's business as usual. It's completely bizarre.

 

If you're curious to know more, here's a brief definition and explanation of the present value concept:

 

http://www.investopedia.com/terms/p/present-value-annuity.asp#axzz2DfR9MQrF

 

You realize in year 25 they'll also probably be paying a $270 million payroll at the same time right?

[Sammy Sofa]

Kinda love the last line of this:

 

http://en.wikipedia.org/wiki/Rusty_Kuntz

[imb]

Kinda love the last line of this:

 

http://en.wikipedia.org/wiki/Rusty_Kuntz

 

thats great

[Careless]

Am I reading that wrong, or is that 50M estimate predicated on WGN paying ~5 million a year to air ~60 games, or less than 25% of the CSN rate?

Says he couldn't get information on the WGN contracts. But isn't it expected that any deal signed between WGN and the Cubs under Tribune management screwed the Cubs as an accounting maneuver?

[J.R.]

The Cleveland Indians are expected to sell their regional sports network, SportsTime Ohio, to FOX for somewhere between $200 and $250 million,

http://www.cbssports.com/mlb/blog/eye-on-baseball/21236814/report-indians-selling-sportstime-ohio-to-fox

[ConstableRabbit]

[Pushfrog98]