The $2 billion team

A group of investors recently agreed to pay around $2 billion for the Los Angeles Dodgers. This is a record payment for any pro-sports team anywhere in the world. N.C. State University economist Mike Walden considers how investors can ever hope to recover their money.

“Well, they don’t hope to recover it in terms of putting people in the stands, paying for the hotdogs, paying for the tickets, paying for the parking. I mean, that’s all important to the revenue stream for the team. But the big bucks — the big bucks for a sporting team today — is in the media. And what the Los Angeles Dodgers and the new owners are expecting to do and how they expect to recover that $2 billion is, they’re looking at TV and radio contracts. That’s where the big money is to be made.

“The Los Angeles media market is the second largest in the country. The media world is expanding. We’re getting media through our smartphones and our iPads and tablets, et cetera. So more and more money is being made in the media, so there’s more money out there for the media to spend. And they want to spend it on enterprises and advertisements good for them.

“So I think what the Dodgers are looking at is, they’re going to be able to make this money up in terms of better media contracts. And I might say for the team that I follow — the Cincinnati Reds — they just signed one of their players to a $225 million contract over 10 years: major, major money. How do they expect to pay it? They expect to get a better media contract in about five years, when that player’s salary is just set to escalate.”