Monday, June 20, 2011
Hostile Takeover
Any headway made with the McCourts' divorce settlement last week was completely undone by Bud Selig and Major League Baseball. The Dodgers' owners had agreed on a one day trial to essentially determine if Frank McCourt was the sole owner of the Dodgers or if Jamie McCourt had rights. All other aspects of the divorce and what would happen after the trial decision had been agreed upon. Then MLB dropped their bomb and voided an agreement between Frank McCourt and Fox Sports for long term broadcasting rights. The deal was worth $2.7 billion and would have helped Frank McCourt continue to make payroll.
Instead, it is looking more and more like Major League Baseball will seize control of the Dodgers. And that's exactly what they should do.
There are two main questions associated with such a takeover. How can MLB takeover and sell a team that an owner spent so much money on? And what business does MLB have in voiding a contract between two consenting entities?
The answers are simple and really reflect business 101. Each Major League club is a franchise. Major League Baseball is the corporation. Think of it like McDonald's.
The McDonald's Corporation controls the overall activities of the company but franchises each restaurant. The owners of each franchise put down a substantial amount of money to own one of these franchises, but they also agree to run it in accordance with McDonald's policy.
What do you think McDonald's would do if it learned one of their franchise owners couldn't pay his employees? What do you think they would do if they found out the owner was using profits for his own personal gain rather than making payroll? Now imagine this is a successful McDonald's franchise in a prime location. The corporation isn't just going to shut it down or let it fail. They are going to find a new owner.
According to Baseball Reference, the Dodgers attendance last season was 3,562,320. That was good for second in baseball. A quick calculation of their 2010 payroll puts the figure at $94,188,516. Now let's calculate the average ticket price at Dodgers Stadium.
Obviously more tickets will sell in the lower price points than the higher ones, so taking an average is difficult. To be fair, I took an average of the ticket prices under $100. Using this rough calculation that clearly underestimates the actual ticket revenue, we get an average ticket price of $39.29. Multiplying the 2010 attendance figure by this average ticket price gives us an estimated ticket revenue of $139,963,552.80.
Throw in concession revenue and advertising revenue and the number grows quickly. So please don't tell me the Dodgers were operating at a loss. Instead, Frank and Jamie McCourt used profits for their own pleasure. To the point of running one of baseball's great franchises into financial ruin.
While I don't often like the moves Bud Selig makes as baseball's commissioner, he needs to seize control of this team. For those in support of Frank McCourt's continued ownership you are basically saying you support a greedy man who cares more about personal gain than his team.
As for the Fox Sports deal, don't be naive enough to think the deal is dead. If Major League Baseball takes over the Dodgers and sells the team, you can bet on the new owner getting that deal approved. So why wouldn't Bud Selig approve this deal and allow Frank McCourt to save his neck? It's simple.
If the owner of a Major League franchise has to resort to a major media deal to overcome his financial disaster and make payroll, he is not the right guy. Do you think a McDonald's franchise owner could sell ad rights on their storefront just to make payroll?
No corporation in their right mind would allow a franchise owner to continue running their company the way Frank McCourt has. It's bad for the Dodgers and bad for baseball.
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