Many words have now been written about the Dodgers business situation and how it might reflect on the future of the franchise, so why not do it again? When Guggenheim laid out $2.12 billion for one of Major League Baseball’s crown jewel franchises, it did so with a specific plan in mind.
As with any business, building a solid short and long term plan is among the many keys to success. When Guggenheim partnered with Stan Kasten, they set forth to implement their version of that plan. With their debt now the subject of scrutiny, the Dodgers are said to be under a specific burden to reduce their debt in compliance with MLB rules. Though to know where one is going, one must first study where one has been.
Upon taking control of the franchise on May 1st, 2012, the owners and Stan Kasten set forth their plan. It was laid out quite openly for all to hear, but was washed away with some very large splashes.
[graphiq id=”anlG266oQVD” title=”Stan Kasten” width=”500″ height=”748″ url=”https://w.graphiq.com/w/anlG266oQVD” ]
The Dodgers were going to be aggressive in getting the team to competitiveness immediately, while building for a future with a constant pipeline of internally developed talent. The team had a solid foundation in place, and by the end of the season, they would have splashed a plenty, acquiring a tremendous amount of talent accompanied by an astronomical $250 million in future payroll commitments.
The following offseason was accompanied by a few free agent splashes of its own, with the 2013 season beginning the Dodgers active streak of 4 consecutive division titles. All told, the Dodgers would spend over $1 billion in total salary commitments to go along with their hefty $2.12 billion price tag.
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But that wasn’t the end of their spending spree.
Including the near $150 million on stadium renovations, their total debt outlay after their purchase was over $3 billion without taking into account their revenue.
Along came the television deal that many will point to as what helped float and hurt the Dodgers, and both are likely true. Mark Walter’s ownership group bought the team in cash, but people who spend $2 billion on a sports team didn’t get $2 billion to spend on a sports team by just handing over $2 billion and not expecting to see a return. Cash or not, the money was to be paid back to the lender of said cash and likely with interest.
The television deal, in part, helped to keep the team solvent without bleeding the ownership group of cash. It also severely tarnished their reputation. The $8 billion deal flooded the Dodgers coffers with roughly $300 million in cash every year. However, MLB’s collective bargaining rules stipulate that the Dodgers must surrender 34% of that right off the top to baseball’s revenue sharing system.
— SportsNet LA (@SportsNetLA) November 29, 2016
That $300 million quickly becomes $198 million. With an average of $450 million in total annual revenue, a player payroll of $300 million does not have long-term sustainability.
Thus comes the second part of the plan, as the Dodgers spent aggressively on the international market, employed and empowered a very talented, effective player drafting and development team, and hoarded long-term assets in the form of prospects as they began to build for their ultimate goal of long-term competitiveness and sustainability.
When integrating rookies over veterans, in addition to potential on-field improvement, the team also sees a monetary gain as the expensive veteran is cycled out for the inexpensive rookie. The Dodgers saw a cost savings when they moved from Matt Kemp (20m) to Joc Pederson, just as they did when moving from Rollins to Seager. These improvements brought cost down inherently, as the Dodgers no longer have the $300 million payroll that is often criticized.
And that isn’t the end of the cost savings either, with almost $50 million in dead money falling off after the 2017 season ends and another $70 million falling off with free agents in 2018 or $100 million if Clayton Kershaw opts out. Add another $50 million in luxury tax payments if they get below the threshold and it’s very easy to see where money frees up to sign necessary pieces and they look to lock up potential franchise cornerstones long term.
And all of this doesn’t preclude the Dodgers from signing or trading for players. However, the Dodgers may need to look at their moves more astutely, which may be a reason for them to balk at an Ian Kinsler trade/extension. The Dodgers don’t want to make moves for the sake of making them.
They must be calculated moves that make the team better in both their short-term strategy and their long term strategy, while fitting into the mold of providing more cost and performance certainty. They won’t have much by way of international expenditures during the 2017 season due to being penalized for going over, but there could still be a lot of action in the 2017 offseason.
With the Dodgers achieving profitability 3 of the last 4 years, their total overall debt commitment is being reduced. There are two things about the story regarding the Dodgers debt that should be considered.
- The first is that MLB has a rule regarding debt to revenue ratio that takes effect after 5 years of new ownership and they simply told the Dodgers “hey that time is coming.”
- The second is that the last few weeks have been baseball purgatory, so every story or headline that comes across the wire receives extra amplification.
As the dust settles, the report has already been refuted by both the Dodgers and MLB. While this is a fun topic to investigate and look into, it is much more of a mole hill than the mountain into which it’s formed.
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