The Best Team Money Can Buy: The Los Angeles Dodgers' Wild Struggle to Build a Baseball Powerhouse (5 page)

The drive from Guggenheim’s L.A. headquarters to Johnson’s office is just over five miles. It took the men two hours. Protesters had taken to the streets in support of the anti–Wall Street Occupy movement, grinding traffic to a halt. “We were like an hour late to the meeting, which couldn’t be filling Lon with confidence,” said Kasten. “It was horrible.”

Johnson had already met with four prospective groups, but Walter and Boehly made a striking impression on him that day. The Dodgers were unique in that the team’s stadium sat on three hundred acres of undeveloped land owned by the club that overlooked downtown L.A. The Raiders and Rams of the NFL had left the city twenty years earlier, but there had long been talk of luring one or both teams back with a fancy new stadium. Some thought the area surrounding Dodger Stadium would be the perfect location for such a structure. Each of the previous groups that met with Johnson had laid out its ideas for using the Dodgers as a foundation to build a larger sports and real estate empire. Johnson had grown skeptical of the motives of these rich men. So he looked at Walter and asked: “Are you doing this for the investment or are you doing this to win?” Walter didn’t hesitate: “I’m doing this to
win,” he said, adding that he hoped to leave the team to his daughter one day. The meeting lasted an hour. As he walked out of the building, Kasten thought it went well. Johnson had one more group to sit down with, but he’d made up his mind. “I felt like I’d just met a guy who was just like Jerry Buss,” Johnson said later, referring to the legendary Lakers’ owner. “He’s so into his family. He has a great passion for winning and doesn’t care if people knew who he was.” Kasten, Walter, and Boehly were just sitting down to dinner at the SoHo House on Sunset Boulevard when Rosen texted Kasten. Magic was in.

•  •  •

Days before the 2012 season kicked off, McCourt submitted his list of potential buyers to Major League Baseball. Selig’s office then whittled it down to three finalists, who would be allowed to bid on the Dodgers at an auction held by McCourt. The first was Stan Kroenke, a real estate entrepreneur out of St. Louis worth an estimated $5 billion who owned the Rams, the Denver Nuggets, the Colorado Avalanche, and the English soccer club Arsenal. Observers joked that all Kroenke needed was a baseball team to complete the set. His interest in owning a ball club made sense for another reason, too: he had been named for Cardinals legend Stan Musial. Kroenke also held the distinction of being the only billionaire in the world married to another billionaire. His wife, Ann Walton Kroenke, was the daughter of one of the founders of Wal-Mart, Sam Walton’s brother James.
Forbes
estimated she was worth even more money than her husband. The second finalist was Steve Cohen, a hedge fund deity from New York City worth an estimated $11 billion, much of it liquid. Cohen owned a small stake in the Mets, which he promised to sell if he won the auction for the Dodgers. The third finalist was Walter’s secretive Guggenheim group.

The smart money was on Cohen. He seemed to have the deepest pockets, and the feeling was that Major League Baseball preferred him as the choice since they were already familiar with him as a minority owner of the Mets. So when McCourt issued a press release telling the world that Guggenheim Partners had bought the Dodgers for
$2.15 billion the night before the auction was supposed to take place, the industry gasped. No baseball team had ever sold for a billion dollars, let alone two. When John Henry purchased the Red Sox in 2002, he forked over just $660 million. After McCourt paid off his creditors and the IRS, it was estimated that he would walk away with close to a billion dollars in profit—not bad for someone who had put none of his own money into the purchase of the team eight years earlier. Underscoring just how wrong everyone was in their estimate of the Dodgers’ worth, Jamie McCourt had struck an agreement with her estranged husband before he sold the team that netted her $131 million tax-free, plus ownership of the couple’s homes. That settlement turned out to be a raw deal for her. After paying off his ex-wife, McCourt wound up with close to seven times what she got, a result she handled by suing him for $770 million on the grounds that he misled her in court about the Dodgers’ real value. The judge denied her appeal to throw out the divorce settlement, saying that she chose the security of the $131 million and the homes over the risk of the Dodgers’ sale. But what happened eighteen months after McCourt sold the team probably still keeps them both up at night.

After it was reported that the Guggenheim group outbid the next-highest bidder for the Dodgers by some $500 million, the gasps turned to snickering. But it wasn’t true. When Mark Walter sat down alone with Frank McCourt in a Manhattan hotel conference room the night before the auction,
McCourt slid a piece of paper across the table toward Walter. It was a signed offer from Cohen to buy the Dodgers for $2 billion. Walter told McCourt he’d give him $2.15 billion, plus an interest in the land surrounding Dodger Stadium should he and his partners ever decide to develop it. There was one caveat, however:
Walter told McCourt it was take-it-or-leave-it. If McCourt left the room, the deal was off. McCourt agreed to the terms, and the two men shook hands. But members of
the Guggenheim group worried McCourt would violate the handshake agreement and return to Cohen with Walter’s bid to see if he could squeeze more money out of him.
“You
know Frank went back to Stevie Cohen and said beat this,” said one insider familiar with the deal. If McCourt did in fact return to Cohen to give him a chance to best the Guggenheim offer, Cohen didn’t bite. “It was unbelievable,” said the insider. “The guy’s got nine billion liquid and he wouldn’t cough up another three hundred million to buy the Dodgers. And he’s a baseball fan!” Had the team gone to auction the following day as planned, Kasten suspects the Guggenheim group would have been outbid.
“We might not have won,” said Kasten.
“Both of the other groups were prepared—and we know this for sure for other reasons—that they were prepared to go a lot higher.”

Cohen was not without regret. The day the Dodgers deal closed in Los Angeles, he flew in from New York and hung around the hotel where the contracts were being signed, just in case the sale fell through. It didn’t. And it was a good thing for the city of Los Angeles that Cohen didn’t end up owning the Dodgers on the heels of the McCourt debacle. The Securities and Exchange Commission had been investigating Cohen for insider trading for seven years before filing lesser charges against him for failing to prevent his employees from committing fraud, just four months after the Dodgers sale was finalized. The U.S. attorney for the Southern District of New York said that Cohen’s firm had created a “culture of corporate corruption,” something Dodger fans felt they were already acquainted with. Cohen pled guilty and agreed to stop managing other people’s money. He was fined $1.2 billion.

The public never knew about Cohen’s offer.
Walter says he declined to set the record straight because he didn’t care that people thought he had overpaid. He was content in his conviction that he had made a good deal. When a group led by Houston businessman Jim Crane had bought the Astros for $680 million in May 2011, an alarmed Kasten had called Walter.
“I have some bad news,” Kasten said. “The Astros just sold for seven hundred million. We might have to pay a billion to get the Dodgers.” Walter laughed. Getting the Dodgers for a billion would be a steal, he told Kasten.

Walter knew that experts were wildly undervaluing the ball club
because they failed to anticipate the tidal wave of cash that would pour into Chavez Ravine when the Dodgers signed their new television deal. Financial observers didn’t grasp that baseball’s TV revenue was surging toward heights that would dramatically alter the worth of franchises. Walter understood the salient point that fiscal gurus seemed to miss. And that was that no one watched television live anymore—except when they watched sports. The invention of TiVo, DVR, premium on-demand channels, and Internet streaming sites like Netflix and Hulu meant that time-strapped consumers never had to sit through another commercial again if they didn’t want to. But people still wanted to watch sports in real time. Advertisers understood this, which is why they paid a premium for spots during high-rated games and matches they thought were least likely to be fast-forwarded through.

When first determining the baseline value of the Dodgers in his head, Walter didn’t count how many tickets the team was selling each year or how their jerseys and caps were faring on the open market. He set the starting point on simple population arithmetic. Walter knew the real money was in the television deal, so he compared the L.A. and Houston markets. Houston had 2.1 million households. The Los Angeles metro area had almost three times that amount. The Astros had sold for $680 million. In Walter’s mind, that meant the Dodgers were worth at least three times that amount on their media rights deal alone. The three hundred acres of land surrounding Dodger Stadium and the fact that the club often led the majors in attendance were perhaps worth another billion or two. The world thought he was overpaying. Walter believed he was getting a bargain. “Here was this baseball team, a global brand, a little bit tarnished recently, in the second-biggest city in America, in the entertainment capital of the world when its TV contract was up in two years at a time when rights fees were exploding,” said Kasten. “All of those things at once and we thought, Wow. That has some potential that we’ve never seen in baseball.”

Walter’s instincts proved correct eighteen months later when Time Warner agreed to pay the Dodgers $8.35 billion for the rights
to broadcast their games for the next twenty-five years. McCourt may have cleared a cool eight hundred million, but he’d been ousted a year and a half before he could have collected a signed contract for ten times that amount—a bitter pill to swallow for someone who could never stockpile enough cash to be satisfied. Had the McCourts buried their differences awhile longer, they could have split that windfall.

•  •  •

In many ways, Mark Walter was Frank McCourt’s opposite.
While McCourt hid from media behind PR lieutenants, in Walter’s first season owning the Dodgers he greeted journalists like old pals and often divulged too much, to the point where Kasten begged him to begin his informal chats with members of the press by telling them that what he said was off-the-record. While McCourt never helped himself by appearing uncomfortable in his own skin, Walter was fully present, and hopped around the field during batting practice like a giddy child. He hugged stadium employees he hadn’t seen in a while, and greeted most of them by name. Walter grew up in Cedar Rapids, Iowa, not far from the Field of Dreams, and radiated warmth, so much
gosh darn Midwest salt-of-the-earth nice
that it was difficult to imagine how he had the instincts necessary to run a company that managed $210 billion worth of assets. In considering this question, he smiled and shook his head.
“I’m nothing special,” said Walter. “Just the king of common sense.”

Perhaps common sense isn’t that common. After all, it was boring logic that led Walter to value the Dodgers at three times what
Forbes
did. Because the NFL is the most popular sport in America, many financial laymen believe that football franchises are worth the most money. But Walter didn’t think that was true. The NFL broadcasts its games on national networks each week and splits that revenue equally among its thirty-two teams.
Forbes
estimated that the Dallas Cowboys were the most valuable franchise in the United States in the spring of 2012. But the Cowboys don’t have the option of broadcasting their games on their own television network and reaping the benefits of the advertising dollars that would go along with that. In baseball there
are no such limitations. When Walter took over in Los Angeles,
MLB was as fiscally unregulated as the Wall Street financial institutions that caused the economy to collapse in 2008. While the NBA, the NFL, and the NHL relied on pooled profits and hard salary caps, Major League Baseball’s evolution mirrored the staggering wealth disparity in postrecession America. The new Dodgers television deal would give the team an average of $334 million a year. The St. Louis Cardinals, on the other hand, made only about $25 million annually in media revenue. And the Pittsburgh Pirates pulled in just $18 million. For the Cowboys to be worth as much as the Dodgers during this TV revenue boom, Walter estimated the team would have to rake in one hundred dollars in beer and T-shirt sales per fan per game. To his credit, Frank McCourt saw this windfall coming a decade earlier. But Walter did, too.
“We didn’t have the dough to buy the team back then,” said Walter. “No one did.”

While his predecessor wore silk and linen to ball games, Walter, fifty-three, favored sneakers, blue Dodgers pullovers, and dad jeans with his cell phone clipped to his belt buckle. He and his wife, Kimbra, had met as undergrads at Northwestern University. They had one daughter, Samantha, who was twelve when her father bought the Dodgers. When Samantha expressed an interest in becoming a veterinarian, Walter bought a zoo in Tampa, Florida. After Walter purchased the Dodgers and she got a behind-the-scenes look at how professional sports organizations were run, she told her dad that she might want to be general manager of a team someday. So Walter bought the Los Angeles WNBA team, the Sparks, with the idea that she might run it when she was old enough.

Walter knew that Dodger fans had hated McCourt. He understood their wariness about another rich out-of-towner buying the Dodgers as a business opportunity, and not because he had deep roots in the community. So he went to work to win them back.

After his group took over, the first significant player contract to come up for renewal was Andre Ethier’s. A right fielder who had been
in the Dodgers organization since he was twenty-three years old, Ethier was a fan favorite, particularly among the women who whistled when his rakish mug was shown on the scoreboard. He had led the team with thirty-one home runs in 2009, the last year the Dodgers made the playoffs. But in the past two seasons his power had almost evaporated. In 2011, at age twenty-nine, he hit just eleven dingers—a lackluster number for a corner outfielder. On the plus side: Ethier was a career .300 hitter against right-handed pitching. Unfortunately, pitchers also threw left-handed. He hit only .230 against southpaws, leading commentators to point out he was best used as a platoon player. The Dodgers’ front office was well aware of his limitations but decided that buying the goodwill of their fan base made more financial sense than paying Ethier what he would have been worth on the open market. Even though he was on the decline, and arguably the club’s tenth-best player at that point, the Dodgers re-signed him to a five-year, $85 million extension that raised eyebrows around the league for its generosity. But the new owners weren’t overpaying an aging outfielder as much as they were purchasing a citywide public service announcement letting fans know the bad times were over.