Together, we'll help you jump-start the conversations, breaking down the news into kid-friendly bites.
Just days before Major League Baseball’s opening day (April 4), the fate of the hallowed Los Angeles Dodgers was decided. On March 27, a group of investors led by former basketball star Magic Johnson bought the baseball team for a staggering $2.15 billion, a record amount for a sports franchise.
Last June, the Dodgers went bankrupt. This is relatively rare for professional teams, mostly because our sports-mad country can support just about any team, even when they’re perennial losers. Which the Dodgers are not. Fortunately for Dodger fans, the team’s new owners will presumably return the team to financial health.
The strange tale of the Dodgers offers several fascinating financial “teaching moments” for all of us, even little leaguers.
The messy split
First, the slightly sordid part. The most recent Dodger owners, Frank and Jamie McCourt, went through a very messy and public divorce in 2009, at which time both claimed to be the “true” owner of the team. There was bickering. There was posturing. And there was legal maneuvering—all of it quite embarrassing for the McCourts.
An ever-tightening cash flow and huge debt caused increasing problems for the Dodgers, until finally Major League Baseball blocked a last-minute plan by Frank McCourt to secure a TV revenue deal. This forced him to take the team into bankruptcy. He agreed to sell the team in June of 2010.
As part of the deal to buy the Dodgers, Mark Walter, CEO of financial services firm Guggenheim Partners, will be the controlling owner of the team. Stan Kasten, a longtime baseball executive, will reportedly run the day-to-day operations. The deal has to be approved by a federal bankruptcy court and is expected to be completed by April 30. Before the deal was announced, two other bidders — hedge fund manager Steve Cohen and Stan Kroenke, owner of the St. Louis Rams, the Colorado Avalanche and the Denver Nuggets — were in the running to buy the Dodgers.
Is buying a sports team a smart move?
The big question was the price. The $2.15 billion price tag for the Dodgers was double what experts thought it would sell for. How can you explain this vast sum to a child? How about this: If that sum was paid in cash, and those one billion dollar bills were placed end to end, they would circle the Earth more than eight times!
Another question for your child: Would buying the Dodgers be a smart move if he or she had the money? Most likely, yes, especially given the huge and loyal fan base this team enjoys year after year. Back in the 70s, the Dodgers became the first baseball team to draw more than 3 million fans at their home ballpark in a year; they have done this many times since. And just think of the big pay off for Frank McCourt, who bought the Dodgers (along with the stadium and parking lots) for $421 million in 2004.
That said, as your smart young family member may know already, it’s normally best to follow the tried-and-true investing rule of “buy low, sell high.” For example, Mark Cuban, who reportedly submitted a bid to buy the Dodgers and owns the Dallas Mavericks NBA basketball franchise, bought the Mavericks for a relatively modest sum of $280 million back in 2000 when they were in last place, and were in the bad habit of losing big every year. The Mavericks won the NBA Championship last year, just 11 seasons later, and the team is now worth nearly $500 million!
In the case of the Dodgers—a team that’s bankrupt but nevertheless still commands high market value—the new owners will be banking on a “buy high, sell higher” strategy. This can certainly work, but it sometimes takes many years to see a significant return on investment.
Which teams give the most bang for your buck?
Putting the Dodgers aside for a minute, if your sports enthusiast/future investor is really looking to play with the big boys and girls in team ownership someday, he or she should consider owning a professional football team, not a baseball team. Last year, in a Forbes list of the top 50 highest-valued sports teams in the world, all 32 NFL football teams were on the list. The Dallas Cowboys were No. 1 among NFL teams, at an estimated value of $1.81 billion, which put them second overall to the famous English soccer team Manchester United, valued at $1.86 billion.
Of course, there’s the option of partial ownership, as in regular people owning shares in a team, just as you would own shares of a publicly-owned company. The good news is, you and your child don’t have to be rich to do this with a professional sports team. The bad news is, as far as Ballooning Nest Eggs is aware, there’s only one team among all the 122 major professional sports teams in this country that is publicly owned: the Green Bay Packers football franchise. As of today, 112,158 stockholders own a total of 4,750,937 Green Bay Packer shares, according to the team’s website.
Which just makes you think: If the Los Angeles Dodgers had had that kind of widely distributed financial backing, would they have gotten into the trouble they did?
Here are some questions to keep you and your young investor talking about the interesting matter of owning a professional sports team:
- Do you think it’s right that sports teams are worth millions and sometimes billions of dollars? Why or why not?
- If you could own any team in the whole world, which would it be and why?
- Once you bought that team, what is the first thing you would do as the owner, and why?
- Do you think more sports teams should allow public ownership like the Green Bay Packers? Why or why not?
- Do you think the players should be the ones to own their team, since they’re the ones that attract the fans and the TV viewers?
Bonus trivia question: The Los Angeles Dodgers used to be the Brooklyn Dodgers until their owner moved them to the west coast in 1958. In 1947, the Brooklyn Dodgers were the first Major League team to allow an African-American to play for them. What was his name? Hint: His initials were “J.R.” [Answer: Jackie Robinson.]