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Whither the Sole Owner of a Sports Team?

The LA Times had this article recently on the owner of the Los Angeles Dodgers, Frank McCourt.

When he sold the Dodgers to Fox Sports Enterprises in 1998, having lost $12 million the previous season, Peter O'Malley declared Major League Baseball's era of family ownership over.

Player salaries had grown too high for a baseball-only business to succeed, O'Malley said. He figured that corporate owners such as Fox Sports, a unit of media giant News Corp. with the ability to cross-promote the team through its TV properties, were the wave of the future.

This week, Frank McCourt begins his second season of trying to prove O'Malley wrong.

The ownership of a sports team by a media conglomerate (FOX, the Tribune Company) could be a way to improve the overall profitability of the conglomerate. Suppose that a conglomerate has decided that it is going to try to buy a team or its media rights. If owning a team outright improves the profitability of the conglomerate more than simply buying the rights to broadcast the team’s games, we’d expect it to try to buy the team. Just how that improvement could occur is easier said than explained because there are so many ways that owning a team can improve “the bottom line.” In the case of FOX and the Dodgers…

Executives at parent News Corp. declined to comment for this article. However, people familiar with the company's strategy said it already had accomplished its real purpose in buying the team: establishing a regional cable sports network in the nation's No. 2 media market, thereby thwarting the similar goal of rival Walt Disney Co.'s ESPN.

The Dodgers were on the market for two years and were finally sold to McCourt for $421 million. Now, in his second year, he’s adding some new wrinkles to the old ballpark – some obvious and some not-so obvious.

Fans returning to Dodger Stadium this weekend for the Freeway Series against the Angels are seeing a number of changes in the 43-year-old ballpark aimed at increasing revenue.

For example, some 1,600 premium seats have been added along the baselines. A 3-foot-high, 1,100-foot-long electronic "ribbon board" has been installed on the facing of the loge section to flash advertising, along with scores and statistics. Chicago-based Levy Restaurants, which used to handle just the premium dining, has taken over food concessions for the whole stadium.

He’s added more seats to increase revenue at the gate, a ribbon board to increase advertising revenue, and has outsourced the concessions to one company presumably to lower costs. These actions sound like the actions of a profit seeker. But...

"Being profitable isn't the point," McCourt said in an interview in his wood-paneled office overlooking left field. "The point is to at least break even and have a sound, healthy business."

Professional sports ownership has always been more about building the asset value of a franchise over time rather than taking out profit along the way.

The franchise value of a team will reflect the long-term profitability of the team if potential buyers seek profits and the current ownership seeks profits. If profits are the sole motivation of the buyer and the seller (the million dollar question!), the buyer wouldn’t want to buy the team if its sale price were more than the present value of the team’s expected profits over time and the owner wouldn’t want to sell it for less than this value. If other things motivate the buyer/seller, then things get a little messy. But the franchise value still reflects profits over time.

Hat tip to The Business of Baseball for the link to the article.