Dodgers TV Deal and Ohtani Contract Put Dodgers Revenue in Rarified Air

A day or so back, Badger asked a question on Bill Shakini’s LA Times article – “What’s the Deal on the Dodger’s TV Deal”.

I am not nearly as erudite or articulate as Shaikin, but here is my attempt:

Frank McCourt is a first-rate ass and almost single handedly destroyed a storied franchise. Okay he had help from his wife.   But in the end, McCourt pushed all the right buttons that made him wealthier than he could have dreamed but also set the Dodgers up for this remarkable run they are currently in, and under the current structure could possibly continue to 2039.

McCourt knew he had to sell the team.  He was getting a divorce, had no cash, and no assets to leverage.  But he also knew he had a TV deal to negotiate.  He negotiated a 17 year $2.7B deal with Fox, that Bud Selig rejected.  That Fox deal was a central part of the divorce proceedings and after it was rejected, it forced McCourt to go to bankruptcy court to set the fair market value of a pending TV deal.

“The Los Angeles Dodgers and Major League Baseball announced that they have agreed today to a court-supervised process to sell the team and its attendant media rights in a manner designed to realize maximum value for the Dodgers and their owner, Frank McCourt. The Blackstone Group LP will manage the sale process,” said a statement from MLB and the Dodgers in November of 2011.  (Underlined emphasis mine).

As Forbes so aptly put it:

“It’s not that MLB granted the Dodgers a sweetheart deal with their revenue sharing. It’s that the courts had to determine what those media rights might look like when they finally came to fruition.”

That agreement for a court supervised process is what led to today’s reported disparity.  MLB agreed to the fair market value of the previously rejected Fox deal for bankruptcy proceedings.  The first year’s fair market value of revenue was set at $84MM with escalators.  At the time, teams put 34% (now 48%) of the local TV revenue into the revenue sharing pot to be split amongst all 30 teams.

McCourt knew that the pending TV deal would get bidders to increase their Dodgers’ purchase offers.  Mark Walter saw the potential and increased his bid to $2.15B.  He wasn’t just buying the Dodgers; he was buying a TV deal that was undervalued and was up for negotiation.  They said at the time, that a key part of their offer was the “special terms” for the projected local media rights.

The Court missed big time on their valuation, but the settlement decree cannot be undone by MLB.

A year after Guggenheim purchased the Dodgers, they consummated a TV deal with Times Warner for a record $8.35B.  MLB owners were upset about the largesse that the Dodgers were getting, but Selig incorrectly advised them that the Dodgers local TV revenue would be treated like all teams’ local TV revenue.  Selig was wrong.  And Mark Walter knew it.

The Court approved settlement could not be changed by MLB, and Selig did not want to go to court.  Walter knew that the Court would uphold their settlement decree and that there was nothing MLB could do.  However, as a gesture of goodwill, Guggenheim agreed to reset the fair market value of the first year’s revenue to $130MM, from $84MM.  They still they had a monster deal.

That put another $15.64MM into the revenue sharing deal but left the Dodgers with tens to hundreds of millions that would otherwise have been in the revenue sharing pool totally with the Dodgers.  The deal calls for an average guaranteed TV revenue of $334MM.  It will be more than $500MM the year the TV deal expires.

There is no year-by-year comparison of the actual revenue payments made by Spectrum vs the fair market value established in Court, but the guaranteed payments increase faster than the fair market value. They are about halfway through the original deal, so the amount that the Dodgers do not have to share is probably approaching $100MM.  That is a lot of Kyle Tucker contracts and luxury tax hits that the Dodgers can well afford.

Now compare the Brewers TV deal to the Dodgers’ Spectrum deal.  Brewers got $35MM from FanDuel, and the Dodgers are averaging $334MM.

If the Dodgers were playing under the same rules as the other teams:

• Brewers $35MM X 52% (amount the team keeps) = $18.2MM.

• Dodgers $334MM (average) X 52% = $173.68MM (Dodgers keep). The Dodgers amount going into revenue sharing would be $160.32MM, or $5.34MM for each team. That would be almost 30% of the Brewers TV revenue from FanDuel.

• However, the Dodgers deal allows them to keep and not share a large percentage of the revenue due to the original fair market value of the original deal decreed by the Court.  Thus, the cries from the small market owners. The Dodgers have a bigger market, and they get to keep a substantial amount of that TV deal revenue.

Forbes is estimating that the Dodgers will retain and not share around $2B TV revenue over the life of the Times Warner deal.

Per Bill Shaikin, in 2028, when MLB national TV contracts expire, Commissioner Rob Manfred would like to offer traditional networks and streaming services the chance to bid not just on national broadcasts but on an all-baseball, all-the-time outlet where fans could watch any team, wherever they lived, and with no blackouts. With that, the league believes, it could strike gold — and then share the wealth among all 30 teams.

But why would the Dodgers, or Yankees, or any other team with a sweetheart TV deal agree to that?  Why would they agree to forego keeping 52% of their TV revenue market to be just one of 30 teams.  Obviously, they are not, so MLB is going to have to get creative to find other loopholes for the Dodgers and Yankees to exploit.  I do not know what those changes might look like although Shaikin did share a couple of ideas:

• Exempt the Dodgers from sharing ticket revenue.
• Allow the Dodgers to secure Japanese TV rights now controlled by MLB.
• MLB by SportsNet LA.

But those decisions will have to wait until 2028.

What can MLB or MLBPA do about the Dodgers in the next CBA deal.  MLBPA is not going to want to do anything to dissuade LAD from their current advantage, but that is probably not realistic.

There is going to be a Dodgers disincentive in some form.  The owners are not going to cut off the revenue cow (AKA the Dodgers) for the small market teams, but they may want to find some alternative to achieving a closer competitive balance amongst teams.  Salary cap is a non-starter for the MLBPA.  We know that the luxury tax and the loss of draft picks is not a deterrent with the Dodgers.  Could the tax increase to 150%?  Could they lose their 1^st and 3^rd round pick instead of the 2^nd and 5^th for signing a free agent with a QO?  Could they lose $2MM in international bonus $$$?

Suffice to say that there will be a Dodger clause in the new CBA.  The issue will be how far do the owners want to push it.

Let’s say that the CBA calls for a larger revenue sharing pool the large market teams have to contribute, giving the small market teams more of a share.  One thing the MLBPA must insist is that teams need to spend the dollars on improving the team on the field and not just pocketing it.

I am tired of owners like the Brewers’ Mark Attanasio crying about the disparity when he cannot come up with $8MM for Freddie Peralta to pitch for Milwaukee this year.  Instead, he got two players who will not be near the value that Peralta was.  Was Peralta going to leave?  Yes.  Most likely because Milwaukee would not come close to giving him what he deserves.  But the team had a much better chance of success with Peralta than without him.  Two good prospects, but to the level of Peralta???

I have more respect for Paul Dolan, owner of the Cleveland Guardians.  They are a small market team similar to the Brewers, but they just consummated the third extension for José Ramirez keeping him in Cleveland for the rest of his career.   Could the Brewers have made a similar offer to keep Peralta?  We will never know.  Would Peralta have accepted it as Ramirez did?  We will never know that either.

Instead of trying to improve the Brewers, in 2022 Attanasio became a director of an English Football Club, Norwich City, purchasing 18% of the Club. He has increased his holdings into the Club over the next two years to where he is now the majority owner with 85% share.

Until the owners open their books, we will never learn as to what assets Attanasio could have deployed to increase the talent for the Brewers, instead of finding ways to fund his English Football venture.

How much of a loss of Peralta will create a loss of revenue for post season games?  The NL Central just opened up with the Cubs the favorite.  Are the Brewers better than Cincinnati and a charging Pittsburgh?  We will see in October.

It wasn’t just the TV deal that has helped push the Dodgers to a new revenue haven. Sportico estimated the team’s revenue jumped by more than $200 million during Ohtani’s first season in 2024, making the Dodgers the first MLB franchise to eclipse the $1 billion revenue threshold. The club’s sponsorship business alone is now believed to make as much money as roughly half of the league’s other 30 teams do overall.  It’s even more

The Dodgers are a financial juggernaut, and the other teams want to make them pay.  Players?  They are lining up to play for LAD to win championships and to become well-paid.  I am not sure how much MLBPA wants to change that dynamic.