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Blackstone Group LP
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Like all good Hollywood sagas, this one starts with a sensational divorce. Two, actually.
In 1958, Brooklyn Dodgers owner Walter O’Malley, after years of butting heads with New York master planner Robert Moses, moved his baseball team not to the borough of Queens, as Moses directed, but to Los Angeles, leaving a generation of Brooklynites devastated. Say you had a gun with two bullets, went a common refrain in New York that year, and you’re in a room with Hitler, Stalin, and O’Malley. Who would you shoot? The Dodger fan’s reply: “O’Malley, twice!”
Breaking Brooklyn’s heart was good business. O’Malley’s Los Angeles Dodgers thrived, going on to win nine National League Championships and five World Series titles. Celebrated for breaking the color barrier by starting Jackie Robinson in 1947, the Dodgers, O’Malley, and his son Peter also gave baseball such transcendent figures as Sandy Koufax and Fernando Valenzuela. Then, in 1998, the family sold the franchise to News Corp. (NWSA) for $311 million, a decision Peter O’Malley, now 74, regrets so deeply, he’s trying to get the team back.
In 2009 the Dodgers found themselves in the role of the kids caught in a nasty custody battle between its latest owners, Frank and Jamie McCourt. The former husband and wife, who made millions on parking lots in Boston, bought a controlling interest in the team for about $430 million in 2004. On their watch the Dodgers made it back to the National League Championship Series in 2008 and 2009. Last year’s Team Blue included the league’s best starting pitcher, Clayton Kershaw, and Matt Kemp, who was the runner-up for the league’s Most Valuable Player. But in the fall of 2009, according to court records, Frank, convinced Jamie was having an affair with a subordinate, fired her as the Dodgers’ chief executive officer. Jamie countered that her husband, the principal owner, simply wanted to cut her out of Dodger riches.
The two lawyered up, and before the couple reached a divorce settlement in the fall of 2011, it emerged that the Dodgers were in serious financial trouble. The McCourts had withdrawn more than $100 million from the team—money that could have been used to build a championship team, or, more crucially, revamp Dodger Stadium. Instead, according to court documents, the money went toward furnishing mansions, flying in private jets, and retaining a $120,000-a-year personal hairstylist. The couple even had their Brookline (Mass.) kitchen moved piece-by-piece to L.A.’s “platinum triangle,” the enclave at the nexus of Beverly Hills, Holmby Hills, and Bel Air. Jamie McCourt’s ambitions went beyond the perfect kitchen. Court records show she considered starting a think tank called Dodger University, specializing in leadership. This she would ride to a bestselling book, election to mayor of L.A., governor of California, and ultimately the White House.
The Dodgers filed for Chapter 11 in June 2011, after an eventful spring that saw Major League Baseball Commissioner Bud Selig announce he was seizing the team from Frank McCourt, and McCourt’s last-ditch efforts to raise some cash by signing a 17-year contract with Fox TV, a News Corp. subsidiary, one year before their contract was up for renewal. The TV rights deal included a personal loan to McCourt, according to MLB. Selig vetoed the Fox offer, and McCourt could not make payroll.
In October the McCourts finally formalized a divorce settlement. Under its terms, Frank has until Apr. 30 to pay Jamie $131 million—money he expects to raise by selling the team out of bankruptcy. On Nov. 1, the Dodgers and MLB agreed to the endgame: McCourt would sell the team, and promptly, but only if a bankruptcy judge, and not Commissioner Selig, oversaw the process “in a manner designed to realize maximum value for the Dodgers and their owner Frank McCourt.” All of which set the stage for a dealmaking frenzy the likes of which Los Angeles hasn’t seen since Michael Milken was hosting his Predators Balls in the eighties.
“It’s a sports-business circus here,” says David Carter, executive director of the Sports Business Institute at the University of Southern California. “Every day you see that someone else is throwing their hat in the ring or partnering with somebody.” The excitement and competition, sports owners add, is justified. “There are a handful of legacy clubs like the Dodgers in each league,” says Dave Checketts, the owner of the St. Louis Blues, who attempted to buy the Dodgers in 2004. “They’re in major markets and have a history of winning where if you do things right there’s an enormous upside.”
The jockeying for the Dodgers got underway in earnest shortly after New Year’s, when McCourt and Blackstone (BX), the investment bank representing the team in its sale, sent out a distinctive bid book to a roster of prospective owners. In addition to team financials, the parcel included a pair of official MLB game balls autographed by Matt Kemp and a team cap. According to a 22-page PDF listing application requirements for buyers and given to Bloomberg Businessweek by a prospective bidder’s representative, bidders had to offer a nonrefundable $25,000 entrance fee and provide proof of substantial liquid assets. Several people briefed on the bidding process, all of whom spoke on the condition of anonymity because they had signed non-disclosure agreements, say McCourt aims to fetch in excess of $1.5 billion for the team—a record price for a sports franchise.
Some of the figures who have expressed an interest in owning the Dodgers are not surprising: Laker, Dodger, and Yankee greats; local businessmen with an eye on the L.A. mayor’s office; and a handful of the wealthiest men in Los Angeles—biotech pioneer Patrick Soon-Shiong, supermarket mogul Ron Burkle, and real estate developer Rick Caruso. Mark Cuban, the billionaire owner of the Dallas Mavericks, made a cameo. (You can’t sell a premier sports franchise without a look from Cuban.) There’s also Steven Cohen, the hedge fund manager from Connecticut; South Korean retail giant E. Land; and whispers of a Saudi prince.
A few have been down this road before. L.A. real estate billionaire Alan Casden tried and failed to buy the team from News Corp. in 2003, when he proposed razing Dodger Stadium to build housing on the site. “They knock down stadiums all the time,” Casden then told the Los Angeles Times. “It’s not Frank Lloyd Wright. It’s a nice place to play baseball, but there are far better.”
St. Louis Rams owner Stan Kroenke, who is married to Wal-Mart (WMT) heiress Ann Walton Kroenke, has submitted a bid, sparking talk of a National Football League stadium going up on the Dodgers’ sprawling campus, and bundling baseball and football into a multibillion-dollar media deal. Kroenke is no stranger to juggling multiple sports teams; in addition to the Rams, the 64-year-old owns the Colorado Avalanche, Colorado Rapids, and Britain’s Arsenal soccer club. Although the real estate developer is notoriously reclusive—he’s known as “Silent Stan”—he does have a home in Malibu. NFL rules prevent an owner from simultaneously owning a baseball franchise in one city and a football team in another, so either he divests his Rams stake to buy the Dodgers or moves the Rams back to L.A. Another theory holds that Kroenke is playing hardball with the city of St. Louis, using the threat of moving the club to get the city to pony up for a better stadium.
Several media conglomerates, including Time Warner Cable (TWC), Comcast (CMCSA), and News Corp., are circling in pursuit of a TV deal, according to bankers involved in the negotiations. A long-term deal between the Dodgers and Time Warner, Comcast, or Fox for broadcast rights could hit more than $3 billion.
“This is clearly a media play,” says Barry Frank, executive vice president of IMG Media Sports Programming and former head of CBS Sports. “You’re talking about the second-largest U.S. market that doesn’t have a pro football team, so baseball is even more important. Because they play 162 games as opposed to the Lakers, who only play 82, it’s virtually twice as valuable.” Last year, Time Warner struck a 20-year TV deal with the Lakers, locking out Fox Sports Prime Ticket, one of the company’s regional sports networks, from L.A.’s premier sports franchise.
“To not have the Dodgers puts Prime Ticket in my mind at risk in its entirety,” Robert Thompson, the former president of Fox Sports, said in court in December. “Those rights,” says Frank, “are the most important thing that’s going to happen in the Los Angeles market.”
For the first few weeks of January, prospective owners took tours of Dodger Stadium and the 300-acre Chavez Ravine, sampled Dodger Dogs, and surveyed earthquake-preparedness improvements to the 50-year-old complex overlooking downtown L.A. According to a person connected to one of the bids, several paid a visit to Earvin “Magic” Johnson in his Beverly Hills office. Johnson, the five-time National Basketball Assn. champion with the Los Angeles Lakers, aspires to become the next owner of the Dodgers. He has been a successful businessman in his post-basketball life—he owns several movie theaters, and until recently, 105 Starbucks (SBUX) outlets and a piece of the Lakers. Yet the 52-year-old’s foremost currency is his popularity with Los Angeles sports fans. Johnson declined to comment for this article.
Magic is friends with Patrick Soon-Shiong, the founder of Abraxis BioScience and the richest man in L.A. In 2010, Johnson sold Soon-Shiong his minority stake in the Lakers. For most of a week in mid-January, Soon-Shiong looked as if he might make his own bid for the Dodgers, though he’s since backed off. Johnson, meanwhile, emerged as the face of a bid led by Stan Kasten, former president of the Atlanta Braves and Washington Nationals, and Mark Walter, CEO of Guggenheim Partners, the $125 billion investment firm in New York and Chicago. Kasten says he intends to relocate to Los Angeles if their bid succeeds.
Some of those wishing to bid for the team, like the group led by former Dodger first baseman Steve Garvey and pitcher Orel Hershiser, whiffed. Garvey mistakenly assumed he had the backing of Harvey Schiller, the former president of Turner Sports. A person within Schiller’s group said that Schiller had no role in Garvey’s offer. Still others, instead of making their own bids, joined forces, as it appears former owner Peter O’Malley has with South Korea’s E. Land. Such foreign ownership is not common in MLB, but it’s not without precedent: Japan’s Nintendo owns the Seattle Mariners.
Blackstone set a deadline of midnight, Jan. 23, for first-round bids. According to a person who has seen all of the bids, more than 12 were received and at least eight advanced to the second round. Mark Cuban didn’t bid enough to make round two. (Cuban declined to comment.)
One of the eight finalists is Leo Hindery, a former cable executive who co-founded the New York Yankees’ lucrative YES Network. Hindery’s group includes partners Marc Utay, a New York financier, and Thomas Barrack Jr., CEO of $29 billion L.A. private equity real estate shop Colony Capital. Hindery, the former head of TCI and AT&T Broadband (T), turned YES—the Yankees Entertainment and Sports Network—into the biggest regional sports network in the country. The rationale for a team like the Dodgers to go it alone like YES is compelling: cut out the likes of Fox and Time Warner and own the network yourself, and you have leverage over cable operators. Not only do you sell advertising, you also collect a certain amount each month per subscriber.
Given the $3 billion estimate for long-term media rights to the team, if Hindery could put together a YES-type network, a wholly Dodgers-owned enterprise could be valued in excess of that figure, says a person close to the bidding who was not authorized to speak on the record. Fox, which currently holds the rights to broadcast Dodgers games, is aware of the value of such an arrangement. Back in November, as MLB and McCourt were banging out the terms of the bankruptcy auction, Joseph Farnan, a mediator appointed by bankruptcy judge Kevin Gross, tried to arrange for Fox to buy McCourt out. According to two people with knowledge of the talks, the network, prodded by the mediator, made a $1.2 billion bid for the Dodgers. McCourt, who sought closer to $2 billion, rejected it.
Supermarket mogul Ron Burkle is also dealing himself in. “It is one of the best brands in all of sports,” Burkle said in a Nov. 2 statement. “And, like many people, I’d be very proud to be a part of its future.” According to a person familiar with his role but not authorized to comment, Burkle is the wild card. He could add billionaire ballast to an offer assembled by Rick Caruso and former Dodger manager Joe Torre. (Torre resigned his position as executive vice-president of operations for MLB to avoid any conflict of interest.) Caruso, the CEO of his own real estate and retail conglomerate, Caruso Affiliated, has designs on the L.A. mayor’s office. The Caruso-Torre group could rope in Stanley Gold, too, the manager of Roy Disney’s estate.
The Caruso-Torre team is one of three bids in the second round considered most likely to succeed, say five people briefed on the latest negotiations. The premium, they say, is secure financing from a single source. The other two front-runners: Magic Johnson, Mark Walter, and Stan Kasten, and SAC Capital Advisors founder Steven Cohen, who is worth $8.3 billion according to Forbes.
Cohen’s play for the Dodgers is being handled by media banker Steve Greenberg, former deputy commissioner of baseball (to Fay Vincent, the man Bud Selig ousted) and the son of 1940s baseball legend Hank Greenberg. (Cohen, through his spokesman, declined to comment.) Days before lobbing in his offer, Cohen joined the board of L.A.’s Museum of Contemporary Art and recruited superagent Arn Tellem as a partner. Tellem landed big contracts for Laker stars Kobe Bryant and Pau Gasol, and was an inspiration for the title character of the HBO comedy Arli$$. Cohen has retained Populous, the sports architecture firm that helped design the new Yankee Stadium, to study enhancements to Dodger Stadium. Los Angeles philanthropist Eli Broad and record mogul David Geffen have publicly endorsed the Cohen-Tellem bid. They are, respectively, L.A.’s second- and fourth-richest men.
Despite plunging attendance, the Dodgers and Blackstone boast that the team managed to break even in 2011. They emphasize that the Dodgers made the playoffs four times under McCourt, even with a payroll smaller than those of the Yankees and Red Sox. While management underscores such improvements as redone dugouts and new seats, four bidder representatives told Bloomberg Businessweek that they would probably have to spend as much as $450 million over the next few years to boost payroll, upgrade Dodger Stadium, and improve infrastructure around the facility. By way of comparison, Shea Stadium, the former home of the New York Mets, opened two years after Dodger Stadium and was razed in 2008. Blackstone is conducting management presentations during the first week of February, a process bidders hope will make the team’s capital needs and revenue capabilities clearer.
One thing they are sure to ask about: parking. In the bid book sent to prospective buyers, the Dodgers parking lots are not listed as part of the sale. Parking is McCourt’s true business, and he currently charges the Dodgers $14 million in rent a year for playing baseball on his land. “Here’s the test to see if we get a smart or stupid owner,” Bob Daly, the former managing partner of the Dodgers from 1999 to 2003, told the Los Angeles Times on Jan. 25. “If you make a deal and allow McCourt to keep the land and parking lots, you are out of your mind.”
If Blackstone’s presentations at Chavez Ravine and Magic Johnson’s offices in Beverly Hills represent two official nerve centers of the Dodgers bidding frenzy, the two blocks separating Nate ’n Al, a delicatessen where Joe Torre often drinks his morning cup, and the Grill On The Alley, near Rodeo Drive in Beverly Hills, form an unofficial third. On a recent morning, real estate developer Stanley Stalford Jr. invited a reporter to his table at the Grill On The Alley to explain why he’d paid to have exactly 1,000 signs posted from Orange County up through the San Fernando Valley urging shoppers and motorists to “Own the Dodgers!”
Stalford, 48, with thick salt-and-pepper hair, was dressed in a prep sweater and grew animated as he talked. He says it has long been his dream to become president of the Dodgers en route to getting elected mayor of L.A. For bona fides, he ticked off the four Dodger World Series he attended. “You name it, I was there,” he said. “But today’s Dodgers exemplify everything that went wrong in the last decade: easy money, greed, bad governance.” He shakes his head. “And now you have the very guy behind that era handpicking the owner for the next era?”
Even though Stalford is wealthy enough to be known as rich in L.A., he is not angling to become a late-inning bidder. He’s more of a gadfly for John Q. Ticketholder. What if, he wonders aloud, the next owner defaults as well? Or there’s a mutiny among the new partners? How can baseball risk losing the Dodgers twice? Stalford’s solution: sell shares to fans to help raise a minority interest. It’s worked in Cleveland (with baseball’s Indians), and spectacularly in Green Bay, where the community shares ownership of the Packers. Stalford envisions the next owner selling this minority stake in the Dodgers through an initial public offering of shares, with no minimum purchase (ideal for that dad looking for the perfect bar mitzvah present). The proceeds of the offering, he explains, could then be used to discharge some of the debt that will inevitably have to be taken on to finance the deal. Stalford’s pitch comes down to this: “If you’re going to sell your soul, why not to the dyed-in-the-wool Dodgers fan?”
— Additional reporting by Steven Church in Wilmington, Del.