The answer to any question about a baseball team’s increased spending these days is “well, they have a new local TV deal in the offing, and that will bring big money.” It’s why the Angels could easily afford C.J. Wilson and Albert Pujols in one offseason. It’s why the Phillies, despite a big payroll already, could afford to go big on Cole Hamels. Local TV money is all the rage these days, so anyone getting a new infusion of it will be flying high.
But one definitely gets the sense that people are overstating this a bit. For one thing, it strikes me that there’s the possibility of a bubble situation here, with the “TV money is HUGE” mantra sounding an awful lot like the “Real estate only goes up!” mantra of a few years ago. Maybe that’s just my gut talking, but it’s very possible that changes in the industry — direct-to-consumer broadcasting, a la carte cable channel pricing, online streaming — could alter the financial calculus one day soon.
Maybe that means revenues grow even bigger. Maybe it means they crater. Maybe it means they flatten out. Maybe it just shifts. But it has always been the case that the business model for broadcasting never stays static for five years, let alone the 20 years or more that some of these crazy TV deals are supposed to last.
Which brings us to the Dodgers, about whom Patrick Rishe of Forbes writes this today, putting the $271 million in new salary obligations in perspective:
Unquestionably, new ownership in L.A. is a big part of the increased willingness to spend on payroll over the last few months. But when Dodgers chairman Mark Walter said earlier this week that the team could still take on significant money, his inspiration not only stemmed from a combination of his deep pockets, Magic Johnson’s infectious passion for success, and Stan Kasten’s savvy baseball acumen.
Mr. Walter’s penchant for spending is also being fueled by the comfort of knowing that the Dodgers will soon see an explosive increase in their local/regional TV revenues when their current deal expires in 2013 that could reach as high as $8.5 billion over the next 20 years.
$8.5 billion? That breaks down to $425 million a year in TV revenue. Which is multiple times higher than any other team out there, including that of the Angels, who signed a $3 billion TV deal. And it’s multiples higher than what experts have projected for some other popular teams with deals in the future like the Phillies and the Tigers.
That’s profoundly optimistic, and that’s before you figure in the fact that the Dodgers owners are probably already counting on that financial windfall to finance what still appears to be a massive overpay for the franchise itself, which they bought for around $2 billion. And, of course, before you figure in the possibility that the TV landscape may look very different in 2022 than it does in 2012 and that it may be totally unrecognizable in 2032.
None of which is to say that the Dodgers will go broke having to pay for Josh Beckett and Carl Crawford. I’m sure they can swing it. It is the case, however, that there is no investment in recorded history that has been such a sure thing that one can responsibly talk about it as if it were a never-ending source of cash.
As such, to the extent there are people around major league baseball who are staking the entire financial future of the sport on the assumption that, eventually, every team is going to land a multi-billion dollar television deal, they had better not be the only ones with voices at the table.