Finance Uncategorized Venues

Why aren’t the pro teams in Los Angeles owned by Angelinos?

What do the Dodgers, Angels, Clippers, Kings, Galaxy, Chivas and Sparks all have in common?

(AP Photo/Elaine Thompson, File)
(AP Photo/Elaine Thompson, File)

What do the Dodgers, Angels, Clippers (assuming the sale to Steve Ballmer eventually occurs), Kings, Galaxy, Chivas and Sparks have in common?

All are majority-owned by people or entities outside the Los Angeles area. Only the Ducks and Lakers have majority ownership by Southern Californians.

And the two NFL franchises in the region are owned by . . . . oh, that’s right, we don’t have an NFL team, let alone teams. We did have the best NFL coach for about a decade in Pete Carroll at USC.

From working for MCA when we considered buying Madison Square Garden and contemplated participating in Staples Center, to buying the Dodgers when the O’Malley family sold them, to financing IMG, to looking into rolling up sports agencies in the 2005, to the latest sale of the Dodgers, I have been around professional sports on-and-off advising on team, and venue-related issues, including ownership for the last 20 years.

What has always struck me as odd is the glaring lack of local ownership. Why is this the case?

Ability to pay is not the reason. Los Angeles has the second-most number of billionaires and multi-millionaires in the country, behind only New York. Franchise prices are also not likely the reason as evidenced by the Dodgers and Clippers (if the sale goes through) having recently been sold for record amounts of approximately $2 billion. However, prior to these sales, the last two transactions were bargains and no serious Angelinos were anywhere to be found.

The Dodgers were sold for $400 million, of which the seller, FOX, underwrote a good part, to Boston native Frank McCourt in 2004. Arte Moreno from Arizona smartly bought the Los Angeles Angels of Anaheim for a seemingly modest $180 million in 2003 from Disney. Interesting the two biggest and smartest names sports television, Disney (ESPN) and Fox (FOX SPORTS) sold the teams. This clearly implied that sports teams are not fairly valued inside a conglomerate in the public markets due to the low earnings to realizable valuation. Thus competition to purchase sports teams should be lessened due to elimination of public company buyers, potentially allowing more fertile ground for L.A.-based buyers.

Being in the second-largest media market allows for much greater revenue opportunities via sponsorships, cable television contracts, turnstile-related revenues, and so on. So the cost of a team in Los Angeles should be greater because the revenue opportunities are substantially higher than every other market, except New York. This may mean that teams in Southern California are not too expensive, but rather appropriately priced relative to acquisition cost.

So why the paucity of local owners? Is it because the City of Los Angeles is too difficult and dysfunctional an environment for teams to prosper? To be sure, Los Angeles is not known as a business-friendly environment. That said, Phil Anschutz from Denver was able to negotiate the Rubik’s Cube that is Los Angeles’ city government, restrictions, permitting processes, unions and taxes to build Staples Center in Downtown and own 50 percent of the Kings, become part owner of the Lakers and Sparks, buy Stub Hub Center and become owner of the Galaxy. If an outsider can do it in L.A., why can’t a local?

There may be two not so obvious reasons why teams in L.A. are not owned by Angelinos.

The first is the mentality in L.A. of using Other People’s Money (OPM). Many regional businesses associated with entertainment, real estate development, defense and financial services created billionaires and multibillionaires off of OPM. OPM, such as first dollar gross or back end participation or royalties in entertainment, to participation in the upside of financial services and project financing of real estate development and Federal governmental subsidies are cases in point. In many instances, local billionaires and multimillionaires acquired their wealth through skill, but financial engineering through the use of OPM propelled them to a much higher financial class. The mindset of the ultra wealthy in L.A. is OPM. In fact, in Hollywood there is even an expression for this: “The more you are worth the less you pay.”

Lack of local governmental subsidies and debt restrictions imposed on teams by leagues doesn’t allow for the use of much OPM. So someone wanting to own a team in L.A. likely must put up, as Randy Moss would say, “straight cash, homey,” and this very non-Los Angeles.

Second, billionaires or even multimillionaires in Los Angeles are often already celebrities, at least locally. The celebrity status of team ownership is not a perk for many L.A. billionaires or multimillionaires. There is more downside than upside in terms of celebrity for the super wealthy in L.A. in owning a sport team. Owning a team is akin to running a movie studio or holding a high political office. Everybody thinks they’re an expert in your business, and thus a bad season or stretch sets owners up for public criticism, and this could hurt the public’s perception of the owner.

(Kirby Lee/Image of Sport/US PRESSWIRE)
(Kirby Lee/Image of Sport/US PRESSWIRE)

The Dodgers are fortunate to have two local minority equity owners that are high-profile LA celebrities in Magic Johnson and Peter Guber. Both are accustomed to facing the public, and both have substantial professional sports team experience. So they are comfortable in the city’s “hot seat” of sports ownership and celebrity.

Even in the latest bidding for the Clippers, the only serious Los Angeles-based participant seemed to be entertainment entrepreneur David Geffen. And while his group’s bid was rumored to be about $400 million below the winning bid, it was a substantial and credible bid. Geffen’s celebrity would not have increased significantly in Los Angeles by owning the Clippers. For the winning bidder, Microsoft ex-CEO Steve Ballmer, his celebrity will increase meaningfully both locally and nationally. That said, Ballmer is estimated to be worth $21 billion. So he is in a whole other class of elite billionaires, where he could lose 95 percent of his wealth and still be a billionaire. After having run a high-profile company for many years and achieved an extraordinary level of wealth, Ballmer is unlikely to be rattled by public criticism.

Ballmer loves basketball and has strong ties to the city. But, he will be another example of a local professional team not being owned by a local. Aside from the Kings, there has been a championship drought in L.A. So once the Clippers, and any other L.A. team, starts winning championships, fans won’t care who the owner is. Like most cities, L.A. loves comebacks, winners, Hollywood endings and fans know and identify with the celebrities on the field and not in the owner’s box.

****

Brian Mulligan is currently the CEO of Brooknol Advisors, a Media, Entertainment and Sports Advisory Company. Mr. Mulligan has held CEO, Chairman, COO or CFO position of virtually every media/entertainment vertical for majors over a 30 year career, from Co-Chairman of Universal Pictures, CEO of Universal Television, Chairman of FOX Broadcasting and Cable, EVP/CFO of a Fortune 50 Company, SVP of MCA INC, EVP of Strategic Planning and Corporate Development Universal, Senior Executive Advisor Boston Consulting, Vice Chairman of Media/Telecom of a Money Center Bank, and worked extensively in/with private equity. Instrumental in over $175 billion of media and entertainment transactions.

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