Tuesday, February 23, 2010

So just how much are the Dodgers worth?

In the last 18 months or so, there have been three different valuations of the Los Angeles Dodgers, each made in different circumstances.

"Multiplier" refers to the number by which a team's annual revenue figure is multiplied to reach a quick-and-dirty estimate of franchise value. In recent years, the Cubs were sold for 3.1 times revenues; the Padres' sale occurred at a 3.6 multiplier.


Valuation 1, September 2008

Asset: the Dodgers
Multiplier: 3.0

Value: $872,100,000
+stadium and land: $1,355,700,000

Valuation 2, May 2009

Asset: the Dodgers only (stadium and land not considered)
Multiplier: 3.2

Value: $963,000,000

Valuation 3, June 30, 2009

Assets: the Dodgers, Dodger Stadium, and the surrounding land
Multiplier: 2.4

Value (including stadium and land): $859,400,000


So what's going on here? How were the Dodgers, Dodger Stadium, and the rest of the 276 acres of Chavez Ravine worth less on June 30, 2009 than the team alone was worth the month before? Chopping 0.8 off the multiplier certainly doesn't explain this precipitous drop in value. Understanding the jarringly different figures first requires some information about what went into the valuations.

In the first two valuations of the club, the potential tax liability upon a sale was not recorded. Frank's CPA had asked about including that figure, but was told "it wasn't necessary because the assets aren't being sold." Adding that potential liability to Frank's financial statement reduces his assets by over $113 million. I don't have a hard figure for how much of that liability also hit the value of the Dodgers, but it is surely a significant amount, a major factor in the rapid devaluation of the team.

The second contributor to the seemingly-calamitous decline in value is that, in preparing the June 30, 2009 documents, Frank's CPA was told to "'collapse' the stadium and land into the value of the Dodgers." This, according to Jamie's filings, simply erased $324.2 million in assets which had appeared in previous valuations of the Dodger assets. Frank's CPA offers no explanation for the sudden change in accounting methods.

I haven't seen figures for the stadium and land as of the May 2009 valuation, but the combination of the lower multiplier, tax liabilities, and elimination of separate values for the stadium and land reduced the value of the Dodgers by $496.3 million from September 30, 2008 to June 30, 2009. 

I suppose I should tell you a few things about these three valuations at this juncture. V1 was prepared as part of Frank's personal financial statement as of September 2008. There is nothing too notable about it; it was used for, among other things, tax planning and credit application/maintenance. V2 comes from the proposal to the Chinese investment bank CITIC to join a Global Sports Partnership. It is understandably optimistic--marketing as much as anything else.

The third valuation is a little more curious. It was completed on January 20, 2010, though it represents the situation "as of June 30, 2009." Frank's financial statements from this particular CPA had traditionally lagged no more than three months behind their "as of" date. As you know, there were some fairly significant events in Frank's life between June 2009 and January 2010. The McCourts separated on July 8, 2009.

Jamie's lawyers, of course, aren't terribly thrilled with the newly-diminished value of the Dodgers. The lower Frank's net worth, the less she can get in spousal support; she's seeking nearly $1 million monthly. In her filings, Jamie characterizes the "as of June 30" financial statement as a "sham." She claims this statement was fabricated in direct anticipation of litigation and should be disregarded. Her lawyers assert the following:
[I]mmediately after learning that a copy of that financial statement had been emailed [...] to a banker who had requested a more current financial statement for Frank -- and only eight minutes after [it had been emailed] to that banker -- [Frank's lead financial advisor] sent his own email to that banker advising him that the numbers on that financial statement had been "scrubbed."
[Frank's financial advisor] adamantly denied that by using the term "scrubbed" he meant that the values had been "doctored" or otherwise lowered. He can deny it all he wants. Jamie is confident that this Court knows precisely what [Frank's financial advisor] was attempting to convey to the banker, who otherwise quite understandably could have been very distressed by a purported 80% drop in the net worth of a customer with whom the bank had a substantial outstanding loan. 
Now, I should be clear: there are often perfectly valid reasons for producing back-dated financial statements. If, for instance, Frank's advisors determined that the tax liabilities should have always been included in valuations of the team, amending prior financial statements to reflect that accounting decision might be appropriate. "Scrubbed" could mean, as Frank's money guy contends, most accurate. What would not be very acceptable, however, is fabricating a financial statement which dramatically devalues Frank's assets in anticipation of litigation over spousal support.

It's not prudent to draw conclusions based on Jamie's assertions alone. Her filings are one-sided, as they should be. Frank will have a chance to tell his side of the "as of June 30, 2009" story, and this issue will play a huge role in resolving the spousal support issue.

As for the Dodgers, I'm inclined to believe they're currently worth around $900 million, not including the stadium, land, or tax liability. Not a terrible return on a $371 million investment.


  1. The LA Times, specifically Michael Hiltzik is starting to turn up the heat on the McCourt's and their none paying of taxes, whether legal or not. Things are going to get uglier before they get better.

  2. Personally I want things to get as UGLY as possible for the McCourts, so guys like Frank (and sons, or "beans" as I will call them) and Colletti get washed out of the business.

  3. Nice mention on Around The Horn today, congrats.

  4. Joshua ,Peter Gammons mentioned your site this morning on Dan Patrick's show. Good job.

  5. The True Value of the Dodgers is the offering price when the team is going to be sold. I don't see how the Dodgers value growing $529 million in six years, especially when the Dodgers' Front Office has hocked so much of their assets in order to meet payroll. The McCourts may had implemented payroll discipline, but their revenue isn't that head turning, and they seemed to make stop gap cash plugs for the present and putting off serious financial concerns in the future.

    Without the broadcasting rights, the Dodgers are probably worth $450-$500 million. With the Broadcasting rights, they will go for around $750 million. The McCourts should be proud that their value has been raised to $450 million, I don't see how during of a time of tight money and descent of property values, both commercial and residential, that their assets grew 145% in six years. Their main revenue is ticket and retail license, and it isn't nothing compare to the loans they have taken out to buy the team and to run it.

    Why they aren't as valuable, their property assets aren't performing, the parking lots may give some revenue, but they are only used six months a year. The property perfomance is mainly as leverage.

    Second, a group of investors have to raise the money to buy the team, and they are not going to over buy a business with high overhead and low profit margins.