~ A Mediator's Musings ~

March 30, 2012 ~ Malcolm Gladwell and Sports Team Ownership:
A Preview (the Dodgers)

Events have a way of catching up with all of us.

Our next post will be our dissent from best-selling author Malcolm Gladwell’s piece published a few months ago in Grantland on the NBA lockout and sports team ownership, but recent news has persuaded us to give our readers this preview. Mr. Gladwell’s basic premise is that if you want to own a sports team to make money, you’re in the wrong business; you really need to own it for what he calls the “psychic benefits”—the pride of ownership that compares to owning a fine painting, like a Van  Gogh. Frank McCourt and his now ex-wife, Jamie, have owned the Los Angeles Dodgers for a mere 8 years, during which they have piled debt on the team to finance their lifestyles, gone through an acrimonious divorce, put the team into bankruptcy, and now stand to net a profit between them of something like a billion dollars (most going to Mr. McCourt) on an investment of something under $500 million. Not a bad deal. And, I suspect, both of them would agree–they got a lot more than “psychic benefits.”

The McCourts made their money in Boston real estate. One can assume that they, like most real estate developers, are acutely aware of the ability to borrow against a valuable asset (be it a building or a sports team) to pay bills—including borrowing to finance an extravagant lifestyle. Also like any successful real estate developer, they surely have always had their exit strategy in mind—build up the asset value and make their money on sale. On the other hand, one can also assume that, based on their behavior, owning the team also gave them precisely those “psychic benefits” of celebrity (which turned into notoriety) for owning one of sports’ premier franchises in perhaps the second most desirable market in the United States. But it’s inconceivable that the financial benefits they could realize from team ownership were not constantly on their minds; after all, they used the team as a personal ATM almost from day one. Mr. McCourt ultimately had to put the team up for sale in order to pay what he owed his ex-wife under their divorce settlement and also to pay all the team debts. And like a real estate owner trying to protect his equity in his property from the holder of his defaulted mortgage loan, he put the team into bankruptcy so that he, and not Major League Baseball, would control the sale process, and he could realize the maximum value for the team. After all that, he must have made money beyond his wildest dreams. Indeed, just a week before the sale was announced, Forbes valued the Dodgers at $1.4 billion, behind only the New York Yankees among baseball teams; Mr. McCourt is now selling them for a cool $2 billion. Not bad for “psychic benefits.”

— Your “looking for ‘psychic benefits’ “ mediator