Just over one year ago, the Los Angeles Dodgers were a team on the verge of Chapter 11 bankruptcy. On May 1, 2012, the team’s fortunes changed dramatically as the Guggenheim group, fronted by Magic Johnson, purchased the team for an astounding $2.15 billion. Under this new ownership, the Dodgers have become big spenders in a hurry.
In just two months, the Dodgers have acquired a group of big-name stars, including Hanley Ramirez, Shane Victorino, Adrian Gonzalez, Josh Beckett and Carl Crawford. With the acquisition of those last three players alone, the Dodgers taken on a quarter of a billion dollars in contracts from the Boston Red Sox, a team intent on a salary purge.
However, these moves should come as no surprise, since the Dodgers are under new ownership that expects a cash windfall for local TV rights. The current deal expires at the conclusion of the 2013 season. Estimates are that a new deal with Fox could yield $4 billion. Thus, the team has gone from frugality to big spending seemingly overnight.
Of course, investing large sums of money in top free agents is no guarantee of victory. The Red Sox, perennial contenders during the first decade of the 2000s, have consistently ranked among the top three in MLB payroll for years. Still, Boston has not won a playoff game since 2008 and won’t make the postseason this year. The Yankees, who annually spend more than any other team, have won the World Series—the only measure of success in the Bronx—just one time in the past decade.
Recently, the Yankees have talked about fiscal prudence, and say they aim to cut payroll in order to avoid the luxury tax imposed on clubs that exceed a salary of $178 million. Both New York and Boston seem to be looking at the success models of AL East rivals Baltimore Orioles and Tampa Bay Rays, who have fielded competitive teams despite having two of the lowest payrolls in the majors.
Meanwhile, on the West Coast, there is an arms race, albeit in different leagues. The Angels inked a 20-year local TV contract with Fox Sports last December worth more than $3 billion. The infusion of cash allowed the team to invest more than $300 million in Albert Pujols and CJ Wilson.
Following the Frank McCourt era, in which the team was cash-strapped and the ownership unlikeable, the Dodgers began to lose some of their relevance in Southern California. Now the team is investing in All-Star players and will certainly have significant dollars available to retain 24-year-old NL Cy Young Award winner Clayton Kershaw, whose contract expires in 2014. Naturally, Kershaw—and his agent—anticipate that the Dodgers will be the frontrunners to retain his services.
Baseball’s eyes will be turned out west as the 2012 pennant races wind down. The Dodgers have reloaded in their efforts to catch their longtime rival San Francisco Giants and beat out the St. Louis Cardinals for a wild-card spot. If the Dodgers fail to win it all this year, I would not be surprised to see them pursue big-name free agents Josh Hamilton and 2009 AL Cy Young Award winner Zack Greinke in the offseason.
The question moving forward will be whether the spending on player salaries—by the Dodgers as well as all the other teams—is sustainable in the long term.
Jed Hughes is Vice Chair of Korn/Ferry and the leader of the executive search firm’s Global Sports Practice. Among his high-profile placements are Mark Murphy, CEO of the Green Bay Packers; Larry Scott, Commissioner of the Pac-12 Conference; and Brady Hoke, head coach of the Michigan Wolverines. Earlier in his career, Mr. Hughes coached for two decades in professional and intercollegiate football where he served under five Hall of Fame coaches: Bo Schembechler (Michigan), Chuck Noll (Pittsburgh Steelers), Bud Grant (Minnesota Vikings), John Ralston (Stanford) and Terry Donahue (UCLA). Follow him on Facebook, Twitter @jedhughesKF.
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