Dodger deal with Time Warner Cable has yet to be submitted to MLB

dodgers2.jpgThat's probably due to continuing questions about how much of the money will be handed over to the league as part of the revenue-sharing arrangement with other teams. This could turn out to be an important snag in the 25-year $7-billion TV deal because the team's new owners, led by the investment firm Guggenheim Partners, are counting on much of that $7 billion to bankroll team operations and finance the purchase. It's all quite intricate, but in a nutshell, teams are obliged to share 34 percent of net local revenue with the other teams. But what exactly does that mean in the case of the Dodgers, which has an unusual arrangement with Time Warner Cable? From ESPN:

When a team brokers a local television deal with a regional sports network with which it has no ownership stake, the calculation is easy: The entire rights fee is subject to revenue sharing. Under the Dodgers' current deal with Fox Sports, where the team has no ownership interest in the network, 34 percent of rights fee revenue is contributed to MLB's revenue-sharing pool. When a team has an ownership interest in a network, any rights fee received by the team is subject to the 34 percent local revenue sharing in the same way. However, carriage fees paid by cable providers to the regional sports network are not. For example, the Yankees own a minority share in YES Network. They receive an annual rights fee from the network, which is subject to revenue sharing. However, YES Network also receives carriage fees from cable providers. Those fees are not subject to MLB's revenue-sharing plan.

The reasoning is that owning a regional sports network assumes greater risk than simply cutting a deal with an existing network, such as Fox (the network that the team will be leaving after this season). But as it turns out, the Dodgers might not be assuming much of a risk because Time Warner Cable is guaranteeing the Dodgers $4 a month from every eligible household in the L.A. - even if that household isn't a TWC customer. So from the league's standpoint, that risk-free money might be seen as being part of the revenue-sharing pool. In other words, less money for the team owners to play with. From the NY Post:

Guggenheim was counting on its share of that $5 billion to help pay down debt associated with its record $2.15 billion purchase last year of the bankrupt team. Guggenheim is funding the Dodgers purchase with $1.2 billion of insurance assets. Plans are to move the Dodgers to a separate holding company that would borrow money against the guaranteed RSN revenue, the baseball source said. It is not known if Guggenheim is working to restructure the deal or if it will take its chances and file it soon with MLB. The expected RSN revenue stream also may have given the new Dodgers owners the confidence to spend freely on players, giving the team what is now the highest payroll in baseball.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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