Dodgers’ Huge Potential Too Great for One Family to Realize

“Family ownership of sports is probably a dying breed,” said Peter O’Malley and, amazingly, everybody nodded, as if in vague consent that family concerns are old-fashioned and unsuited to today’s high-tech, fast-lane world in Southern California.

But that explanation for the sale is too simple. And the Dodgers are much more than a quaint family business.

The team is a valuable asset. And the fact that it’s for sale holds lessons for all business and perhaps a reprimand for misgoverned Los Angeles.

To begin with, the late Walter O’Malley, who bought the team in 1950, his son Peter, who took the reins in 1970, and the people who worked with them created what Forbes magazine in 1982 called the best-managed company in sports.

The franchise they built, the fan base and the international recognition of the Dodger name all attest to a world-class business.

And the potential of the franchise is enormous in an era when media access and disposable income are growing in Asia and Latin America. The Dodgers could become one of the first truly global sports attractions, with revenues from advertising and product licensing flowing to the owners of the team.

So why are the O’Malleys selling? Because it will take heavy investments for the Dodger franchise to fulfill that potential. And coming up with such investment is difficult for a family company in a business that earns, at best, a low profit.

“Many major league teams are unprofitable,” says a sports consultant who has worked with the Dodgers and other clubs.

The nature of the business has changed. To offset rising costs of player contracts, “the sports franchise must be able to generate multiple revenue streams,” says the consultant. He’s referring to the trend of transforming ballparks into sports complexes with restaurants, theaters, retail stores and interactive television at each stadium seat.

That’s the kind of thing baseball and hockey team owner Wayne Huizenga has done at his south Florida sports complex. Ted Turner pioneered revenue maximization when he put his Atlanta Braves on his nationwide cable station TBS. Tribune Co. followed with the Chicago Cubs.

By comparison, the Dodgers have remained an underutilized asset, playing baseball in a beautiful but unadorned park and broadcasting its games conventionally--although with great success--into Mexico and Latin America.

To be sure, the Dodgers are not a small business. Financial World magazine, which makes estimates of sports revenues, reckons the Dodgers take in more than $70 million a year from ticket and concession sales and media revenue.

The organization is admired for an extraordinary level of community activities and fan appreciation.

Yet the business grows challenging as other owners with diversified operations and business interests earn more money and then bid up player salaries.

“Peter O’Malley is one of the few owners whose team is his sole vocation and source of income,” said the Los Angeles investment firm of Houlihan Lokey Howard & Zukin in a study of sports team ownership.

Also, the O’Malley family owns Dodger Stadium and cannot, as so many other sports owners do, demand that taxpayers install luxury boxes and other revenue-enhancing features. “Los Angeles taxpayers would tell them [to] pay for it themselves,” says a local financier.

In a sense, the O’Malley family and their team are like Los Angeles itself, possessing tremendous potential but frequently undecided and hesitant about major investments to realize that potential.

But neither the family business nor the region can stand still. The Dodgers face decline unless a change is made to give the organization more revenue, either through changes to Dodger Stadium or additions to the O’Malley family portfolio of businesses.

Despite his talk Monday of family owners as a “dying breed,” selling his business was not Peter O’Malley’s first choice. A short time ago, the family clearly thought of expanding. The O’Malley organization was favored by the National Football League to bring a new pro football franchise to Los Angeles. O’Malley was actively pursuing such a franchise.

As he explained Monday, O’Malley took a temporary step back to get the NFL to come back to the Coliseum. But just as clearly, after the NFL spurned the Coliseum again, O’Malley became disillusioned by the Los Angeles City Council’s unwillingness to encourage his NFL bid.

But without the expansion football would represent, O’Malley’s options were not favorable. Borrowing huge sums to improve Dodger Stadium or enlarge Dodger media revenue would be unwise for a family dependent on a single business.

Selling stock to the public in a business with low and uncertain annual profit is not easy either. And taking in a partner, perhaps a communications company, to enhance Dodger media revenue is hard for a family to do. Having built a fine company, the O’Malleys would have to cede more control than they would like by going into a partnership.

So the Dodgers will be sold, and probably at a good price, to a company that can use the franchise’s great name and popularity to earn revenue from more than baseball. Rupert Murdoch’s News Corp., the owner of sports-heavy Sky networks in Asia and Europe as well as Fox network in the U.S., is but one of the entertainment industry companies being speculated on as buyers.

There is poignancy and a caution in the story because the Dodger organization and its community involvement reflect something very good about baseball and Southern California. We should hope that those qualities are not lost as the team moves from family management to the high-tech, fast-lane world of global sports.