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The Dodgers reportedly have 'special terms' in an agreement with MLB that caps the amount of broadcast revenue that needs to be shared with other teams.
As part of SB Nation United, you're going to be seeing some new voices at True Blue LA SBN featured site contributors writing about issues both local and national. Think of them as guests in the community. We're beginning this week with Cee Angi, better known as one of the minds behind The Platoon Advantage.
Bankruptcy is rarely good, but it continues to benefit the Dodgers.
Frank McCourt's derailment of the Dodgers left the team in dire financial straits, but the new ownership has worked quickly to turn the team into a contender and big spender. Ironically, the man who once destroyed the team's financial stability could have accidentally created a great financial advantage, thanks to a revenue sharing cap.
The details of the Dodgers bankruptcy settlement has been a well-guarded secret since last year, but the revenue-sharing cap that LA Times Reporter Bill Shaikin reported alluded to in May, became more concrete yesterday in an article from Bloomberg.
The article is dense material and some of the specifics still aren't clear, but John Helyar and two other authors report that "[the settlement]... gives the Dodgers' new owners a chance to cap income subject to revenue-sharing from a proposed regional sports network at about $84 million a year, according to five people familiar with the confidential ‘special terms.'"
MLB contradicts some of the details, but if true, the agreement is shocking in that it ignores the mechanism that MLB uses to eliminate the disparity between big and small market teams, revenue sharing. While the rules are complex and include many loopholes, big-market teams are required to share 34 percent of their annual regional network rights with small-market teams to curb the unfair advantage of inequitable revenue.
Prior to the bankruptcy, the Dodgers were already in negotiations to create a network (think along the lines of the Yankees' YES Network) to air baseball games and other programming. To incentivize the sale of the Dodgers, and to garner a big purchase price, MLB agreed to cap the revenue sharing as part of the bankruptcy settlement. Since these "special terms" create a windfall where rights fees are concerned--the settlement lets the Dodgers off the hook for sharing any network revenue in excess of $84 million dollars, an advantage no other team in the league has-it makes the seemingly extravagant purchase price of $2.15 billion dollars by the new owners make a little more sense.
The Bloomberg article estimates that the Dodgers network could be worth more than $225 million in yearly revenue that would normally be shared, but if the cap is in effect, the Dodgers would retain $141 million. While that money technically would belong to the network, as part-owners, the Dodgers could funnel some of that money into team spending. Many teams use this loophole for more revenue, so it's not a distinct advantage, but given the $84 million cap, the Dodgers will be drawing from an unusually large pile. They could have the surplus to build an empire.
Other teams won't be happy about this arrangement, and rightfully so. If the bankruptcy settlement gives the Dodgers a financial advantage, you can expect a huge outcry from other teams, as it's in direct opposition to the very intentions of revenue-sharing. There's a chance once the Dodgers network deal is more concrete the terms could change, but that decision would fall to an arbitrator who's been involved in the bankruptcy settlement, not MLB exclusively.
While the benefits of more money don't require much explaining, it would certainly give the Dodgers an opportunity to be more aggressive, just as we've seen this season. The Dodgers are on the hook for over $400 million in future contracts, so it's not likely they'll continue on such a sharp spending trajectory, but the extra money could restore the Dodger's place where big free agent acquisitions are concerned-the unshared revenue could be the difference-maker in taking a chance on big contracts.
None of this is to say that all of that revenue would be put back into the Dodgers organization instead of the network, nor would it be spent exhaustively on players. But the beauty of the extra revenue is the flexibility to spend when needed-just as they did this season. Sure, there are small-market teams doing fine shopping wisely, building platoons, and exploiting inefficiencies, but cash is still king-and because of the "special terms", the Dodgers could have a lot of it.