Behind this week’s record-smashing $2 billion-plus sale of the Los Angeles Dodgers, a global economy that’s enriching only the world’s super rich
The Los Angeles Dodgers didn’t win all that many baseball games in the eight years owner Frank McCourt signed the team’s player paychecks. But McCourt has now won plenty. The mega-rich developer has emerged as the biggest financial winner in the history of professional sports.
On Tuesday, in a special bankruptcy auction, a group of deep-pocketed bidders agreed to pay $2.15 billion for the Dodger franchise, an all-time record for a U.S. pro sports team, nearly double the previous high-water mark, the $1.1 billion football’s Miami Dolphins fetched in 2009.
Out of that $2.15 billion, McCourt will have to pay off the $706 million in debt that his widely derided incompetence and greed saddled on the Dodgers. After that debt settlement, analysts estimate, he’ll walk away with a clean $1 billion.
The Dodgers rate as one of the world’s most iconic pro sports franchise, and this week’s sale has spurred an endless stream of commentary about Dodger history and the economics of contemporary sports.
But the sale of the Dodgers amounts to much more than a sports story. McCourt’s windfall helps define and dramatize just how incredibly unequal our world has become — and how that inequality is turning our 99 percent into squeezed spectators of games only the super rich can afford to play.
Three powerful trends have converged over recent years to make these games so expensive. These three trends loom large behind this week’s record Dodger sale.
The first: The ranks of the world’s super rich have expanded enormously since the Great Recession first hit.
The latest evidence for this enormous increase comes from researchers at the Knight Frank consultant firm and Citi Private Bank. Their sixth annual joint Wealth Report, released Wednesday, counts “63,000 people worldwide” worth at least $100 million.
The total global “centa-millionaire” population, Knight Frank and Citi calculate, has soared 29 percent since 2006. All combined, the world’s centa-millionaires hold an astounding $39.9 trillion in assets, an average of $620 million each.
The second key global wealth trend: The world’s rich don’t know what to do with all their money. In “normal” times, the super rich park a chunk of their hefty change in stock and commodity markets and another significant chunk in bonds that guarantee smaller but still healthy returns.
But today’s super rich see stocks as sucker bets, given all the world’s ongoing economic instability, and commodities have been alarmingly “volatile.” Yields on safe and secure government bonds, meanwhile, have sunk to record lows.
And things could get even dicier for the awesomely affluent. Global deep pockets are paying close attention to the Occupy movement, and they fear, observes Citi Private Bank senior political analyst Tina Fordham, that “dissatisfaction with income inequality” may just “gain momentum.” In response, the super rich worry, governments will likely ratchet up tax rates on high incomes.
“It’s going to be a tougher playing field for the rich,” sums up Citi Private Bank chief economist Willem Buiter.
In sum, the super rich face a world where fewer and fewer safe yet lucrative investments beckon. To “preserve wealth” in this world, Citi’s Luigi Pigorini points out, they’re plowing ever larger stashes of cash into property that sits in nations that respect “the rule of law and stability.”
“Those markets considered ‘safe-haven’ locations continue to attract private investors looking for both prime residential and commercial property,” explains Wealth Report editor Andrew Shirley. “Political and economic uncertainty across the world is only helping to exacerbate the trend.”
London has been this trend’s single biggest beneficiary. The super rich are buying up office and apartment buildings in the city’s ritziest neighborhoods at a frenetic pace. Other cities are also feasting off the super-rich investing spree, most notably Miami. The value of “prime property” in Miami — the penthouses and manses the super rich covet — leaped 19 percent in 2011.
The third trend driving the global uber rich: “Preservation of wealth” investment strategies can get awfully boring. No one with a heart that thumps gets kicks spending multi millions on office buildings in London.
In this climate, many of the world’s wealthiest have concluded that if we’re not going to be making much of a return from our investments, we might as well be getting some fun out of them.
The global wealthy, says the new Knight Frank-Citi Wealth Report, “are increasingly looking to combine their investments with something they can also enjoy.” This attitude has spurred a major uptick in “investments of passion,” everything from fine wine and art to fine athletes.
Pro sports leagues have traditionally “frowned upon ownership by consortiums of investors,” notes Knight Frank and Citi. But pro sports leagues today are doing less frowning, and pro sports ownership has become, as a consequence, much more inviting to far wider circles of super rich.
Billions are now flowing into sports ownership, all over the world. In South Asia, cricket’s new Indian Premier League sold its first eight franchises in 2007. Their total original value: $750 million. Their current value: nearly $4 billion.
The world’s biggest sports marketplace remains, of course, the United States, home to the world’s greatest concentration of wealth and income. In North America, says the new Wealth Report, a stunning 61 percent of individuals with at least $25 million available to invest now hold a pro sports ownership stake.
These rich all hope to preserve their wealth and have a little fun at the same time. That means less fun — in sports — for the 99 percent. The higher the cost to own pro sports franchises, the tighter the squeeze on sports fans. Prices rise for tickets and ballpark beer. Cable TV companies that telecast the games charge higher monthly cable fees. And even 99 percenters who couldn’t care less about sports end up paying more — as super rich franchise owners play off one city against another and demand lucrative government subsidies and tax breaks.
The alternative to this dismaying pro sports status quo? In the short term, notes sports writer Dave Zirin, we need more community controlled franchises, along the model of football’s Green Bay Packers.
And over the longer haul? We need in sports what we need everywhere else. A much more equal world.