On March 27th 2012, the news broke of the sale of the Los Angeles Dodgers by Frank McCourt to an investment group led by former basketball star Magic Johnson and the Guggenheim group for an eye popping $2.15 Billion dollars. The sale of the Dodgers was almost three times the previous record set by any MLB team (Chicago Cubs just 3 years earlier). The sports community was intrigued, the business community perplexed, and the general public shocked. How could a man that was bankrupt, unable to meet his team’s payroll, and hounded by legions of attorneys relating to his ex-wife’s divorce pull off such a shocking deal? In just 8 years time, McCourt was able to purchase arguably one the most historic Major League Baseball franchises - with no money out of pocket (pledging his parking assets in Boston) - and turned it into a $2.15 Billion dollar pay-day.
The media had gone so far as to make fun of his business background by labeling him “the parking lot attendant” and publicly mocked him by telling him to leave LA and to return to Boston to park cars.
In a case of irony, McCourt must have listened to his critics, because behind the headline of the $2.15 Billion sale, very few people noticed that he actually took the media's advice and really did return to parking cars. You see, in the $2.15 billion dollar sale of the Dodgers, he negotiated to keep the parking lots and have the Dodgers lease back the property to his newly created company, “Blue Land”.
McCourt, through Blue Land, purchased the parking lots for $140 Million, while leasing the parking lots back to the Dodgers for $14 Million annually. While a 10% Cap rate may seem like a good deal, when one considers that McCourt paid in essence nothing for the land, it becomes the mother of all cap rates, payback periods, and sweet revenge.
If we analyze this further and apply a 6% cap rate to value the parking asset, we find that the value of his parking lot at Dodger Stadium is worth an estimated $233 Million! (and as much as $1 Billion in redevelopment value although JNL believes that one day the land deal will be worth more than the $2.15 Dodger deal). Furthermore, there are steep increases built in beginning in 2015 and every 5 years thereafter.
In a hypothetical case, the Dodgers are landlocked (talk about striking out), and may have no choice but to pay any price that McCourt could demand in the future. If you think that the Dodgers can do anything about it, they may not be able to. If McCourt decided to increase the annual parking lease to $150 million annually from the current rate of $14 million, the Dodgers might have to pay. If he increased it to $300 million annually, the Dodgers might have to pay. In fact, short of moving the team to a new location, they are at the mercy of the Parking Pirate (as some bitter fans have called him). Whatever nicknames McCourt may have accumulated during his time with the Dodgers, we at JNL prefer to call McCourt, the "Parking Genius".
If the Guggenheim group had contacted JNL, we would have negotiated a deal to keep the parking lot for the group, or at least purchase a controlling interest in Blue Land. Although not verified, according to some unconfirmed sources, the parking contract could expire as early as 2025, after that, watch out! Blue Land could change their name to Blue Sky.
Don’t be taken by parking pirates, baseball bandits, or land sharks. At JNL Parking we can help you negotiate a sale of your parking asset that will not leave money on the table, or expose you to some risks that may have been previously unforseen. In fact, we have been contacted by owners to help analyze their expiring leases, negotiate longer term leases with current clients, and to research fair market values for their lots and garages.*
Contact JNL Parking today to avoid striking out.
We’re ready when you are,
John & Lance
* This article was written as a case to illustrate the power of a parking investment in relation to sports and contracts. The figures used in this article are not a case of insider information, but rather information widely available. This is not a criticism of any party involved in the above mentioned transactions and is simply an educational op-ed piece by JNL Parking.
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