The real story, Stan Kasten insisted, is not the payroll. The resurrection of the Los Angeles Dodgers cannot be measured by the sum of their salaries, as staggering as that total has become.
“What’s really happening here is the building of a franchise," Kasten, the team president, said last week from Dodger Stadium, which is undergoing an offseason makeover.
“Stadium infrastructure, organizational infrastructure — those are the critical things on which long-term success is built."
Since the end of their season, 24th in a row without reaching the World Series, the Dodgers have added scouts to roam the world for talent. They have attracted decades of experience and wisdom to the front office by hiring people like Bob Engle, Gerry Hunsicker and Pat Corrales. Their new hitting coach is Mark McGwire.
Yet all people talk about is the payroll, which seems to have no limits and has positioned the Dodgers as the West Coast version of the New York Yankees — if the Yankees spent a little more. Even the Los Angeles Angels, who have lured Albert Pujols and now Josh Hamilton to Anaheim, cannot match the Dodgers in spending.
The Yankees have had the major leagues’ highest payroll in each of the past 14 seasons, six times topping $200 million, according to Baseball Prospectus. But the Dodgers will hold the top spot in 2013, having committed more than $210.6 million to 21 players, with another $11.5 million owed to the departed Manny Ramirez and Andruw Jones. Barring trades, and including the undetermined salaries for younger players filling out the roster, the payroll almost certainly will be a major league record.
It is twice the payroll the new owners, led by Mark Walter, Magic Johnson and Kasten, inherited last May, when they bought the club for $2.15 billion. The Dodgers have made more than $600 million in salary commitments since then, transforming the culture of a team that was emerging from bankruptcy under the previous owner, Frank McCourt.
“I understand the questions about it," Kasten said. “But no one quite understands the economics of, first of all, the transaction that we made and the resources available in terms of support — whether it’s support from fans buying tickets and hot dogs, the strategic partners who want to be aligned with us, or sponsorship and media partners. There are a lot of good things, and unique things, available in this market."
Kasten would not address specifics of the Dodgers’ finances, which have become increasingly confounding to rival executives who wonder how they can afford it all in absence of a firm commitment on a new television deal. Walter’s company, Guggenheim Partners, is a global financial services firm that manages some $125 billion and used its Indiana-based insurance companies to pay for the team. A coming TV deal is presumably underwriting, and motivating, the spending spree.
More and more, local cable contracts are driving the industry because of the value of live programming in the DVR age. Fox will carry the Dodgers’ local telecasts for one more season and has reportedly discussed a 25-year extension for $6 billion. But the Dodgers have other options, and thus negotiating leverage. They could switch to Time Warner or create their own network, as teams like the Yankees have done.
The Yankees have a roster full of must-see players, and the Dodgers have added several high-profile and well-paid stars since the middle of last season. They traded last summer for Hanley Ramirez, Josh Beckett, Carl Crawford and Adrian Gonzalez, and last week they signed Zack Greinke for six years and $147 million, a $24.5 million annual average that is the highest for a pitcher on a multiyear deal. They also invested $61.7 million — in a six-year contract and a posting fee — for the South Korean left-hander Ryu Hyun-Jin.
Vince Gennaro, the author of “Diamond Dollars: The Economics of Winning in Baseball" and a consultant to several clubs, said: “When you have the kind of TV deal on the table that’s been discussed, and something like that is imminent, I think that goes hand in hand with spending to win on the field. I really don’t think, in that context, it’s irrational in any way. Before people get wind of the TV deal, they’ll think that’s a lot of payroll — but not when you look at it in the context of what’s at stake. I’m sure the media partners, if they’re putting that kind of money out there, are not expecting the Dodgers to come up short in trying to win."
Although the Dodgers have homegrown stars in Matt Kemp and Clayton Kershaw, the McCourt ownership spent little on player development, with a major-league-low $300,000 international budget in 2011. Last winter, with ownership in limbo, general manager Ned Colletti was limited to low-cost additions like Chris Capuano and Jerry Hairston Jr.
Without much talent in the pipeline, Kasten said, it made sense to improve the major league roster immediately.
“We’re playing catch-up, let’s face it," he said. “In the Los Angeles market, this team had a payroll of $90 million or so. Whether that’s right or wrong, I don’t know. But we had to play catch-up, and I wasn’t going to stand here and tell the fans they’re going to have to wait three to five years for our kids."
The Dodgers will clearly exceed the luxury-tax threshold, probably for years to come. But they have less reason to be concerned about it than the Yankees, who are trying to get under the $189 million threshold in 2014. Unlike the Yankees, the Dodgers have not exceeded the threshold before and will face much lower tax penalties.
If the Yankees keep their payroll under $189 million in 2014, their tax rate for exceeding it in future years will be 17.5 percent, and they will receive a substantial rebate from the revenue-sharing pool. But if their payroll exceeds $189 million in 2014, they will be taxed at a 50 percent rate and forfeit the rebate.
Hal Steinbrenner and the Yankees’ decision-making team have long believed that the club could spend less while maintaining a high payroll and still win championships, the way other teams do. Now they have strong financial incentive to carry out the plan.
For Kasten, who presided over the Atlanta Braves in their glory years and helped build the Washington Nationals, this is largely new territory. But the guiding principle, he said, never changes. The best-run organizations, not simply the wealthiest, are the ones that succeed.
Kasten noted that his Braves acquired each of their three pitching aces in a different way: Tom Glavine through the draft, John Smoltz through a trade, and Greg Maddux through free agency. Other stars were signed as amateurs on the international market. A team cannot simply write checks and plan parades.
“We’re going to be using all the tools that we can, not just spending money," Kasten said. “I always say smart beats rich. The Yankees got as good as they are because they’re both smart and rich. We’re working on it."