Magic Johnson's Dodger Deal No Slam Dunk

NEW YORK ( TheStreet) - The $2 billion buyout of the bankrupt Los Angeles Dodgers is set to be the largest sports deals ever and will test whether big investors can squeeze profits from sports franchises by leveraging valuable media and real estate assets.

A group of investors -- headed by headed by Los Angeles Lakers Hall of Famer Magic Johnson -- bought the storied baseball franchise out of bankruptcy in a $2 billion deal announced late on Tuesday.
Barbarians are at the ticket gate of a stadium near you

Johnson and an investor consortium that includes Guggenheim Partners Chief Executive Mark Walter outbid hedge fund magnate Steven Cohen of SAC Capital and St. Louis Rams owner Stan Kroenke for the baseball team, and will also enter into a $150 million real estate venture with former owner Frank McCourt for land and parking surrounding the teams stadium.

Including debt and real estate, the deal is valued at $2.3 billion, far surpassing the $1.4 billion paid by Malcolm Glazer for U.K. soccer team Manchester United.

For McCourt, who bought the Dodgers in 2004, the sale will net a near $2 billion profit and help the real estate investor repay the bankrupt team's creditors in full, including a $150 million loan to Major League Baseball. McCourt will also use the proceeds to pay a $130 divorce settlement with his ex-wife Jamie, which precipitated the team's June bankruptcy filing.

Private equity giant The Blackstone Group ( BX) advised the Dodgers on their sale to Johnson and Walter of Guggenheim. Losing Wall Street bidders like Cohen of SAC Capital may now set their sights on other sports teams.

Recent sales of teams like the L.A Dodgers, Detroit Pistons and Philadelphia 76'ers show that Wall Street minds are increasingly looking at sports as a good investment, even if the bottom line outpaces wins and losses. Prior to a late Tuesday sale announcement, the Dodgers were reported to draw interest from private equity firms like KKR ( KKR), Thomas H. Lee Partners and Providence Equity Partners, who were targeting the team's sports programming rights. That consortium, led by Leo Hindery of the Yes Network may have looked at creating an independent sports programming network similar to Madison Square Garden ( MSG).

With the Dodgers, Johnson and his co-investors will own a sports empire that includes valuable media and real estate assets. The Dodgers will need to decide on whether r to renew a new long-term carriage deal with Fox Sports or seek new partners like regional cable powerhouse Time Warner Cable ( TWC). The group will also own valuable real estate assets, which McCourt, who bought the team for $421 million in 2004, refused to sell even as the team fell into distress.

See how the ball field is turning into a private equity playground for more on why financial minds are targeting sports as an investment.

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