Take your old shorts and re-fashion them!
Sorry for the lack of photos in the step-by-step! I wasn't planning on making a how-to to begin with.
Start with the pair of denim shorts (could be some old denim pair of pants to make into shorts). Measure the width of the legs and cut lace accordingly. Sew lace on shorts with needle and thread
Take scisors and cut small pieces where you'd like the rips to be. After they are cut, rip it by hand or use some blades without cutting straight through the denim. Of course, you could always rip them au natural by doing crazy/awesome stuff.
For the dyed effect, take the bucket, pour about 8 or 7 cups of water for 1 of bleach. Crumple up your jeans (this is what adds the effect) and submerge them in the bleached water. Leave in water for at least 6 hrs. or until a color CLOSE to the desired one is reached.
Note: When you wash them the color will end up lighter than it looks after it's been soaked with bleach
Rinse the shorts to prevent any more bleaching by the leftover water in them and stick 'em in the washer machine. The washing process will wear the rips with a more natural look.