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Should we be worried about Guggenheim Partners owning the Dodgers?

A couple of weeks ago, Guggenheim Partners was an under-the-radar funding source for Magic Johnson and Stan Kasten's  successful marquee campaign to buy the L.A Dodgers. Just a $125-billion private firm in a world of much bigger fish. Goldman Sachs has almost a trillion in assets under management. Morgan Stanley has over $800 billion. Guggenheim hangs out in much lower reaches, with other broker-dealers in the realms below the exalted heights of major Wall Street investment banks.

Under CEO Mark Walter, however, Guggenheim is moving aggressively to break out of this mold and distance itself from shops like MF Global, the bankrupt broker-dealer that former Goldman CEO Jon Corzine was trying to bring into the big leagues — before a failed bet on European debt and some possibly illegal maneuvers with client money sent the firm into bankruptcy (and could send Corzine to jail).

The newly formed Guggenheim Baseball Management is just a small piece of Walter's overall objectives for the company — although by providing the bulk of the Dodgers purchase price of $2.15 billion, in a deal that's been variously described as "all-cash" or "nearly all-cash," Guggenheim Partners has achieved rising-star status almost overnight.

Obviously, owning a beloved sports team differs significantly from developing the mergers-and-acquisitions aspect of the investment-banking business, where the funds come quietly from advisory fees. Or from developing a proprietary trading operation, with the firm making bets on equities and securities on its own account. Or from becoming a leader in exchange-traded funds (EFTs), a hot, relatively new financial product that's supplying an alternative to sleepy mutual funds. ETFs can be traded like stocks, but they are structured like funds.

The fact that investors can move in and out of them rapidly and use them to hold short positions, betting on market declines, has prompted the ever-contrarian John Bogle to label ETFs speculative instruments tha investors should stay away from — unless they're suicidally interested in losing all their money! Nevertheless, Guggenheim Partners has developed more than 100 of these products.

That said, the Dodgers deal looks a lot more like a private-equity play — except that the Dodgers aren't an underachieving public company that can be taken private with a mountain of borrowed money, the sort of business that Mitt Romney used to make his fortune at Bain Capital. Still, there's precedent. One of the bidders who dropped out of the Dodger's race, Tom Barrack, runs Colony Capital, a Santa Monica-based private equity firm that bought and sold a French soccer team and has shown an ongoing interest in sports franchises as rapid-growth investments.

For the Dodgers deal, Guggenheim is undoubtedly looking at the $2 billion it preemptively paid for the team, short-circuiting an expected auction among three bidders, as a down-payment on the broadcast rights, which could fetch $3-5 billion when they're renegotiated in 2014. (An additionally $150 million went into a joint venture for the parking lots with Frank McCourt, much to the dismay of Dodger loyalists and McCourt haters.)

This is a swashbuckling gesture for a mid-level firm that has roots in Chicago but has been making a move toward Wall Street. It's also consistent with some recent hires. Alan Schwartz joined the firm a few years back, after he saw the investment bank he ran, Bear Stearns, go bust and be sold to JP Morgan during the financial crisis (for an fairly insulting $2 a share, or $236 million, pretty much a rounding error). Bear had a "Wild West" culture, in contrast to more staid i-banks. The smallest of the five big pre-crisis Wall Street investment banks, Bear stood out for its insatiable appetite for risk and for its workforce, often characterized as more blue-collar than white shoe.

It was a scrappy firm in a rough-and-tumble world where greed really was good — where greed, in fact, was demanded and lavishly rewarded. Watch author and former investment banker William Cohan in the video above for a taste of how this business worked. 

There are other notables now on the Guggenheim Partners payroll. Peter Comisar, a Goldman vet, was hired in 2009 to run investment banking in Los Angeles. Henry Silverman came over from Apollo Global Management, a big private-equity player, last month. 

But that's all just the tip of the iceberg. In fact, the Dodgers deal is small potatoes compared with the very large fish that Guggenheim is attempting to swallow: Deutsche Bank's U.S. asset management business, valued at $530 billion. Do that math; almost overnight, Guggenheim would go from being a $125-billion broker-dealer to being a nearly $700-billion full-service investment bank that, oh, by the way...owns the L.A. Dodgers! 

Could the IPO be that far off?

Let's not get ahead of ourselves. If you look at Guggenheim's acquisitions and private equity-style investments up to this point, they have a scattershot quality. It took a stake in the purchase of some magazines from Nielsen that include the revamped Hollywood Reporter. Then there's the Washington Research Group, a D.C.-based government policy analysis operation that, according the NYT DealBook, has had "nine owners in its 37-year history," most recently the aforementioned MF Global.

Somewhat damaged goods all over the place there, which does raise the question: Is this a firm that so hell-bent on joining the big leagues that its new big-league acquisition, the Dodgers, is in good hands? Does the extra $500 million that it seemingly conjured out of thin air — we all thought the Dodgers bids had topped out at $1.5-1.6 billion — make Mark Walter seem a tad reckless, even if some of his own money is in the deal?

One man's recklessness is another's opportunistic, if risky, gamble. And let's face it, running the Dodgers isn't going to come cheap. Walter may need every penny of that ginormous TV deal. But one thing's for sure right now: Guggenheim Partners' Wall Street reputation — that of an under-the-radar player — has just been changed forever.

Follow Matthew DeBord and the DeBord Report on Twitter.