The Breakdown

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Dodgers sale: Are there cracks in the deal?

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36286 full

The Dodgers and the organization's creditors began filing documents with the bankruptcy court in Delaware that's overseeing the team's sale. We didn't learn a whole lot beyond the known value of the deal: $2.15 billion, consisting of a cash offer, the assumption of the team's existing debt, and a side deal with outgoing owner Frank McCourt for the real estate around the stadium, currently blanketed with parking lots.

What we want to know is where the money that Guggenheim Baseball Management (GBM) — the entity that consists of Magic Johnson, Stan Kasten, Peter Guber, and financier Mark Walter of Guggenheim Partners — has brought to the deal is coming from. Remember, the final sale was conducted preemptively, without the anticipated auction that McCourt was going to conduct among the three final bidders. And the final sale price came in over half a billion higher than the initial bid than Major League Baseball approved from Guggenheim.

Everyone naturally wants to know how in about a week GBM was able to find an extra $550 million. According to Sports Illustrated, it sounds like GBM is doing a bit of financing on the fly, as well as leveraging the existing businesses of Guggenheim Partners:

MLB, as part of its agreement with McCourt, approved three finalists in the bidding, including the Guggenheim group at an initial bid of $1.6 billion. The other finalists were hedge fund manager Steve Cohen and St. Louis Rams owner Stan Kroenke, who owns several other pro sports teams. On the eve of a scheduled auction, McCourt struck a quick agreement with the Guggenheim group at $2.15 billion, a record for a sports franchise, which included an ownership stake for McCourt in the lucrative parking lots.

Though MLB approved the Guggenheim group as a finalist, it was concerned about the amount of "institutionalized" money it presented in its initial bid, according to one owner. Some of the money is expected to come from insurance companies Guggenheim controls. MLB prefers individual investors, especially local ones.

According to sources not involved in the sale, the Guggenheim group has reached out to wealthy Los Angeles individuals as potential investors, though one source familiar with the group's plans said that although the final number was $550 million higher than the initial bid, the money is coming from "the same pre-approved sources. This is moving along. The judge is committed to getting this done by the 30th of April, and he's in charge."

MLB informed bidders that it retains the right to review its approvals if the final sale is significantly altered in money and structure from the initial bid.

Three things:

•The bankruptcy court may very well look at the deal and figure that it's MLB's role to question the financial structure, moving the team along. If there's a holdup at this stage, it would seriously affect McCourt, who owes his ex-wife $131 million by April 30.

•The overall deal is looking more and more like a private equity-type play, with Walter and his associates basically building up a fund derived from outside, so-far unnamed investors and insurance firms in which Guggenheim Partners has an equity stake. However, we may not get much detail on this aspect, unless MLB objects. Guggenheim Partners is a private firm, and the Dodgers are obviously also not a public company.

•It seems that the extra half billion came from Guggenheim tapping more funds from its own holdings, as well as getting outside investors to commit more money, pretty much at the 11th hour. The objective, if this is something of a private-equity set-up (absent the usual debt part, with the buyout firm borrowing much of the money), is to get a crack at a broadcast deal that could go as high as $5 billion. That's the real payday.

There's always been something mysterious about this sale, centering on the sudden increase in the winning bid. We're starting to learn a bit more now. If the deal goes back to MLB, we may learn a lot more.

Follow Matthew DeBord and the DeBord Report on Twitter.

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