I'm glad that some really big questions about the Dodgers deal are finally being asked by one of the biggest names in financial journalism. Andrew Ross Sorkin, in his DealBook column at the New York Times, admits that for the past few weeks, he's been "puzzled" by the terms of the sale, with Guggenheim Baseball Partners — Magic Johnson, Stan Kasten, Peter Guber, and Guggenheim Partners — shelling out $2.15 billion for the team, a record price.
The winning bid was led by Mark Walter and his firm, Guggenheim Partners, which most people in sports — and frankly, even on Wall Street — know very little about. (Peter Guber, the film producer behind “Rain Man” as well as Stan Kasten, the former president of the Atlanta Braves, are also involved.)
A quick background check and some back-of-the-envelope math raises an obvious red flag: how on earth can this group of individuals afford to pay $2 billion in cash?
The answer is that they probably can’t — at least, not by themselves.
Mr. Walter, along with his colleague Todd Boehly, Guggenheim’s president, appear to be living out a childhood fantasy using other people’s money, some of whom may not even realize it.
He goes on to explore the apparent financing scenario, in which Walter and Boehly are tapping the insurance funds their firm oversees to provide what amounts to private-equity-type money. In this arrangement, the Dodgers — for the next few weeks anyway in bankruptcy court — are a classic distressed asset. The funds are providing the all-important leverage in the deal.
[LISTEN: Sorkin went on "The Madeleine Brand Show" this morning to discuss the possible problems with the deal's funding.]
Sorkin's dismay comes from understanding that staid, boring insurance funds aren't supposed to take crazy risks with client money — such as by buying bankrupt sports teams. Is Mark Walter raiding the funds? Or just recognizing a great investment?
Frankly, this has been a concern for Major League Baseball all along, even before the purchase price went up by half a billion. But so far, that price hike at the eleventh hour hasn't prompted MLB to re-evaluate the deal.
There's another piece: like a lot of observers of this deal, Sorkin seems to be simultaneously figuring out how buying the Dodgers fits into Guggenheim Partners' overall strategy of ambitious expansion. Is the firm trying to be a full-service investment bank? A private-equity shop? All of the above?
The only thing that Sorkin overlooks is the new broadcast deal, which will come in about a year. The Dodgers could get as much as $5 billion. In that light, the $2.15-billion is a down-payment on a huge future payday — and maybe a justification for overpaying for a "costly toy."