Is this whole thing just a toy for some rich men playing with other people's money?
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.
Denis Poroy/Getty Images
SAN DIEGO, CA - APRIL 5 : Magic Johnson (L) sits with Frank McCourt during the game between the Los Angeles Dodgers and the San Diego Padres in the home opener at Petco Park on April 5, 2012 in San Diego, California. (Photo by Denis Poroy/Getty Images)
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.
Denis Poroy/Getty Images
Magic Johnson sits with Frank McCourt during the game between the Los Angeles Dodgers and the San Diego Padres in the home opener at Petco Park on April 5, 2012 in San Diego, California.
Ahead of an April 13 hearing in the Los Angeles Dodgers' bankruptcy case, the team's soon-to-be-new-owners-if-all-goes-well and the team's debtholders are filing court documents. This may or may not shed light on the structure of the deal, but it will certainly provide a bit more transparency on the $2.15 billion purchase price Guggenheim Baseball Management agreed on with Frank McCourt than we've had so far.
I have access to the court documents but may have to take some time to sort through them. So stay posted.
At the L.A. Times, Bill Shaikin summarizes the story up to this point. He's also tweeting his way through the documents at @BillShaikin. Worth a follow for sure!
UPDATE: The official purchase price is $1.59 billion. Then there's the debt Guggenheim Baseball Management (GBM) is taking on, a bit more than $412 million. There's your $2 billion price tag. The parking lots side deal, remember, is $150 million for GBM, with McCourt providing the other $150 million. Total deal size is really $2.3 billion.
From L to R: Earvin "Magic" Johnson, Stan Kasten and Peter Guber, three of the four front men in Guggenheim Baseball Partners, the group that placed the winning bid for the L.A. Dodgers.
LABiz Observed's Mark Lacter talked with KPCC's Steve Julian this morning about some lingering questions regarding the sale of the Dodgers to Magic Johnson, Stan Kasten, Peter Guber, and Guggenheim Partners — a group now collectively known as "Guggenheim Baseball Management." The big question is about the financing of the deal. It's reportedly an "all cash" deal, meaning no debt is going in. But a purchase price of $2.15 billion makes me wonder about that. So do the vast ambitions of Guggenheim, which currently include a deal that dwarfs the Dodgers sale: the $500 billion purchase of Deutsche Bank's U.S. assets.
Still, Can the Magic team really be bringing that much cash to the table? Back when the price was speculated to be around $1.5 billion (that was two weeks ago), the guy with the largest checkbook was hedge-fund king Steven Cohen, who was thought to be bringing in personal net worth of $8 billion and nearly $1 billion is cash.
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).