This deal is starting to stink really bad, and this quote is just bizarre:

Mr. Walter’s own words to The New York Times two weeks ago: “I don’t want to realize a return on investment on buying the Dodgers. I want to have a multigenerational relationship that changes my life, Magic’s life, Magic’s grandchildren’s lives and all of our lives.”

If they are using insurance company reserves to buy the Dodgers, the regulators should stomp that out pronto.

I want to have a multigenerational relationship that changes my life, Magic’s life, Magic’s grandchildren’s lives and all of our lives

Aha! So back to Brooklyn it is.

From reading the title I assumed this article was about the Marlins. Or the Royals. Or the Pirates. Or the Rays. Or...Well, you get the idea.

If they are using insurance company reserves to buy the Dodgers, the regulators should stomp that out pronto.

As the article states, all the companies need to do is meet minimum capital requirements.

From reading the title I assumed this article was about the Marlins. Or the Royals. Or the Pirates. Or the Rays. Or...Well, you get the idea.

My first thought was that it was about New Yankee Stadium.

If they are using insurance company reserves to buy the Dodgers, the regulators should stomp that out pronto.

Why? As we've seen time and again, owning a baseball team is a safe and highly profitable investment. Assuming a reasonable level of safety, I would rather have my insuror earning the astronomical returns that can effectively drive down my rates. Ignoring the McCourt profits, just look a few miles to the South -- the Padres were bought in '94 for $95m and the Moorad sale was reportedly $500m.

As the article states, all the companies need to do is meet minimum capital requirements.

They seem to be talking about investing reserves. An investment in the Dodgers should get zero reserve credit, like a junk bond.

Regulators have wide latitude to protect policyholders.

An investment in the Dodgers should get zero reserve credit, like a junk bond.

Not quite sure why this is. The Dodgers have been horribly mismanaged and were still worth 2.1 billion. That's one hell of a junk bond.

Why? As we've seen time and again, owning a baseball team is a safe and highly profitable investment. Assuming a reasonable level of safety, I would rather have my insuror earning the astronomical returns that can effectively drive down my rates. Ignoring the McCourt profits, just look a few miles to the South -- the Padres were bought in '94 for $95m and the Moorad sale was reportedly $500m.

Because it's not liquid, doesn't generate reliable cash flows, and can not be used to pay claims. Insurance companies don't invest their reserves in equity; especially not dodgily structured private equity, where you paid a 50% premium to any reasonable valuation.

Insurance reserves are not a total return game. Most policyholders don't have any upside.

Also the situation is rife for abuse, with the principals able to siphon off profits in salaries, fees, and sweetheart related party deals, leaving the insurance entity holding the bag if things go south.

If they want to use insurance company reserves, it has to be structured as rated senior debt.

Not quite sure why this is. The Dodgers have been horribly mismanaged and were still worth 2.1 billion. That's one hell of a junk bond.

Because it's not a reliable source of claims paying resources. Reserve credit is about ability to pay claims as they come in, not eventual value.

The policyholders by and large don't benefit from superior reserves, but they have all the downside, so regulators tightly control in what form reserves can be held.

especially not dodgily structured private equity

I see what you did there.

Why? As we've seen time and again, owning a baseball team is a safe and highly profitable investment.

Just like the housing market...until 2008!

Yea, what Retro implied. It seems to me that there is a serious baseball bubble in player and team valuation in the making and that it is looking for somewhere to explode. Unless this insurance money is the kind of money that won't be missed, then this could be a catastrophe. And corporations don't have that kind of money, only very wealthy people.

Hey - there's always money in the banana stand.

This just smells like the Wilpons all over again. After taking on all the debt that the Dodgers are in, will these guys be reluctant to make significant free agent acquisitions?

Also, it's profitable until you can't afford it anymore, like with the Mets and Dodgers and Rangers, and, and.... This just stinks.

Also, this team is not worth 2.1 billion. That's what this group offered, and it seems to be 500 million more than the next group offered. As many commentators have already pointed out, it'll be hard for them to ever recoup the investment.

As many commentators have already pointed out, it'll be hard for them to ever recoup the investment.

Right; and the prior owner, McCourts, just ran the franchise into the ground to the detriment of the value of the asset, from everything I read from the experts, too. I have not seen a loss on an entertainment investment in a major media market yet. There must be 1 at some point, but as leisure time increases (less people working), and media outlets increase, the need for entertainment programming is just going up and up. Making an investment in content seems a pretty smart move.

as leisure time increases (less people working), and media outlets increase, the need for entertainment programming is just going up and up.

Don't we normally associate "less people working" with people having less money to spend on entertainment programming? For example.

Also the situation is rife for abuse, with the principals able to siphon off profits in salaries, fees, and sweetheart related party deals, leaving the insurance entity holding the bag if things go south.

Sounds pretty standard for private equity... and for major league baseball.

Right; and the prior owner, McCourts, just ran the franchise into the ground to the detriment of the value of the asset, from everything I read from the experts, too. I have not seen a loss on an entertainment investment in a major media market yet. There must be 1 at some point, but as leisure time increases (less people working), and media outlets increase, the need for entertainment programming is just going up and up. Making an investment in content seems a pretty smart move.

The problem is using insurance reserves to make the investment. The policyholders get none of the upside if the Dodgers become worth $4B, and all of the downside if they're actually only worth $1.3.

Insurance policyholders don't get paid to take that risk. Therefore, regulators shouldn't let anyone foist it on them.

Sounds pretty standard for private equity... and for major league baseball.

Exactly. High finance and corporate governance in this country is a cesspool of corruption. Unfortunately, the gov't and regulators are as bad, or worse.

Reserve credit is about ability to pay claims as they come in

Since when do insurance companies actually pay claims?

Exactly. High finance and corporate governance in this country is a cesspool of corruption. Unfortunately, the gov't and regulators are as bad, or worse.

I did private equity law for a short, highly paid, and extremely miserable period of time. I would often phone up regulators and argue against my own interests when they informed me of some of their determinations, as they were so flagarantly incorrect that I was afraid I would be implicated in some sort of crime if I didn't swoop in and do their job for them.

Many regulators are outwardly corrupt, but many more are just horribly inept.

Many regulators are outwardly corrupt, but many more are just horribly inept.

My experience is that they (along with the rating agency folks) are just sucking up the the banks/funds/etc. hoping to be hired.

Since when do insurance companies actually pay claims?

We have an awful hard time arguing people aren't dead when they present a death certificate.

My experience is that they (along with the rating agency folks) are just sucking up the the banks/funds/etc. hoping to be hired.

You have two tiers in the rating industry: The upper tier, who will do whatever the banks tell them to because their very existance depends on the banks paying them to rate things; and the lower tier, who are too incompetant to get private sector jobs and are more inept than corrupt.

We have an awful hard time arguing people aren't dead when they present a death certificate.

That's what suicide clauses are for.

I think people are reading too much into that quote by Walter.

"I don’t want to realize a return on investment on buying the Dodgers. I want to have a multigenerational relationship that changes my life, Magic’s life, Magic’s grandchildren’s lives and all of our lives.”

I think his point was that he's not looking to sell in a few years to realize a return, he's looking at this as a long-term, multi-generational investment. That doesn't mean he isn't trying to make money, and even if he isn't, I'm sure the other partners at Guggenheim are.

The regulators aren't going to allow the insurance companies to purchase equity in a baseball team in a related-party transaction. As snapper said, it will have to be invested via rated debt.

25 — I agree. With Guggenheim having $125 billion under control, the Dodgers shouldn't have much to worry about. Walter's quote is interesting, though, in the sense that no one seems to know whether Walter is the "control person" on behalf of Guggenheim Partners or if this is a Steinbrenner-esque deal where he's personally getting majority control without putting up a majority of the money. His quote implies the latter, which, if true, might be one of the biggest coups in sports history.

I thought all along that MLB wanted Magic/Kasten/Walter, but I was shocked to see a group of non-billionaires blow Cohen and Kroenke out of the water like they did.