Dodgers New Ownership Group Raises Concerns

By any reasonable estimation, the Los Angeles Dodgers should be a juggernaut. They are the more popular team in a huge market. But of course, Frank McCourt happened, and perhaps as a result, the team’s roster is two superstars in Matt Kemp and Clayton Kershaw, then a bunch of riffraff and overpaid journeymen.

The main problems with the Frank McCourt era were that he 1) took on way, way too much debt in order to buy the team; 2) raided the team’s resources for personal gain; and 3) had his wife fired for “insubordination” after she slept with her driver. OK, the last one probably didn’t hurt the Dodgers’ ability to put together a winning team, but it bears mentioning every time Frank McCourt is brought up.

But the first two—not so good. Basically, the problem was that, particularly after the financial crash and a divorce, McCourt just wasn’t rich enough to own the Dodgers.

Enter Guggenheim Partners, who, in addition to having a name that sounds like the evil conglomerate that James Bond has to defeat, does appear to have a little more in the way of actual money than Frank McCourt did. So that’s good news for Dodger fans. And it seems unlikely that they will use the team as a personal piggy bank.

However, it’s not all rosy in Dodgerland. Because if the chief problem with the McCourt era was taking on too much debt, well, a bunch of dudes nobody has heard of (and Magic Johnson!) throwing down $2.15 billion raises some red flags.

First of all, a figure that big means that Frank McCourt will go from being doomed and divorced to being wealthier than he ever has. Also, he will retain a stake in some nearby parking lots and is planning developments to turn those into cash cows.

But wait, there’s more, Dodger fans who thought you were rid of Frank McCourt forever! Matthew DeBord raises the point that Guggenheim could end up paying some of that price tag in the form of a debt-for-equity swap—with the debt being a portion of the $2.15 billion owed to McCourt and the equity being a stake in Guggenheim Partners—which of course, would leave McCourt as a major stakeholder in the company that owns the Dodgers.

And while I’d hazard a guess that he will try to lay low, this is the guy who trotted out a team lawyer that blamed Bryan Stow for being beaten within an inch of his life in a Dodger Stadium parking lot, so you never know.

The New York Times’ Andrew Ross Sorkin came out swinging, describing the use of one Guggenheim Partners subsidiary, Guggenheim Life, a life insurance company, to fund a portion of the purchase as “a lawsuit waiting to happen.” Sorkin uses Guggenheim CEO Mark Walter’s own claim that he is not seeking a return on investment, to question the use of the company’s investors — people who most certainly are seeking a return on investment — in wildly overpaying for what amounts to a really cool toy for Walter.

While part of me realizes that these are the things team owners say (I don’t think Dodgers fans would be especially thrilled if their new owner announced plans to be the next David Glass), there is a legitimate question about replacing one heavily indebted owner with another and just waiting for that massive TV payday.

Personally, I don’t care all that much whether or not Guggenheim’s investors get a big return on their investment. That’s their problem. However, it does seem like the fate of the Dodgers is now very, very closely tied to Guggenheim Partners’ success. If one fails, so does the other. And with Guggenheim Partners’ aggressive expansion, there is the chance that they could be another investment bank that makes risky acquisitions on debt and then ends up overleveraged to the point of collapse—that they employ a former Bear Stearns CEO doesn’t exactly inspire confidence in their ability to assess risks.

Of course, this all matters a whole lot less if things go according to plan and the Dodgers are able to sign a TV contract worth up to $300 million annually starting next season.

By Jordan Carr
Contributing Writer for The Daily Sports Herald