A tale of two ownerships

You have to be a real Giants fan to know that Charles Johnson is the principal owner of the club in the wake of Bill Neukom stepping down. Gwen Knapp of the SF Chronicle filed a pretty solid story about him a few days ago, stressing his business acumen, philanthropy and desire to maintain a low profile. He didn't want to talk about how the Giants are being run, even though they've just committed $112 million to Matt Cain. He may not be the ideal guy to be the principal owner but at least he's not going to embarrass the team or its fans.

Then you have the Dodgers continuing to wallow in sleaze. TJ Simers of the LA Times -- who's columns are typically him whining about something without doing much real reporting -- has written a pretty decent piece wondering what the hell the relationship of the new owners is to Dingbat Dodger Owner Frank McCourt. Nobody's really explaining how it is that McCourt will still own some of the property nearby.

Andrew Ross Sorkin of the New York Times delivers a real body blow to the new owners in his Dealbook column by pointing out that the Guggenheim Partners is using money from its insurance company holdings to buy the Dodgers -- not their own money -- and then use Magic Johnson as a front man to hide their basic sleaziness. Here's some key verbiage --

Using insurance money — which is typically supposed to be invested in simple, safe assets — to buy a baseball team, the ultimate toy for the ultrarich, seems like a lawsuit waiting to happen. Mr. Walters has been somewhat open in acknowledging that Guggenheim’s companies will be tapped, but the investor group has not disclosed how much of the purchase price is coming from individuals.

The transaction seems even more questionable when considering 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.”

So let’s get this straight: Mr. Walter, who has a fiduciary duty to the firm’s policyholders, plans to pump their money into a baseball team, even though he says he’s not seeking to realize a return on the investment. And he is seemingly wildly overpaying by some $500 million more than the next highest bidder — he outbid Steven Cohen, the hedge fund manager, among others — so that he can be the league-designated owner of the Dodgers.

“Paying $1.5 billion or $1.6 billion — I can get there. But anything after that is pure ego,” said a longtime sports banker who worked for a rival bidder for the Dodgers. “We’ve done the math. At that price, it just doesn’t make any sense unless you want to be the king of Los Angeles.”

In fairness, many insurance companies use their premiums to make investments, including private equity and real estate deals, a slice of which can sometimes even be speculative. As long as the insurance companies meet minimum capital requirements as determined by various regulators, they do not run afoul of the law.

However, rarely does an insurance company — let alone an investment firm — buy a sports franchise using its policyholders’ or investors’ money. When Tom Hicks, the founder of the private equity firm Hicks Muse, Tate & Furst, bought the Texas Rangers in 1998, he had the good sense not to use his fund’s money; he brought in qualified outside investors, who by the way, ended up suing him anyway when the team filed for bankruptcy.

In one case, the Ontario Teachers’ Pension Plan had owned Maple Leaf Sports and Entertainment, the company that owned the Maple Leaf professional hockey team and the Toronto Raptors pro basketball franchise, but the pension’s fund chief was not considered the teams’ owner. The pension fund sold the company last year.

So far, Mr. Walter and Guggenheim are not saying much. They have yet to reveal anything publicly about the proposed ownership structure. They are buying the team from the parking lot mogul Frank McCourt, who sent his debt-laden team into bankruptcy last year. In a filing to the bankruptcy court handling the sale of the Dodgers, none of the documents describe any of the financing arrangements except to suggest the deal is all cash.