12/23/24
April 10, 2012
Dodgers Bought with Insurance Policyholder Funds: The Mark Walter-led group that bought the Los Angeles Dodgers is making questionable use of funds to do so, claims New York Times Dealbook columnist Andrew Ross Sorkin. "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?" he asks. Walter's Guggenheim Partners is using money collected from policyholders by insurance company subsidiaries to buy the team. "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," Sorkin writes.
Why anyone is surprised is beyond me. These guys (that is, people in the hedge fund/private equity industry) have been getting away with much worse for years and rarely have any negative consequences. Mind you I would like to slap them in the face for thinking buying a sports team is a good investment for insurance money.
Then I think about the Ontario Teachers pension plan owning owning Maple Leaf Sports & Entertainment Ltd. (MLSE), which owns the Maple Leafs, Raptors, Toronto FC, and the Toronto Marlies American Hockey League team. Under contract to see it off, finally, but I guess this does set a precedent for Guggenheim to point to as cover.
posted by billsaysthis at 11:41 AM on April 10, 2012
According to the Guggenheim web site, their insurance products are in 4 business areas, annuity re-insurance, retail annuity products, institutional products through the Federal Home Loan Bank, and "proprietary private placement products". This isn't your run-of-the-mill car, property, health, or life insurance company. Its products are offered mostly to institutional investors or hedge fund high rollers, and anyone who buys a retail annuity would be well-advised to read the prospectus listing the assets backing the annuity. Full disclosure of any investment such as a baseball team would be required, and it would be "buyer beware" after that. Sounds like The New York Times is up to its usual financier-bashing tricks. I am not familiar with state regulations on life insurance companies, but I would think they would require proof of solvency and soundness of investments before granting any company a license to do business. In any case, Guggenheim Properties is not quite a retail life insurance provider.
posted by Howard_T at 01:39 PM on April 10, 2012
Sounds like The New York Times is up to its usual financier-bashing tricks.
Have to disagree there. First of all, the article is in their "Dealbook" section, which is hardly anti-capitalism. Second, they quote another interested party who said he couldn't justify bidding more than 75% of what they bid. And then there's the killer line; would you want to hear this from your investment adviser about a product he just bought for you?
"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."
posted by yerfatma at 04:06 PM on April 10, 2012
Ontario Teachers pension plan
The Ontario Teachers pension plan made huge profits from their sports and business investments. I can't think of a company or organization that made better financial decisions during the past 10 years. They certainly never paid a 30% premium on any position they entered.
I would have expected the Dodgers to be currently undervalued due to a few decades of mismanagement and mediocrity and a solid opportunity for a wise investor. But 2 Billion and a 30% premium?
posted by cixelsyd at 04:24 PM on April 10, 2012
The Pension Plan that owned MLSEL is also about a $118 billion fund - MLSEL was but a small piece of that worth about $1.2 Billion. eggs, basket and all that.
posted by WeedyMcSmokey at 06:06 PM on April 10, 2012
'Twas the Ontario Teachers fund that owned MLSE, weedy. They bought in 17 years ago at $180 Million and sold this year for $1.32 Billion. It was one of their less successful endeavors even though MLSE is considered one of the crown jewels when it comes to sports franchises.
posted by cixelsyd at 07:47 PM on April 10, 2012
Yeah, the Ontario Teachers Pension Plan. The OTPP. The annual ROI off that was between 16 and 22%. I think in 2008 MLSEL cleared $88MM off revenues of $380MM.
posted by WeedyMcSmokey at 08:29 PM on April 10, 2012
And that's without any playoff games since 2004.
posted by tommybiden at 08:51 PM on April 10, 2012
My point was that the MLSE deal was a point in Guggenheim's favor, not a warning against it; sorry if that didn't come across. Though this was by a pension plan, not an insurer.
I spent four years working (as a software dev) at a mid-size commercial property/casualty insurance company on Wall St. back in the '90s and have an MBA in finance so I think I understand how insurance companies (are supposed to) handle their investment money. And buying the Dodgers "to have a multigenerational relationship that changes my life, Magic's life, Magic's grandchildren's lives and all of our lives" is not on any approved list I've read.
Howard, essentially all insurers stay in business by investing premiums. Different types of insurance have different payout profiles and so the investments should follow somewhat different guidelines but in no case can I see a low or no return longterm investment such as the Dodgers fitting any prudent plan.
At the very least after the first few years they would need to start throwing off cash, probably a minimum of $20-40 million a year to start and growing closer to (an inflation adjusted) $100M/year after 10 years. That seems very unlikely.
posted by billsaysthis at 11:49 AM on April 11, 2012
Just came here to post this. Any one of the bits would be questionable, putting their investment company in the jackpot with them, supposedly not being interested in a profit, paying 30% more than the next bid. All of them together just seems gross. I love how stupid guys sound when they get a chance to buy something irrational they loved as kids.