Sunday, March 25, 2012

Concern Over Magic Group's Financing Is Spreading

         By Ross Newhan

         As reported exclusively by this blog several days ago, concern among major league owners over the financial structure of the Magic Johnson/Stan Kasten bid for the Dodgers has quietly been spreading, according to two people familiar with the situation but not authorized to discuss it. Now, as well, the involved financing by insurance companies in Kansas and Indiana may have state regulators concerned.

        With major league owners expected to vote by conference call on the three remaining bidders in the bankruptcy auction of the Dodgers this week (perhaps as early as Tuesday), it remains unclear as to weather regulators in the two states could find problems with the involvement of the companies--the Security Benefit Life Insurance Company of Kansas and the Guggenheim Life and Annuity Company of Indiana--or that the bid could be sidetracked completely by big league owners.

       The principal financer behind Johnson and Kasten is Mark Walter, CEO of Guggenheim Partners, a private global financial services firm with $125 billion in assets under managment, according to the firm's fact sheet.

       The concern among some owners, according to the two people familar with the situation, is based on whether the industry should be involved with state and/or federally regulated companies. Similarly, state concern has been developing over whether public money should be risked in the possible purchase of a baseball team, even though Forbes has estimated the value of the Dodgers at $1.4 billion and the new owners are counting on a multi-million dollar television contract from Fox Sports or Time-Warner and the possible structuring of a regional network built around the Dodgers.

     According to the two people familiar with the situation, Indiana Insurance Commissioner Steve Robertson was not aware or had not been informed that the Guggenheim Life and Annuity Company was being used to help finance the Dodgers purchase and may pursue an investigation starting Monday. Messages left for Robertson on Sunday were not returned as of mid-day.

     The hedge fund company of a competing bidder, Steven Cohen's SAC Capital Advisors, is subject to federal regulations. In fact, two employees have been charged with insider trading, although Cohen has cooperated with investigators and been cleared of any potential personal problems.

     In addition, the proposed structure of the Cohen bid, according to the two sources, is basically based on personal financing, including a large measure of cash. The Cohen group has also been enhanced by the addition of Dr. Patrick Soon-Shiong, reputed to be the richest man in Los Angeles. Forbes has estimated the combined personal wealth of Cohen and Soon-Shiong at $15.5 billion.

    Also still alive in the bidding is St. Louis Rams owner Stan Kronke. The vote by owners could approve one, two or all three groups. The survivor or survivors would then begin final bidding and negotiations with Dodger owner Frank McCourt and his broker, Blackstone Advisory Partners.       

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