‘“I am sore. Kneecaps are sore. Shoulder is sore. Hand sore. Wrist sore. I mean, I fell. (But) I'm in good spirits.” - Freddie Freeman, Dodgers first baseman, on losing the battle with the dugout steps.
🎙️ Leading Off
Very cute of the Yankees to secure a $2.6b investment one day before the Lakers sold for $12.5b. See below.
🏀 Hard In The Paint
Why? How? And to the good people of LakerNation?!
Maybe you didn’t mutter the last piece when you first heard Mark Walter sold off the his 78% share of the Lakers at $12.5b valuation. Walter conquered LA sports when he added the Lakers to his portfolio. To turn around and sell the team 11 months laters needs an explanation.
Don’t expect it to come from Walter himself. Allow me. Three important pieces make this interesting:
When is OpenAI IPO’ing and for how much? I’m sure you busted out the legal pad to figure out how someone (Kushner) could possibly buy a $12.5m asset with a net worth around $5b. Iger isn’t even reported to be in the Big Billi Club. So who’s cuttin the mortgage to get this deal done? Two sources: Kushner could take a private loan collateralized against his shares in Thrive Capital and Kushner can use Thrive Eternal (his open-ended fund) for up to another 20% of equity. OpenAI and Stripe are two of Thrive Capital’s shiniest holdings. According to my bankers, Goldman and others are offering fund managers loans against future carry. Kushner puts up the shares, bank gives loan, profits from the Lakers pay it down. Where does this go wrong? Ask Mat Ishbia. Should OpenAI’s IPO underwhelm, Kushner could get margin called for more equity (cash) in these personal loans. If he isn’t liquid enough to close the LTV gap, he’d be forced to lose his ChatGPT account and shares or sell another chunk of the Lakers. Where does this go wrong on the court? The Lakers are easily the highest cash flowing asset in the Kushner portfolio. Expect the Purple and Gold to avoid the second apron and service the debt on Kushner’s acquisition loan.
Bob Iger co-signs sports media. Iger moves from the buy-side to the sell side as one of the few owners with direct experience negotiating media rights. There’s one wrinkle: the regional cable network that owns Laker rights is currently up for sale. Walter, despite owning the outlet broadcasting Dodger games, declined to buy the Lakers channel when he had a chance. Will Iger give it a crack? Or, should he ignore it, does this signify the end of local television dollars? If Iger believes this valuation can be supported without stabilized local media dollars, then what does that mean for valuations of other teams that have already seen the dollars dry up? The conviction to purchase a team with a $12.5b valuation amidst an unstable local media environment suggests the current national deal is enough to support the asset (and all assets across the league). Very NFL of the NBA.
Things are bad for Mark Walter. They just are. The Lakers are the single most important asset in the NBA. To enter and exit within a year can only be justified by a need for fast cash. Walter imported a number of very senior Dodger executives to the Lakers and spent the year coordinating significant long-term infrastructure. This was never the plan. Okay. Deep Breath. Welcome to The WallMark Journal. For all my little tax evaders, prepare to write this down. Here’s the scheme:
Walter (through his personal holding company TWG) owns two insurance companies (Delaware Life, Clear Spring).
Delaware Life and Clear Spring made over $17b in loans to other TWG or Walter controlled companies. Not illegal. The illegality (and subsequent whistleblower complaint) stems from not describing the loans as related party investments.
Originally, the two insurance companies claimed that only 2% of their invested asset portfolios were related party investments. Fairly safe, reasonable, and compliant by regulatory standards. After reclassifying the loans, the 2% jumps to 40%. I’m not a regulator, but it seems out of bounds for any insurance company to have its investment portfolio 40% concentrated with private loans (and especially loans to intermingled businesses). Life insurance companies are supposed to have extremely risk adjusted, fixed income (bonds) based, conservative portfolios. The portfolio mix is the red flag.
The tax evasion is the crime. Can I start by saying I have no idea what constitutes tax evasion? I like to think I do, but H&R Block doesn’t even give me the option. Let’s walk through the shell game and you tell me if Walter is going to jail. Walter owns the Dodgers. The Dodgers own American Media Productions. American Media Productions is a shell company that owns the Dodgers TV channel. The company does nothing except for collect a huge amount of money from Charter Communications and funnels it to the Dodgers. That’s the Dodgers media deal. Pause. Delaware Life Insurance made a $587m loan to American Media Productions. Why? Why would a shell company with virtually no operations, overhead, or expenses need a loan? The interest on the loan becomes an expense that reduces the company’s tax liability. Is that illegal? Who knows. Is it fortuitous for Walter that he can use one company’s loan to shrink another company’s tax bill? Hell yeah. Should he do that $17 BILLION TIMES! Not unless you’re begging for a knock, knock, knock from the Department of Justice.
The working knowledge of people speculating (me) is that Walter needed liquid cash to close or wind down $17b in loans so that his insurance companies don’t face fines or lose their operating licenses. Shrink the loan book, say sorry, lose the Lakers, and live to fight another day.
It’d be nice to not have to write any of this. As Resident Laker Fan, I fielded a bunch of text messages yesterday. I have more thoughts on the situation. More than anything, I want the Lakers to earn as much money as possible, dump it into the team, unflinchingly pay the luxury tax, and win every title. I don’t want to perform mental gymnastics and count other people’s money. I don’t want to extrapolate how someone’s venture portfolio will equate to wins. Sometimes it works. Look at the Dodgers. Sometimes it doesn’t. Look at the Clippers. If I have one message for the new owners, it’s this, here’s the mantra: death, pay your fuckin taxes, and Lakers win the championship.
📻 Over The Air
📡 JumboTron: Thursday’s Must Watch
All times PST
FedEx St. Jude Championship, 11:00am Golf Channel
Phillies vs Twins, 4:30pm Netflix
☎️ The Phone Line
Best thing on the timeline today:
— (@)
— (@)
— (@)
— (@)
Walkup Song
Walkup Song
BOYS LIKE GIRLS
For Mark Walter and the Feds:
Spotify