Latest / The Chuck ToddCast / TODDCAST SPECIAL REPORT Part 1 - Did The Lakers Sale Reveal The Next Financial Crisis Waiting To Happen?

Transcript

TODDCAST SPECIAL REPORT Part 1 - Did The Lakers Sale Reveal The Next Financial Crisis Waiting To Happen? · The Chuck ToddCast

• 0:00
  Speaker 1: What you're about to hear is the result of me
• 0:03
  Speaker 1: trying to answer a simple question, which was why did
• 0:06
  Speaker 1: Mark Walter sell the Lakers and only the Lakers after
• 0:09
  Speaker 1: owning them for fourteen months? And why did he sell
• 0:12
  Speaker 1: it to Iiger and Josh Kushner. Well, I started pulling
• 0:17
  Speaker 1: a thread, and the thread led me to places I
• 0:19
  Speaker 1: didn't expect to go, And I think what you'll hear
• 0:23
  Speaker 1: in this this is not a short episode, and that's
• 0:27
  Speaker 1: why it's a special sort of a special toodcast investigation,
• 0:31
  Speaker 1: if you will, of this. The more threads I pulled,
• 0:35
  Speaker 1: the more it became a window into essentially how modern
• 0:41
  Speaker 1: American finance works. And let's just say that what the
• 0:46
  Speaker 1: government hoped to do after the two thousand and eight
• 0:49
  Speaker 1: financial crisis and what has happened since are probably two
• 0:53
  Speaker 1: different things. The good news is we made our bank safer.
• 0:57
  Speaker 1: The bad news is money's always looking for other ways
• 1:01
  Speaker 1: to make money faster. Regulation be damned. And what I
• 1:07
  Speaker 1: think this very deep dive will explain is a whole
• 1:11
  Speaker 1: bunch of things. We don't know how opaque our financial
• 1:15
  Speaker 1: system is, and because of that opacity, it does create
• 1:20
  Speaker 1: concern that maybe we don't know what we don't know,
• 1:24
  Speaker 1: and if that unknown is a risky investment, how quickly
• 1:29
  Speaker 1: could the entire system unravel on us like it did
• 1:32
  Speaker 1: in two thousand and eight. The more I dug in,
• 1:35
  Speaker 1: the more questions I had, the more I wanted to
• 1:38
  Speaker 1: understand the system. So this is it's going to be
• 1:41
  Speaker 1: a two part series. Here, it's all done. You can
• 1:44
  Speaker 1: listen to it in one fell swoop, but if you
• 1:45
  Speaker 1: want to, we cut it up into two just for
• 1:47
  Speaker 1: digestible sake.
• 1:48
  Speaker 2: Here.
• 1:48
  Speaker 1: Part one basically tries to explain it all. So I
• 1:52
  Speaker 1: start with the with the characters. You're sort of laying
• 1:55
  Speaker 1: out how this system works, how it developed, why life
• 1:59
  Speaker 1: insurance companies had to go seek different investment vehicles like
• 2:03
  Speaker 1: the Dodgers or Lakers and things like that. It's a
• 2:07
  Speaker 1: little bit of understanding who Mark Walter is. So that's
• 2:10
  Speaker 1: Part one. It's going to lead to a series of questions.
• 2:14
  Speaker 1: I don't answer every question because I don't have the
• 2:16
  Speaker 1: material to answer it. None of us do well unless
• 2:20
  Speaker 1: there's some of you who have subpoena power. So that's
• 2:23
  Speaker 1: part one. So with that, take a listen what started
• 2:27
  Speaker 1: as a story about the Lakers. You're going to quickly
• 2:30
  Speaker 1: find out has nothing to do with the future of
• 2:33
  Speaker 1: Luca Doctors the Los Angeles Lakers. I've spent the last
• 2:43
  Speaker 1: few days asking a question that seemed pretty simple, right,
• 2:47
  Speaker 1: why did Mark Walter sell the Lakers?
• 2:49
  Speaker 2: He barely owned them?
• 2:50
  Speaker 1: So I started looking, and then I found something, which
• 2:53
  Speaker 1: led to something else, which led to an insurance company,
• 2:55
  Speaker 1: which led to another insurance company, which led to private credit,
• 2:58
  Speaker 1: which led to hundreds of Gear Delaware LLC's, which led
• 3:02
  Speaker 1: to federal subpoenas, and somewhere along the way, I realized
• 3:05
  Speaker 1: this is not a basketball story anymore. Let's pull the thread.
• 3:10
  Speaker 2: Look.
• 3:10
  Speaker 1: Last Thursday, I closed the podcast with what I thought
• 3:14
  Speaker 1: was simply a strange sports ownership story. The Los Angeles
• 3:17
  Speaker 1: Lakers had just agreed to be sold for twelve and
• 3:20
  Speaker 1: a half billion dollars, and everybody was understandably focused on
• 3:25
  Speaker 1: the buyers, Bob Iger of Disney fame, Josh Kushner, the
• 3:29
  Speaker 1: brother of the president's son in law, a record price,
• 3:32
  Speaker 1: the fact that Mark Walter had taken control of the
• 3:35
  Speaker 1: Lakers just fourteen months earlier at a valuation of ten
• 3:38
  Speaker 1: billion dollars and was now getting out. And I said,
• 3:42
  Speaker 1: if I were still running a newsroom, I wouldn't assigned
• 3:45
  Speaker 1: the buyers the story. I'd assigned the seller. Let's peel
• 3:49
  Speaker 1: back that onion. Why did Mark Walter sell the Lakers
• 3:53
  Speaker 1: after just fourteen months of ownership? Well, of course we
• 3:56
  Speaker 1: all started pulling the thread, and I have to tell
• 3:59
  Speaker 1: you this ended up taking me somewhere I did not
• 4:01
  Speaker 1: fully expect to go, because I thought I was looking
• 4:04
  Speaker 1: into the finances of a billionaire sports owner. Instead, I
• 4:07
  Speaker 1: found myself reading the financial statements of life insurance companies.
• 4:11
  Speaker 1: Thanks to the help of some really good journalists on substack,
• 4:13
  Speaker 1: I found billions of dollars in private loans, hundreds of
• 4:16
  Speaker 1: obscure financial vehicles, private credit ratings that can impact how
• 4:21
  Speaker 1: much you're allowed to capital an insurance company has to
• 4:25
  Speaker 1: keep around in case those loans go bad. Offshore reinsurance,
• 4:28
  Speaker 1: state regulators, federal regulators, and a financial market that has
• 4:32
  Speaker 1: grown enormously since the last financial crisis that took down
• 4:37
  Speaker 1: nearly took down our economy. Much of it now is
• 4:40
  Speaker 1: outside the banking system that we spent the last fifteen
• 4:44
  Speaker 1: years trying to make safer. Scary shit folks. And the
• 4:48
  Speaker 1: more I read, the more I started seeing things that
• 4:50
  Speaker 1: bothered me. Things that rhyme with two thousand and eight,
• 4:53
  Speaker 1: complicated debt ratings, agencies being paid to grade that debt,
• 4:58
  Speaker 1: financial engineering that can change how investment gets treated by regulators.
• 5:03
  Speaker 1: And then there are things that rhyme with Enron. The
• 5:05
  Speaker 1: scary thing is here is if Enron and the financial
• 5:08
  Speaker 1: crisis had a baby. Is it this complicated corporate structures
• 5:12
  Speaker 1: related party questions, the difference between what something is called
• 5:17
  Speaker 1: legally and what it actually represents financially, auditors issuing clean opinions,
• 5:25
  Speaker 1: while important questions remain about the larger financial picture. And
• 5:30
  Speaker 1: I'm going to add another name to the historical list
• 5:34
  Speaker 1: that will come back to later executive life. You got
• 5:37
  Speaker 1: to keep track of all these things. An insurance company
• 5:39
  Speaker 1: that failed three decades ago after loading up on higher
• 5:43
  Speaker 1: yielding debt, leaving regulators, policyholders, and the entire insurance guarantees
• 5:50
  Speaker 1: system to sort out who ultimately absorb those losses. Just
• 5:55
  Speaker 1: three different historical examples. By the way, all of those
• 5:58
  Speaker 1: you know who you know who have paid you know
• 6:00
  Speaker 1: who had to paid out us the tax payers. But
• 6:04
  Speaker 1: these are three different financial events. I'm not going to
• 6:07
  Speaker 1: tell you they're all the same thing. I'm not telling
• 6:10
  Speaker 1: you this is Enron. I'm not telling you this is
• 6:13
  Speaker 1: private credit is somehow the subprime mortgage crisis of the
• 6:17
  Speaker 1: twenty twenties. And I'm definitely not telling you that another
• 6:20
  Speaker 1: two thousand and eight is coming. I hope, at least
• 6:23
  Speaker 1: I hope that's not what this is. We don't have
• 6:25
  Speaker 1: the evidence to say any of those things definitively, but
• 6:30
  Speaker 1: I'm going to tell you where I am. After spending
• 6:33
  Speaker 1: the last few days with this, I have a sneaking
• 6:35
  Speaker 1: suspicion that we may be looking at the beginning of
• 6:38
  Speaker 1: something very bad. I hope I'm wrong. In fact, over
• 6:42
  Speaker 1: the course of this podcast, we're going to try to
• 6:44
  Speaker 1: prove my suspicion wrong. That's what I'm going to do here.
• 6:47
  Speaker 1: But there's something else I need to tell you at
• 6:49
  Speaker 1: the beginning. There are questions in this story that I
• 6:52
  Speaker 1: cannot answer for you, not because we didn't look, not
• 6:56
  Speaker 1: because I didn't search, because the answers are just not public.
• 7:00
  Speaker 1: Some of the assets we're going to discuss are private.
• 7:02
  Speaker 1: Some of the borrowers are private, some of the ratings
• 7:05
  Speaker 1: are private. None of this allowed to be in the
• 7:08
  Speaker 1: public square. Some of the valuations are never tested every
• 7:12
  Speaker 1: day in a public market. Some of the ownership and
• 7:15
  Speaker 1: economic relationships we're going to discuss are extremely difficult to
• 7:18
  Speaker 1: reconstruct from public filings. That's the feature. Unfortunately it should
• 7:22
  Speaker 1: be a bug. And then there are things we simply
• 7:26
  Speaker 1: cannot know from the outside. Who ultimately owns certain financial vehicles,
• 7:32
  Speaker 1: what's inside every one of them?
• 7:34
  Speaker 2: Why was one.
• 7:35
  Speaker 1: Structure chosen instead of another exactly? How was a particular
• 7:40
  Speaker 1: private asset valued without a public market to verify it.
• 7:45
  Speaker 1: What did an auditor ask of management? What information did
• 7:49
  Speaker 1: a ratings agency receive? What conversations took place between the
• 7:54
  Speaker 1: people on opposite sides of a transaction? This stuff gets
• 7:57
  Speaker 1: usually answered in depositions, folks, But we're not at a
• 8:00
  Speaker 1: deposition phase. We're at I'm not indicting anybody yet. Those
• 8:06
  Speaker 1: answers all may exist. We don't necessarily have access to
• 8:09
  Speaker 1: these documents. Some will require subpoenas. I don't have subpoena power.
• 8:15
  Speaker 1: Some may require witnesses. And that's one reason this federal
• 8:20
  Speaker 1: investigation to do parts of Mark Walter's financial empire matters.
• 8:25
  Speaker 1: A federal grand jury can demand those documents. Investigators can
• 8:29
  Speaker 1: compel answers they can ask questions that you and I
• 8:33
  Speaker 1: cannot force a private company to answer. But what I'm
• 8:36
  Speaker 1: going to be telling you is this is why you
• 8:39
  Speaker 1: have regulators asking questions all of a sudden. So I'm
• 8:41
  Speaker 1: going to establish one rule for the rest of this podcast.
• 8:44
  Speaker 1: I'm going to tell you what we know. I'm going
• 8:46
  Speaker 1: to tell you what the public record suggests, and I'm
• 8:49
  Speaker 1: going to tell you when the public record simply doesn't
• 8:51
  Speaker 1: allow us to know the answer. Because the opacity here
• 8:55
  Speaker 1: isn't an inconvenience that we should fill with speculation.
• 9:00
  Speaker 2: Act.
• 9:00
  Speaker 1: The fact that it is so opaque is part of
• 9:02
  Speaker 1: the story. Like I said, that may be the feature
• 9:05
  Speaker 1: to all of these financial instruments. Eventually, I think this
• 9:08
  Speaker 1: entire podcast comes down to this one question. How much
• 9:12
  Speaker 1: confidence should you and I have and the conventional measures
• 9:16
  Speaker 1: that tell us a financial institution is strong when a
• 9:19
  Speaker 1: significant portion of the assets underneath those measures cannot be
• 9:23
  Speaker 1: continuously tested in a public market. The more we have
• 9:27
  Speaker 1: moved to private credit, have we made everything even more
• 9:32
  Speaker 1: vulnerable without us even know knowing how.
• 9:35
  Speaker 2: Vulnerable we are?
• 9:36
  Speaker 1: I don't know the answer, but after everything we've learned
• 9:39
  Speaker 1: from the financial failures of the last quarter century. Not
• 9:43
  Speaker 1: only is this not a question worth asking before we
• 9:45
  Speaker 1: need the answer, I actually think we should be looking
• 9:49
  Speaker 1: at this as a five alarm fire right now. This
• 9:53
  Speaker 1: is why we have public officials, This is why we
• 9:56
  Speaker 1: have regulated. Frankly, it shouldn't be the press that has
• 10:00
  Speaker 1: the play that has to get the government to play catchup.
• 10:04
  Speaker 1: We should be playing ketchup with the government. Maybe we are,
• 10:08
  Speaker 1: Maybe this investigations further down the road than we think.
• 10:11
  Speaker 1: But there is an enormous financial market that's been built
• 10:14
  Speaker 1: around things by definition that are private, private credit, private companies.
• 10:18
  Speaker 1: It's an enormous financial market built around things that by
• 10:21
  Speaker 1: definition are private. More private credit, private companies, private transactions,
• 10:27
  Speaker 1: private evaluations, private ratings, private equity. Doesn't make any of
• 10:32
  Speaker 1: them bad, But when you're trying to determine where risk
• 10:37
  Speaker 1: sits in the financial system, it makes the picture much
• 10:41
  Speaker 1: harder to see how safe? How much do you trust
• 10:44
  Speaker 1: the valuations of anything? Has this all been just phony money?
• 10:49
  Speaker 1: Are none of these valuations of sports franchises, stocks, companies?
• 10:53
  Speaker 1: Is it all bullshit? That's the fear I have after
• 10:58
  Speaker 1: going through all this, where we go any further, I
• 11:00
  Speaker 1: also want to give credit where it's due there have
• 11:02
  Speaker 1: been some terrific reporting on individual pieces of this story,
• 11:05
  Speaker 1: and I use this as threads to connect the dots.
• 11:08
  Speaker 1: And I want to give a shout out to Katie
• 11:09
  Speaker 1: Baker at The Ringer. She did a terrific job connecting
• 11:12
  Speaker 1: the strange Lakers sale to the larger history of Walter
• 11:15
  Speaker 1: and its financial empire. Independent financial researchers at Mispriced Assets
• 11:21
  Speaker 1: did an extraordinary forensic work inside the insurance filings themselves,
• 11:25
  Speaker 1: following individual securities, related party exposures and hundreds of financial vehicles.
• 11:31
  Speaker 1: The Wall Street Journal Shane Shifflett and Heather Gillers did
• 11:35
  Speaker 1: important original work on the enormous growth of the private
• 11:38
  Speaker 1: ratings market that informed this reporting. Bloomberg more from the Journal,
• 11:43
  Speaker 1: The Financial Times others have broken major pieces of the
• 11:46
  Speaker 1: federal investigation into Walter's businesses. All of those resources I
• 11:51
  Speaker 1: used here, so when I'm relying on somebody else's reporting,
• 11:55
  Speaker 1: I will be telling you this because what I want
• 11:57
  Speaker 1: to do here is something a little different. I'm trying
• 11:59
  Speaker 1: to connect the dots I want us to be at.
• 12:01
  Speaker 1: I want to ask whether all these seemingly separate stories
• 12:05
  Speaker 1: are actually pieces of a much larger story. Think Charlie
• 12:10
  Speaker 1: and right think Charlie and always Sonny doing the beautiful
• 12:15
  Speaker 1: mind interpretations. So I'd like to think it's a little
• 12:18
  Speaker 1: more informed than that. But that's the mindset here. There's
• 12:21
  Speaker 1: a lot of threads. They circle all over the place.
• 12:24
  Speaker 1: It's a Charlie moment. But I ain't dealing with bird
• 12:27
  Speaker 1: law here, folks. A billionaire unexpectedly sells the Lakers, the
• 12:32
  Speaker 1: strange history of how he financed the purchase of the Dodgers,
• 12:35
  Speaker 1: life insurance premiums, a federal investigation, billions of dollars in
• 12:39
  Speaker 1: private loans, hundreds of financial vehicles, credit ratings, auditors, state
• 12:45
  Speaker 1: insurance regulators, offshore reinsurers, a financial market most Americans have
• 12:50
  Speaker 1: barely heard of. And something else, something that happened after
• 12:54
  Speaker 1: two thousand and eight. We spent fifteen years making the
• 12:58
  Speaker 1: banks safer. We didn't eliminate risky lending. We didn't eliminate leverage,
• 13:04
  Speaker 1: we didn't eliminate the hunt for yield, we didn't eliminate
• 13:09
  Speaker 1: financial engineering. The money went somewhere else. And maybe that's
• 13:14
  Speaker 1: what this whole story has stumbled, what we've all stumbled onto.
• 13:18
  Speaker 2: Thank God.
• 13:18
  Speaker 1: I'm kind of curious about sports business stories, because that's
• 13:22
  Speaker 1: why I sat here and went down these rabbit holes
• 13:24
  Speaker 1: and pulled threads. Okay, we pulled on a thread because
• 13:27
  Speaker 1: a guy unexpectedly sold the Lakers quickly, and we kept pulling,
• 13:30
  Speaker 1: and some on the other end of it, we found
• 13:32
  Speaker 1: one of the largest and least understood transformations of the
• 13:35
  Speaker 1: American financial system since two thousand and eight. Look, I
• 13:38
  Speaker 1: know others of you probably got here a lot sooner,
• 13:41
  Speaker 1: but I want to take you through how I got here.
• 13:45
  Speaker 1: This here's the most important thing that bothers me most.
• 13:47
  Speaker 1: Maybe everything we're looking at turns out to be manageable,
• 13:50
  Speaker 1: and maybe it's legal. Maybe private loans do perform, and
• 13:53
  Speaker 1: maybe the ratings are fair and correct, and the insurers
• 13:56
  Speaker 1: have more than enough capital to cover their promises. And
• 14:00
  Speaker 1: maybe the Walter investigation ends without charges. That happens many times.
• 14:04
  Speaker 1: And maybe the Laker sale really was nothing more than
• 14:06
  Speaker 1: somebody offering a billionaire two and a half billion dollars
• 14:09
  Speaker 1: more that his team had been valued at valued at
• 14:12
  Speaker 1: just fourteen months earlier. All of those things are quite
• 14:15
  Speaker 1: possible here, But even if every one of them turns
• 14:18
  Speaker 1: out to be true, we're still left for the much
• 14:20
  Speaker 1: larger question, do we understand this new financial system well
• 14:24
  Speaker 1: enough to know what happens when and it is actually
• 14:26
  Speaker 1: put under stress. I have a simple rule. If you're
• 14:30
  Speaker 1: explaining something to me in the financial world and you
• 14:33
  Speaker 1: have to say, well, look, it's a little complicated, stop
• 14:35
  Speaker 1: right there, because I know what complicated. Why things are
• 14:38
  Speaker 1: made complicated, It's usually done by a bunch of lawyers
• 14:42
  Speaker 1: who are trying to hide something. The complication is never
• 14:45
  Speaker 1: about making it better and safer for you and me.
• 14:48
  Speaker 1: The complication is making it harder for reporters like me,
• 14:52
  Speaker 1: members of Congress, and others to actually see what's going on.
• 14:55
  Speaker 1: Keep that in mind, a bad habit in this country
• 15:01
  Speaker 1: of We understand complicated financial systems incredibly well after they break.
• 15:07
  Speaker 1: So this is something I'm hoping we can understand before
• 15:11
  Speaker 1: that happens. So sit back, I'm going to show you
• 15:13
  Speaker 1: what we can see. I'm going to show you what
• 15:15
  Speaker 1: we can and then you can decide whether this picture
• 15:18
  Speaker 1: looks as concerning to you as it does to me.
• 15:21
  Speaker 2: But first, let me.
• 15:22
  Speaker 1: Go back to the shiny object that got us here,
• 15:25
  Speaker 1: and the question that I couldn't shake even last Thursday.
• 15:29
  Speaker 1: Why the hell did Mark Walter sell the Lakers. So
• 15:33
  Speaker 1: let's start with the shiny object. Let's start with the
• 15:35
  Speaker 1: explanation for this sale that requires absolutely no conspiracy theory
• 15:39
  Speaker 1: at all. Mark Walter takes control of the Lakers at
• 15:42
  Speaker 1: evaluation of about ten billion dollars. Fourteen months later, Bob
• 15:45
  Speaker 1: Iger and Josh Kushner show up with an offer that
• 15:47
  Speaker 1: values them at twelve and a half billion. Two and
• 15:50
  Speaker 1: a half billion dollars more in fourteen months. That's not
• 15:54
  Speaker 1: a scandal, that's a profit. And it may be the
• 15:58
  Speaker 1: whole story because i Go and Kushner were already looking
• 16:01
  Speaker 1: at buying into the NBA. They'd reportedly been exploring the
• 16:05
  Speaker 1: possibility of buying an expansion franchise together. The NBA is
• 16:08
  Speaker 1: expected eventually to expand, with Las Vegas and Seattle as
• 16:11
  Speaker 1: the two most obvious candidates. I'd add Louisville in there.
• 16:15
  Speaker 1: I'd like, say Louisville or Kansas City be considered as well,
• 16:18
  Speaker 1: but I digress. Estimates for the price of an expansion
• 16:21
  Speaker 1: franchise have been pretty staggering seven billion, maybe as much
• 16:25
  Speaker 1: as ten billion. So think about that seven to ten
• 16:27
  Speaker 1: billion dollars for a basketball team that does not yet exist.
• 16:30
  Speaker 1: They have no history, no banners, no magic, no Kareem,
• 16:34
  Speaker 1: no Kobeing, no showtime. So if you're Iger and Kushner
• 16:37
  Speaker 1: and you're contemplating spending that kind of money to create
• 16:40
  Speaker 1: something from scratch, and suddenly you discover that just for
• 16:44
  Speaker 1: a little bit more money, you might be able to
• 16:46
  Speaker 1: get to the really nice house down the street and
• 16:48
  Speaker 1: own the Los Angeles Lakers. Eh, you make that call.
• 16:51
  Speaker 1: And if you're Mark Walter, maybe you just simply take it.
• 16:54
  Speaker 1: Somebody's offering you a twenty five percent profit, why not?
• 17:00
  Speaker 1: So maybe Walter simply looked at the number and said done. Okay, again,
• 17:05
  Speaker 1: not a scandal. They're in business. I buy a card
• 17:09
  Speaker 1: on eBay six months later because I think somebody's gonna
• 17:12
  Speaker 1: have a great year. Six months later, I sell it
• 17:13
  Speaker 1: for twenty five thirty percent profit.
• 17:15
  Speaker 2: I feel good about myself. I don't mind that.
• 17:19
  Speaker 1: That's again, that's one of my side hustles. So before
• 17:23
  Speaker 1: I start looking for these complicated explanations, I think, I
• 17:26
  Speaker 1: think that one deserves to be taken seriously. But here
• 17:29
  Speaker 1: are some things we don't yet know. For one thing,
• 17:32
  Speaker 1: saying that the Lakers were valued at ten billion dollars
• 17:34
  Speaker 1: when Walter took control and twelve and a half billion
• 17:37
  Speaker 1: when he agreed to sell. Does not mean Mark Walter
• 17:39
  Speaker 1: personally put ten billion dollars into the Lakers and is
• 17:42
  Speaker 1: now walking away with twelve and a half. That's not
• 17:45
  Speaker 1: how this translation transaction like like this works. These are
• 17:50
  Speaker 1: owner there are ownership percentages, they're partners. There's deal structures
• 17:53
  Speaker 1: and all sorts of things, and the terms that aren't
• 17:54
  Speaker 1: necessarily public. So when you hear Walter made two and
• 17:57
  Speaker 1: a half billion dollars, be careful. That's the increase in
• 18:00
  Speaker 1: the reported franchise valuation. It is not necessarily the amount
• 18:06
  Speaker 1: of cash Mark Walter personally made. And as of now,
• 18:12
  Speaker 1: we do not have enough public information to tell you
• 18:15
  Speaker 1: precisely how much cash Walter himself will ultimately receive from
• 18:19
  Speaker 1: this transaction. That's one of the questions left open here.
• 18:23
  Speaker 1: Here's another. Why sell it all? Because Mark Walter doesn't
• 18:28
  Speaker 1: behave like somebody who flips sports teams. He seems to
• 18:32
  Speaker 1: collect them. He spent years assembling an enormous sports empire.
• 18:36
  Speaker 1: You know about the Dodgers. He also owns the WNBA Sparks.
• 18:39
  Speaker 1: He has a stake in the Chelsea soccer team. He's
• 18:44
  Speaker 1: got a Formula one investment, and the Professional Women's Hockey
• 18:48
  Speaker 1: League not simply a team, he owns the entire league.
• 18:52
  Speaker 2: And Walter has.
• 18:52
  Speaker 1: Talked about sports franchises as generational assets. When he bought
• 18:57
  Speaker 1: the Dodgers, he talked about them as something as family
• 19:00
  Speaker 1: would own long after he was gone. And with Magic
• 19:04
  Speaker 1: Johnson as one of his partners for the Dodgers, buying
• 19:07
  Speaker 1: the Lakers seem to make a lot of sense. So
• 19:09
  Speaker 1: why sell the Lakers after fourteen months? And here's the
• 19:12
  Speaker 1: part I keep coming back to, why did he only
• 19:14
  Speaker 1: sell the Lakers. He's keeping the Dodgers. He's not dismantling
• 19:17
  Speaker 1: the sports empire.
• 19:18
  Speaker 2: As far as we know.
• 19:19
  Speaker 1: There's no giant Mark Walter liquidation sale going on here.
• 19:23
  Speaker 1: Just the Lakers, just the newest piece of his collection.
• 19:26
  Speaker 1: And maybe that's the explanation. Maybe because he'd only recently
• 19:30
  Speaker 1: taken control, the Lakers were easier to separate from everything else.
• 19:34
  Speaker 2: That's reasonable.
• 19:35
  Speaker 1: Maybe they weren't yet deeply integrated into the rest of
• 19:38
  Speaker 1: Walter's sports empire. Possible, Maybe they were simply the easiest
• 19:42
  Speaker 1: thing he owned to sell quickly at a spectacular price
• 19:46
  Speaker 1: because he needed some cash.
• 19:47
  Speaker 2: Maybe none of those things.
• 19:48
  Speaker 1: It's true, we just don't know, and that all uncertainty
• 19:52
  Speaker 1: matters because Walter didn't make this decision in a vacuum.
• 19:55
  Speaker 1: Parts of his financial empire are under federal investigation. That
• 19:59
  Speaker 1: is a fact, a federal grand jury in Manhattan that
• 20:01
  Speaker 1: sent subpoenas in February to two life insurance companies that
• 20:05
  Speaker 1: Mark Walter controls. The SEC Securities and Exchange Commission has
• 20:09
  Speaker 1: also been looking into Walter's businesses. Investigators have been examining
• 20:12
  Speaker 1: billions of dollars of private credit investments involving businesses connected
• 20:17
  Speaker 1: economically to Walter's financial world. And after those subpoenas arrived,
• 20:24
  Speaker 1: something remarkable happened inside the financial disclosures of the insurance
• 20:27
  Speaker 1: companies that Walter controls. One had previously reported roughly three
• 20:32
  Speaker 1: percent of its portfolio as investments in affiliates and related entities.
• 20:38
  Speaker 1: After an internal review, the company revised how it answered
• 20:41
  Speaker 1: that question after the investigation started, right, and the amount
• 20:45
  Speaker 1: of private credit exposure those life insurance companies had, whose
• 20:48
  Speaker 1: returns were described as predominantly dependent on affiliates.
• 20:51
  Speaker 2: And were vastly larger.
• 21:07
  Speaker 1: I don't want to do something here that we're going
• 21:09
  Speaker 1: to spend this entire podcast warning about a disclosure change
• 21:12
  Speaker 1: is not a financial loss. It does not mean billions
• 21:15
  Speaker 1: of dollars suddenly disappeared. It does not mean investigators discovered
• 21:19
  Speaker 1: sixteen billion dollars of bad loans, and it does not
• 21:22
  Speaker 1: mean the insure suddenly became insolvent. The investments were already there.
• 21:28
  Speaker 1: What changed was how their relationship to affiliated businesses was
• 21:31
  Speaker 1: characterized on a regulatory form. There are technical distinctions in
• 21:39
  Speaker 1: that change that matter enormously. I'm going to try to
• 21:42
  Speaker 1: explain them in America, not just English, when we get there,
• 21:45
  Speaker 1: and there may be an entirely legitimate explanation for why
• 21:48
  Speaker 1: the original filing and the later refiling answered that question
• 21:53
  Speaker 1: so dramatically differently. Three billion to sixteen billion, that's a
• 21:57
  Speaker 1: lot of money. That's one of the things that investigators
• 22:00
  Speaker 1: appear to be trying to determine. Huh, well, that's interesting,
• 22:03
  Speaker 1: they thought. Now for now, the significance might be simple.
• 22:07
  Speaker 1: Federal investigators ask questions about relationships among these investments. The
• 22:11
  Speaker 1: insurers decided to look again, and the public description of
• 22:14
  Speaker 1: those relationships change dramatically. Maybe it was an oversight. Nobody's
• 22:18
  Speaker 1: been charged. Walter's companies say they're cooperating. We have no
• 22:21
  Speaker 1: evidence to say they're not. They say the insurers are
• 22:24
  Speaker 1: financially strong. And an investigation, of course, is not a conviction.
• 22:30
  Speaker 1: Sometimes it's not even in an indictment. But there's another
• 22:34
  Speaker 1: piece of reporting that makes the timing of the Lakers
• 22:36
  Speaker 1: sale worth examining. There's been reporting that Walter and his
• 22:40
  Speaker 1: businesses in his financial orbit have been seeking additional financing
• 22:44
  Speaker 1: or liquidity as these insurance questions have developed. One has
• 22:50
  Speaker 1: gone to the other. He's getting questions from the Feds,
• 22:53
  Speaker 1: he's trying to essentially answer those questions, and then suddenly
• 22:57
  Speaker 1: he's looking for more liquid cash. Okay, now, let's be
• 23:02
  Speaker 1: precise about this. When somebody says Walter needs liquidity, here's
• 23:07
  Speaker 1: what you want to know. Who exactly needs it. Is
• 23:09
  Speaker 1: it Walter personally? Is it the Walter Group? The Sports
• 23:13
  Speaker 1: Group is a group one thousand and one, which is
• 23:15
  Speaker 1: sort of one of his holding companies. Is it one
• 23:17
  Speaker 1: of the insurance companies, is it another entity?
• 23:19
  Speaker 2: How much? For what?
• 23:21
  Speaker 1: And what does selling the Lakers actually solve here? We
• 23:25
  Speaker 1: don't have complete public answers yet to those questions, and
• 23:28
  Speaker 1: we're not going to pretend that we do. We also
• 23:31
  Speaker 1: don't know how much of the proceeds from his transaction
• 23:35
  Speaker 1: ultimately become available to Walter personally or to any other
• 23:39
  Speaker 1: part of his financial empire. But now you understand why
• 23:42
  Speaker 1: the timing is a legitimate reporting question. A man whose
• 23:46
  Speaker 1: businesses are dealing with questions involving billions of dollars suddenly
• 23:50
  Speaker 1: agrees to sell an extraordinary valuable asset that he had
• 23:53
  Speaker 1: acquired only fourteen months earlier. Maybe it's unrelated, maybe it's opportunistic, Okay,
• 24:02
  Speaker 1: we just don't know. Which brings us back to the buyers,
• 24:06
  Speaker 1: Bob Iiger, Josh Kushner. And this is where we need
• 24:09
  Speaker 1: to keep two different sports stories separate. Eiger and Kushner
• 24:13
  Speaker 1: had already been exploring the possibility of an MBA expansion
• 24:16
  Speaker 1: franchise together. It's an important point because it gives us
• 24:20
  Speaker 1: a completely straightforward explanation for why these two people would
• 24:23
  Speaker 1: suddenly make the offer for the Lakers. They were already
• 24:27
  Speaker 1: looking for an NBA team. Separately, an investment group involving
• 24:31
  Speaker 1: Josh Kushner had just been pursuing another enormous sports transaction
• 24:36
  Speaker 1: involving FIFA. The proposed FIFA deal contemplated outside investors buying
• 24:42
  Speaker 1: a minority interest in a new commercial entity built around
• 24:46
  Speaker 1: FIFA's enormously valuable business right the World Cup. That transaction
• 24:52
  Speaker 1: became intensely controversial, European soccer interest revolted, and the proposal
• 24:57
  Speaker 1: collapsed roughly ten days before the Lakers deal emerged just
• 25:02
  Speaker 1: ten days now. I'm going to be careful here of
• 25:07
  Speaker 1: what I'm saying. It establishes that Kushner was actively pursuing
• 25:10
  Speaker 1: enormous investments in global sports. I'm not establishing that the
• 25:13
  Speaker 1: FIFA money became Lakers money.
• 25:15
  Speaker 2: I don't know that. All we have is unique timing.
• 25:21
  Speaker 2: We have not.
• 25:21
  Speaker 1: Established that the investors were the same. I haven't even
• 25:24
  Speaker 1: established that the financing was the same. I don't know
• 25:26
  Speaker 1: these questions. These are things that are not easily attainable
• 25:30
  Speaker 1: this quickly, and capital at this scale isn't just a
• 25:33
  Speaker 1: pile of cash that sits around some account waiting to
• 25:37
  Speaker 1: be moved from FIFA to the Lakers. So I'm not
• 25:39
  Speaker 1: going to draw the financial line here, But the chronology
• 25:42
  Speaker 1: is something else, isn't it, And anything beyond that requires
• 25:46
  Speaker 1: evidence we don't currently have. Then there's the political connection,
• 25:50
  Speaker 1: which you can't shake. Josh Kushner is Jared Kushner's younger brother.
• 25:53
  Speaker 1: Jared Kushner is Donald Trump's son in law. The federal
• 25:55
  Speaker 1: investigation touching Walter's financial businesses is being conducted by agencies
• 25:59
  Speaker 1: inside an executive branch headed by Donald John Trump. Trump
• 26:03
  Speaker 1: himself has repeatedly mixed politics at personal relationships, family relationships,
• 26:08
  Speaker 1: and private economic interest in ways that make questions about
• 26:11
  Speaker 1: conflicts and influence entirely reasonable. This is how he does business,
• 26:17
  Speaker 1: so it is not hard to ask the question, Okay,
• 26:19
  Speaker 1: what role did he play in this? Not did he
• 26:22
  Speaker 1: Maybe I'm being jumping the gun here, I'm did he
• 26:25
  Speaker 1: play a role? Or is the question what role did
• 26:28
  Speaker 1: he play? I will believe the cynic in me says
• 26:32
  Speaker 1: what role did he play? If you're a prosecutor, you
• 26:35
  Speaker 1: have to start with the question did he play a role?
• 26:38
  Speaker 1: But the pattern is contact, folks. It's not evidence, but
• 26:42
  Speaker 1: it's context. I saw no evidence of a quid pro quo. Okay,
• 26:49
  Speaker 1: we see no evidence that Walter promised to favor was
• 26:52
  Speaker 1: promise favorable treatment by the Feds in exchange for selling
• 26:55
  Speaker 1: the Lakers to Kushner. We don't have evidence of that.
• 26:58
  Speaker 1: And maybe none of it happened. Maybe, But here's why
• 27:04
  Speaker 1: I'm not dropping that question completely. If we eventually learned
• 27:07
  Speaker 1: that Walter did want to create substantial liquidity because of
• 27:11
  Speaker 1: pressures elsewhere in his financial world, then somebody approaching him
• 27:15
  Speaker 1: at precisely that moment with an extraordinary offer matters. Maybe
• 27:20
  Speaker 1: it's not political, maybe it's financial. Maybe it's a motivated
• 27:23
  Speaker 1: buyer meeting a motivated seller, but it's still enough to investigate.
• 27:28
  Speaker 1: So look, the Trump Kushner questions are on the shelf.
• 27:30
  Speaker 1: They deserve investigating, and we'll come back to them. But
• 27:35
  Speaker 1: you need to understand Walter's financial situation first, because it
• 27:39
  Speaker 1: could be that Walter got himself into this mess and
• 27:43
  Speaker 1: Trump and Kushner just took advantage of him in a
• 27:45
  Speaker 1: weak moment. Because this is the important thing. If every
• 27:49
  Speaker 1: political suspicion we all have here turns out to be
• 27:52
  Speaker 1: completely wrong, doesn't change the larger story we're trying to tell.
• 27:56
  Speaker 1: If Walter sold the Lakers for no other reason other
• 27:58
  Speaker 1: than somebody offered him a tacular price, we still have
• 28:01
  Speaker 1: to explain everything else we found while trying to understand
• 28:04
  Speaker 1: him and his financial empire. And it starts with something
• 28:07
  Speaker 1: more basic. Walter's bought the Dodgers, the Lakers, the Sparks
• 28:11
  Speaker 1: Hockey League, Chelsea, Formula one, other businesses real estate were
• 28:16
  Speaker 1: accustomed to putting one word in front of somebody's name,
• 28:19
  Speaker 1: and that makes all those purchases seem self explainat towards billionaire.
• 28:23
  Speaker 1: Mark Walter is a billionaire, Okay, but what does that
• 28:26
  Speaker 1: actually mean? Does it mean he had billions of dollars
• 28:28
  Speaker 1: sitting around? Does it mean he barred against things already
• 28:31
  Speaker 1: worth a billion dollars? Does it mean he controlled institutions
• 28:35
  Speaker 1: capable of putting billions of dollars of other people's money
• 28:38
  Speaker 1: to work. So it was never his money. So once
• 28:43
  Speaker 1: you start asking that question, you end up back in
• 28:45
  Speaker 1: Los Angeles, not with the Lakers, with the Dodgers, and
• 28:49
  Speaker 1: with a question people were asking about Mark Walter more
• 28:52
  Speaker 1: than a decade ago. Where did Mark Walter get all.
• 28:55
  Speaker 2: Of his money?
• 28:57
  Speaker 1: So?
• 28:57
  Speaker 2: Who is Mark Walter?
• 29:00
  Speaker 1: It's a harder question to answer than you might think,
• 29:02
  Speaker 1: because for somebody who owns one of the most recognizable
• 29:05
  Speaker 1: things in American sports, Walter has spent most of his
• 29:08
  Speaker 1: career being remarkably unrecognizable. Mark Cuban, he is not. He
• 29:13
  Speaker 1: grew up in Cedar Rapids, Iowa. His father worked at
• 29:16
  Speaker 1: a concrete manufacturing plan. He didn't inherit a Wall Street fortune.
• 29:20
  Speaker 1: He doesn't have a famous last name. And if you
• 29:22
  Speaker 1: read the profiles of Walter over the years, the same
• 29:24
  Speaker 1: descriptions keep showing up. Quiet, low key, private Midwestern. When
• 29:29
  Speaker 1: he bought the Dodgers in twenty twelve, the Chicago Tribune
• 29:31
  Speaker 1: described him as a successful but very low profile businessman.
• 29:37
  Speaker 1: A newspaper, this one was a good one. Again from
• 29:40
  Speaker 1: the Ringer, a newspaper. Back home in Cedar Rapids, talked
• 29:42
  Speaker 1: to one of his high school classmates who said that
• 29:44
  Speaker 1: until somebody posted the Dodger stories on their class of
• 29:47
  Speaker 1: nineteen seventy eight facebook page, nobody really knew what had
• 29:50
  Speaker 1: happened to Mark Walter. That's kind of funny to me.
• 29:54
  Speaker 1: Fortune once described Walter as the kind of dependable Midwestern
• 29:57
  Speaker 1: guy Frank Capra might cast to run the local bank.
• 30:01
  Speaker 1: Maybe he got cast into the wrong into the wrong
• 30:04
  Speaker 1: role of that one, right, but I digress. Walter himself
• 30:08
  Speaker 1: once put it even more simply. I'm nothing special, he said,
• 30:11
  Speaker 1: I'm just the king of common sense.
• 30:14
  Speaker 2: For ears.
• 30:14
  Speaker 1: All of that seemed charming Midwestern diffidence, a billionaire who
• 30:18
  Speaker 1: didn't need to be a celebrity. Thank God, we have
• 30:20
  Speaker 1: some right, or so we thought, and maybe that's all
• 30:23
  Speaker 1: it is. But viewed through the lens of everything that
• 30:26
  Speaker 1: we're looking at now, I find the privacy more interesting myself,
• 30:30
  Speaker 1: because the spotlight brings something with it, scrutiny. And Mark
• 30:34
  Speaker 1: Walter managed to build one of the most complicated financial
• 30:37
  Speaker 1: empires in America while attracting remarkably little scrutiny. So look,
• 30:44
  Speaker 1: we have no evidence Walter kept a low profile because
• 30:46
  Speaker 1: he had something to hide. I'm not saying that some
• 30:48
  Speaker 1: people simply don't like publicity. I don't even love it
• 30:51
  Speaker 1: myself sometimes. Frankly, I wish more billionaires didn't want this publicity.
• 30:55
  Speaker 1: But his anonymity matters to our story for another reason.
• 30:58
  Speaker 1: For years, people knew the thing Mark Walter owned better
• 31:01
  Speaker 1: than they understood how Mark Walter became wealthy enough to
• 31:04
  Speaker 1: own them. He's never really explained how he ended up
• 31:07
  Speaker 1: with all this money. Walter's professional biography begins in exactly
• 31:12
  Speaker 1: the kind of finance we're going to spend the rest
• 31:14
  Speaker 1: of this podcast trying to understand. In the mid nineties,
• 31:17
  Speaker 1: Walter helped start a Chicago area financial company called Liberty Hampshire.
• 31:23
  Speaker 1: One of its specialties was something called asset backed securitization.
• 31:28
  Speaker 1: Remember that phrase became very familiar to us during the
• 31:32
  Speaker 1: fallout from the two thousand and eight financial crisis. I'm
• 31:35
  Speaker 1: not going to go down that rabbit hole here, but
• 31:37
  Speaker 1: the concept is pretty simple. You take streams of money
• 31:39
  Speaker 1: that will arrive in the future, package the rights to
• 31:42
  Speaker 1: that money into some financial new financial instrument, and use
• 31:46
  Speaker 1: that new financial instrument to create even more capital. Right.
• 31:50
  Speaker 1: You package it up, borrowed against it, grab the cash now.
• 31:53
  Speaker 1: Total over simplification. I'm not going to tell you I'm
• 31:56
  Speaker 1: not here to teach a class on finance. Shit I
• 31:58
  Speaker 1: need to take one. But it's the basic financial instinct
• 32:01
  Speaker 1: that matters here. Walter understood very early how you turn assets, debt,
• 32:06
  Speaker 1: and future cash flow into present day financial power. I
• 32:12
  Speaker 1: will gladly take your hamburger tod pay you tomorrow for
• 32:16
  Speaker 1: a hamburger today. Kind of that mindset. Then, around the
• 32:20
  Speaker 1: end of the nineties, Walter meets people connected with one
• 32:23
  Speaker 1: of the great American fortunes, the Gugenheims. The fortune goes
• 32:28
  Speaker 1: back to Meyer Guggenheim, the nineteenth century patriarch whose sons
• 32:32
  Speaker 1: built an enormous mining and smelting empire. Solomon Guggenheim, the
• 32:37
  Speaker 1: name you probably recognize from the museum, was one of
• 32:40
  Speaker 1: Meyer's sons, mining money, industrial money, oil money, just old money, right,
• 32:45
  Speaker 1: old American money. Walter and his partners create Guggenheim Partners
• 32:50
  Speaker 1: around two thousand and Over the next two decades, it
• 32:52
  Speaker 1: becomes an enormous financial enterprise, asset management, investment, banking, insurance
• 32:57
  Speaker 1: related businesses, private investments, hundreds of bait, millions of dollars
• 33:00
  Speaker 1: under management, and Walter becomes extremely wealthy. Walter doesn't become
• 33:06
  Speaker 1: wealthy the way most of us think though about somebody
• 33:08
  Speaker 1: becoming wealthy. He didn't invent an iPhone or some other
• 33:12
  Speaker 1: new tech product. He didn't sell a company one afternoon
• 33:14
  Speaker 1: and suddenly have ten billion dollars in cash for a
• 33:17
  Speaker 1: cool idea he created. His wealth grew largely through ownership
• 33:21
  Speaker 1: of financial businesses and investments whose value grows with them.
• 33:25
  Speaker 1: He just helped manage other people's money, and his career
• 33:29
  Speaker 1: is built in the world of basically financial networking.
• 33:33
  Speaker 2: Right. He's just connecting people.
• 33:37
  Speaker 1: Structuring investments, financing assets, just managing enormous sums of money.
• 33:43
  Speaker 1: And he might own an institution here that moves money.
• 33:46
  Speaker 1: That doesn't mean that money is real though it's just
• 33:49
  Speaker 1: a pass through. It means wealth and cash are not
• 33:52
  Speaker 1: the same thing, and neither's the access to capital in
• 33:56
  Speaker 1: order to build something. If you own a valuable financial company,
• 34:01
  Speaker 1: you may be extremely wealthy. If you manage hundreds of
• 34:03
  Speaker 1: billions of dollars, you also have access to enormous pools
• 34:07
  Speaker 1: of capital that don't belong to you. You're putting up
• 34:10
  Speaker 1: somebody else's money as collateral, you're borrowing the money, and
• 34:13
  Speaker 1: you're buying the Dodgers. You see where I'm going here.
• 34:17
  Speaker 1: So you have to keep all of this straight in
• 34:20
  Speaker 1: order to get to the heart of the matter of
• 34:22
  Speaker 1: this story, because in twenty twelve, Mark Walter decides to
• 34:26
  Speaker 1: buy the La Dodgers, And of course to understand the
• 34:29
  Speaker 1: Walter purchase of the Dodgers, you have to first understand
• 34:32
  Speaker 1: the guy he was replacing, Frank McCourt. This is one
• 34:35
  Speaker 1: of those stories that in retrospect almost seems too perfect
• 34:38
  Speaker 1: for what we're talking about. In two thousand and four,
• 34:41
  Speaker 1: Fox sells the Dodgers to McCourt for about four hundred
• 34:44
  Speaker 1: and twenty one million dollars. McCourt doesn't show up with
• 34:46
  Speaker 1: four hundred and twenty one million dollars of his own cash. Instead,
• 34:50
  Speaker 1: that transaction is heavily financed. Fox itself financed. The man
• 34:56
  Speaker 1: who was buying the team from them sought row the
• 35:00
  Speaker 1: money to buy the team. He leveraged the assets, and
• 35:03
  Speaker 1: over time the Dodgers themselves increasingly became part of the
• 35:07
  Speaker 1: financial machinery that was supporting mccurt. And for a while
• 35:11
  Speaker 1: it worked. The Dodgers became more valuable. Revenue grew, Debt
• 35:18
  Speaker 1: can be refinanced, borrowing supports more borrowing. It all works
• 35:22
  Speaker 1: until it doesn't.
• 35:24
  Speaker 2: What happened.
• 35:25
  Speaker 1: McCourt's marriage collapses, his finances become public, the team's financial
• 35:30
  Speaker 1: problems become impossible to ignore. Major League Baseballs to step in.
• 35:34
  Speaker 1: The Dodgers go into bankruptcy, and by twenty twelve, Baseball
• 35:37
  Speaker 1: wants the exact opposite of a Frank McCort no more
• 35:41
  Speaker 1: owner who constantly has to scramble for cash, not for
• 35:44
  Speaker 1: the Dodgers, one of Baseball's crown jewels. They need somebody
• 35:47
  Speaker 1: unquestionably wealthy. They need stability. They need sophistication, They need
• 35:52
  Speaker 1: somebody whose financial resources nobody needs to worry about. And
• 35:56
  Speaker 1: here comes Mark Walter and Guggenheim partners, the quiet guy
• 35:59
  Speaker 1: from Iowa, exactly the sort of owner Major League Baseball
• 36:03
  Speaker 1: thinks it once, Magic Johnson becomes the famous face of
• 36:07
  Speaker 1: the group, and they agree to pay two point one
• 36:10
  Speaker 1: five billion dollars for the Dodgers, an astonishing number. At
• 36:13
  Speaker 1: the time, it was a record price for the sports franchise.
• 36:16
  Speaker 1: I know nobody ever, Oh my god. Yeah, now it's
• 36:18
  Speaker 1: something else, right, you sold the Dodgers today it's probably
• 36:20
  Speaker 1: fifteen million, more than twice what many people thought the
• 36:23
  Speaker 1: team would fetch at the time. Actually, but this is
• 36:26
  Speaker 1: where one of the first people in the national financial
• 36:28
  Speaker 1: press starts to ask an incredibly important question. My old
• 36:32
  Speaker 1: friend Andrew ross Orkin. Remember Sorkin spent years reporting on
• 36:35
  Speaker 1: the financial crisis. He'd written the book Too Big to Fail,
• 36:39
  Speaker 1: which became the Great movie. He knew what financial leverage
• 36:44
  Speaker 1: looked like, and essentially his question was this, Wait a second,
• 36:48
  Speaker 1: where's all this money coming from. Where's the rest of
• 36:51
  Speaker 1: the two billion dollars? That's a lot of money, even
• 36:54
  Speaker 1: for rich people. Walter did not personally write a two
• 36:58
  Speaker 1: billion dollar check. Guggenheim Baseball Management was an ownership group,
• 37:02
  Speaker 1: and reporting at the time showed that a substantial portion
• 37:04
  Speaker 1: of the capital supporting the Dodger purchase came from the
• 37:07
  Speaker 1: insurance companies connected to the Guggenheim financial ecosystem. More than
• 37:12
  Speaker 1: a billion dollars of insurance company assets were reportedly involved
• 37:17
  Speaker 1: in financing connected to the purchase itself. I'm going to
• 37:22
  Speaker 1: explain more about how this life insurance has been part
• 37:25
  Speaker 1: of this. The insurance structures we're talking about and the
• 37:28
  Speaker 1: Dodger's purchase in twenty twelve are not the same LLCs
• 37:31
  Speaker 1: and private credit vehicles we're going to encounter later in
• 37:34
  Speaker 1: the story. Those are different transactions and structures. But what
• 37:38
  Speaker 1: connects these two periods is the philosophy behind it. The
• 37:42
  Speaker 1: insurance capital, restructured finance, and Walter's ability to essentially move
• 37:47
  Speaker 1: money around pools of money all over the place, none
• 37:50
  Speaker 1: of which come out of his actual bank account. And
• 37:53
  Speaker 1: it's a distinction between rich and then commanding capital that
• 37:57
  Speaker 1: isn't yours. Now, you may need to take a break here.
• 38:02
  Speaker 2: I get it.
• 38:02
  Speaker 1: I understand borrowing money to buy a baseball team. I
• 38:05
  Speaker 1: understand bringing in partners, I understand institutional investors, I understand debt.
• 38:09
  Speaker 1: But now I'm like life insurance. Somebody in Ohio buys
• 38:13
  Speaker 1: an annuity, somebody in Indiana puts retirement savings into an
• 38:17
  Speaker 1: insurance product because they want security, and somehow, several steps downstream,
• 38:22
  Speaker 1: insurance company capital becomes part of the financial architecture that's
• 38:26
  Speaker 1: part of the purchase of the Los Angeles Dodgers. So
• 38:29
  Speaker 1: does that mean somebody took grandma's annuity check and handed
• 38:32
  Speaker 1: it to Major League Baseball? Maybe the mechanics are more
• 38:36
  Speaker 1: complicated than that, but it kind of I think a
• 38:40
  Speaker 1: ended up at Z and that's where we ended up
• 38:42
  Speaker 1: at after going through a long all over the place
• 38:45
  Speaker 1: Charlie from Always Sunny type of beautiful mind board. The connection, though,
• 38:51
  Speaker 1: is real enough to raise the question that set me
• 38:53
  Speaker 1: down another rabbit hole. Why is retirement of money anywhere
• 39:06
  Speaker 1: near the financing of a baseball team? So how did
• 39:11
  Speaker 1: somebody's retirement money end up anywhere near the Dodgers. Well, look,
• 39:16
  Speaker 1: I'm going to try to make you make this less
• 39:18
  Speaker 1: complicated than it needs to be. I'm going to put
• 39:20
  Speaker 1: it as best I can. In America, not just English.
• 39:23
  Speaker 1: I'm going to create a hypothetical customer here that can
• 39:26
  Speaker 1: help follow the money. Imagine a woman in Indiana, and
• 39:29
  Speaker 1: I'm going to use Indiana because that's actually where Group
• 39:31
  Speaker 1: one thousand and one is based, not because I'm telling
• 39:33
  Speaker 1: you this woman represents the typical Delaware Life or clear
• 39:37
  Speaker 1: Spring customer, the two insurance companies that Mark Walter has
• 39:41
  Speaker 1: been using here. This hypothetical woman is simply our way
• 39:45
  Speaker 1: of following one person's money through this machine. She's sixty five, retiring,
• 39:50
  Speaker 1: has put thirty to forty years of money away. She
• 39:53
  Speaker 1: shouldn't want to gamble with it. She's not trying to
• 39:56
  Speaker 1: find the next Navidia. She's not buying bitcoin. She's not
• 39:59
  Speaker 1: a day trade. She needs something predictable and safe, right,
• 40:03
  Speaker 1: So she takes some of her retirement savings and buys
• 40:05
  Speaker 1: an annuity from a life insurance company. The basic bargain
• 40:08
  Speaker 1: has always been simple with these annuities. She gives the
• 40:11
  Speaker 1: insurance company money today. The insurance company promises to give
• 40:14
  Speaker 1: her money later with interest. Maybe it's a monthly stipend
• 40:17
  Speaker 1: beginning at a certain age. Perhaps it's designed to give
• 40:21
  Speaker 1: her money for the rest of her life. All of
• 40:24
  Speaker 1: It depends on the product you purchase, right, But it's
• 40:26
  Speaker 1: the basic deal. Here's my money now, you're promising me
• 40:30
  Speaker 1: security later. So what did the insurance company do with
• 40:33
  Speaker 1: her money?
• 40:34
  Speaker 2: Now? They don't stick it into a vault. They have
• 40:36
  Speaker 2: to invest it. Right.
• 40:37
  Speaker 1: It has to make more money. Because if the insurance
• 40:40
  Speaker 1: company takes one hundred dollars from the retiree today and
• 40:43
  Speaker 1: promises to make payments to her over the next twenty
• 40:45
  Speaker 1: to thirty years, they need that one hundred dollars to
• 40:48
  Speaker 1: earn money a lot of money in the meantime.
• 40:50
  Speaker 2: They have to go invest it. Now.
• 40:52
  Speaker 1: Historically this has been the investments had been in boring stuff,
• 40:54
  Speaker 1: government bonds, corporate bonds, mortgages, things that paid reliable interest,
• 41:00
  Speaker 1: things that were relatively predictable.
• 41:03
  Speaker 2: Right.
• 41:04
  Speaker 1: You don't want you go with the annuity because you're
• 41:06
  Speaker 1: not interested in the casino lifestyle. Right, So you buy
• 41:10
  Speaker 1: investments that you believe will produce enough money to make
• 41:13
  Speaker 1: those promises without without sort of putting it all at risk.
• 41:17
  Speaker 1: But then two thousand and eight happened and it really
• 41:19
  Speaker 1: sort of scrambled the insurance business. This is something I
• 41:22
  Speaker 1: learned throughout this research.
• 41:23
  Speaker 2: Folks.
• 41:24
  Speaker 1: The financial system obviously nearly collapsed in O eight housing
• 41:27
  Speaker 1: market crash. Banks failed and Washington responded, and a lot
• 41:30
  Speaker 1: of what Washington did made a bunch of cents. We
• 41:32
  Speaker 1: tell the banks now, you can't take the kinds of
• 41:34
  Speaker 1: risks you were taken before. You need more of your
• 41:37
  Speaker 1: own money sitting around in case things go back, more
• 41:39
  Speaker 1: collateral in order to handle these loans, and you're going
• 41:42
  Speaker 1: to get stressed tests by the government. We're going to
• 41:44
  Speaker 1: look carefully at what you're lending, and we're going to
• 41:46
  Speaker 1: make it harder to borrow enormous sums of money against
• 41:49
  Speaker 1: relatively small dollars of collateral. In other words, they want
• 41:53
  Speaker 1: to make the bank safer, and largely we did. But
• 41:57
  Speaker 1: something else happened. In Oa. Interest rates went to almost nothing.
• 42:02
  Speaker 2: For years.
• 42:02
  Speaker 1: You could put money in a savings account and basically
• 42:04
  Speaker 1: earn enough interest that might buy you one cup of
• 42:08
  Speaker 1: coffee and not a Starbucks coffee. Treasury barnes didn't pay
• 42:11
  Speaker 1: very well. High quality corporate debt didn't pay very well.
• 42:15
  Speaker 1: Nothing was paying well because of how little, how low
• 42:19
  Speaker 1: the interest rates were. But our retiree in Indiana, she
• 42:23
  Speaker 1: still expects her check. The insurance company still needs to
• 42:26
  Speaker 1: earn enough money to make good on these long term promises,
• 42:30
  Speaker 1: So insurance companies had to start looking for investments that
• 42:32
  Speaker 1: started to pay more individend or pay more in interest.
• 42:36
  Speaker 1: And meanwhile, the banks have their own problem. Washington made
• 42:39
  Speaker 1: certain kinds of lending more expensive, so the bank may
• 42:42
  Speaker 1: have to hold more capital against risky loans. Regulators may
• 42:45
  Speaker 1: scrutinize all this more closely, so the economics of this
• 42:49
  Speaker 1: doesn't look as attractive anymore. But the company that needs
• 42:53
  Speaker 1: the loan didn't disappear. So guess what. There's a company
• 42:58
  Speaker 1: somewhere in America. Let's call it Chuck's widget company. It's
• 43:01
  Speaker 1: my widget company, and I need to build three new factories.
• 43:05
  Speaker 1: I need five hundred million dollars. Before the financial crisis,
• 43:08
  Speaker 1: maybe i'd walk into JP Morgan. JP Morgan might look
• 43:11
  Speaker 1: at my business, look at the factories, look at my revenue,
• 43:13
  Speaker 1: and say and look at whether I can pay them back.
• 43:16
  Speaker 1: Do you have the assets to pay them back? And
• 43:18
  Speaker 1: they may say, okay, Chuck, here's your five hundred million dollars,
• 43:20
  Speaker 1: and here's the interest rate we're going to give you.
• 43:22
  Speaker 1: Here's and that's just a typical blank bank loan everybody
• 43:25
  Speaker 1: understands how that works.
• 43:26
  Speaker 2: But now JB.
• 43:27
  Speaker 1: Morgan says, you know what, Chuck, I don't think we're
• 43:31
  Speaker 1: as interested. The loan seems a little too risky. We're
• 43:33
  Speaker 1: not sure you've got all the capital that we need,
• 43:38
  Speaker 1: and at this point the regulators may we got to
• 43:40
  Speaker 1: have a lot more capital. You got to You've got
• 43:42
  Speaker 1: to prove to us you have more assets than you
• 43:44
  Speaker 1: have at the moment. And so maybe there are simply
• 43:47
  Speaker 1: better things for the bank to do with it's five
• 43:48
  Speaker 1: hundred million dollars. I still want to build my factory.
• 43:53
  Speaker 1: I still am looking for money. So maybe I go
• 43:54
  Speaker 1: look for a new investor, right and there is a
• 43:58
  Speaker 1: giant pile of money looking for a better return. This
• 44:02
  Speaker 1: is something that I sort of learned about covering money
• 44:06
  Speaker 1: in politics for most of my career, so that money
• 44:08
  Speaker 1: always finds a way. Congress closes one door, the money
• 44:11
  Speaker 1: finds another. We regulated unlimited contributions to political parties. The
• 44:15
  Speaker 1: money didn't disappear, just went somewhere else. First it was
• 44:17
  Speaker 1: five twenty sevens Now it's super packs. Right now, we
• 44:20
  Speaker 1: got those five oh one C three, five oh and
• 44:21
  Speaker 1: C fours. Blah blah blah, blah blah, lots of different vehicles,
• 44:24
  Speaker 1: but it's the same behavior. But Washington has a habit
• 44:27
  Speaker 1: of regulating where the money is instead of understanding why
• 44:30
  Speaker 1: the money wants to move. And I'm beginning to wonder
• 44:32
  Speaker 1: whether we made exactly the same mistake After the Financial crisis.
• 44:36
  Speaker 1: We regulated the banks, but we didn't eliminate borrowing. We
• 44:40
  Speaker 1: didn't eliminate risk, we didn't eliminate the desire to make
• 44:44
  Speaker 1: money lending money. So the lending simply found another home.
• 44:48
  Speaker 1: We now call it private credit. Forget Wall Street terminology.
• 44:52
  Speaker 1: Private credit basically means this Chuck's widget company still needs
• 44:55
  Speaker 1: five hundred million dollars. JP Morgan doesn't want to make
• 44:58
  Speaker 1: the loan. Somebody else does. Maybe it's Apollo, Blackstone, Heiris,
• 45:03
  Speaker 1: some other investment manager you've never heard of, raise enormous
• 45:07
  Speaker 1: pools of money and lend directly to companies. I get
• 45:09
  Speaker 1: my factory, private lender gets the interest, The investors supplying
• 45:13
  Speaker 1: the capital potentially get a better return than they would
• 45:16
  Speaker 1: getting it from safer bonds. Everybody's happy, and there's some
• 45:21
  Speaker 1: plenty of good things about this arrangement. I don't want
• 45:23
  Speaker 1: to just totally shit on private credit. The private lender
• 45:26
  Speaker 1: can know my company really well, and they may become
• 45:31
  Speaker 1: more of a partner. Right. They may give they may
• 45:35
  Speaker 1: have more patience. They're not buying some bond from a stranger.
• 45:38
  Speaker 1: They get to inspect my books. They can negotiate exactly
• 45:41
  Speaker 1: what happens if I miss a payment, and if I
• 45:43
  Speaker 1: get into trouble, they may have more flexibility to work
• 45:46
  Speaker 1: something out. They might be able to extend the loan,
• 45:48
  Speaker 1: change the terms, take more equity from my business, give
• 45:51
  Speaker 1: me more time. That's a big advantage, right. The banks
• 45:56
  Speaker 1: don't have that kind of that kind of flexibility. A
• 46:00
  Speaker 1: bank depositor can wake up tomorrow morning, get scared, and
• 46:02
  Speaker 1: demand his money back. That's how you end up with
• 46:05
  Speaker 1: a bank run. But private credit capital, generally it's much
• 46:08
  Speaker 1: stickier than bank deposits. Right doesn't mean it can't move.
• 46:12
  Speaker 2: It can.
• 46:12
  Speaker 1: There can be a run on private equity, but it
• 46:17
  Speaker 1: is a different mindset to it. Different funds and insurance
• 46:21
  Speaker 1: products have different obligations, so some insurance company funding can
• 46:26
  Speaker 1: be more sensitive than other funding, and insurance themselves have
• 46:29
  Speaker 1: experienced runs. It's not to say you don't have a
• 46:32
  Speaker 1: run on. People that help fund insurance companies but for now,
• 46:38
  Speaker 1: the point is pretty simple. I'm not saying private credit
• 46:41
  Speaker 1: is inherently bad, and it's not inherently shady, and we're
• 46:45
  Speaker 1: not saying I'm not saying we're automatically at the next
• 46:47
  Speaker 1: subprime crisis here. It does solve a real problem. Companies
• 46:51
  Speaker 1: need credit, investors need returns. Private credit connects to two.
• 46:55
  Speaker 1: The question isn't whether private credit exists. The question is
• 46:58
  Speaker 1: what happened when it got really big and is this becoming.
• 47:03
  Speaker 2: Something we have to.
• 47:04
  Speaker 1: Worry more about bringing down our entire company because an
• 47:07
  Speaker 1: enormous amount of lending that Americans once associated with banks
• 47:11
  Speaker 1: has moved into this private world. We have no we
• 47:13
  Speaker 1: don't have any there's no spotlight on this. There's no
• 47:18
  Speaker 1: public market to analyze because these are private loans. Something
• 47:21
  Speaker 1: else changes. If my widget company sells a bond in
• 47:24
  Speaker 1: the public market, people buy and sell that bond. There's
• 47:27
  Speaker 1: a price attached to it. And if investors decide my
• 47:31
  Speaker 1: widget company is in trouble, guess what the price falls.
• 47:34
  Speaker 1: Everybody will see it. Private credit, though.
• 47:38
  Speaker 2: Is more.
• 47:38
  Speaker 1: Isn't that transparent? The loan doesn't trade every day, sometimes
• 47:43
  Speaker 1: it doesn't trade at all. Doesn't mean it's not being valued.
• 47:46
  Speaker 1: The lender has valuation procedures, the fund has accountants, the
• 47:50
  Speaker 1: insurer has investment for professionals trying to figure all this out.
• 47:54
  Speaker 1: Auditors and regulators may review pieces of this process, but
• 47:58
  Speaker 1: there may be very sophistictiicated people doing very sophisticated or
• 48:02
  Speaker 1: work to determine what the loan is worth. But it's
• 48:06
  Speaker 1: not something we get to check. It's not available publicly.
• 48:10
  Speaker 1: There's no public market to constantly test the premise. And
• 48:15
  Speaker 1: that means we're encountering a question that we thought we
• 48:18
  Speaker 1: weren't going to encounter again. How do we know what
• 48:21
  Speaker 1: this thing is actually worth? Nobody is in. The answer
• 48:24
  Speaker 1: is not nobody knows. The answer is the valua and
• 48:27
  Speaker 1: it isn't that the valuation might be wrong. But what
• 48:29
  Speaker 1: replaces the public market as the check on the valuation?
• 48:32
  Speaker 1: And how good is that check when the system comes
• 48:35
  Speaker 1: under stress? I'm going to get back to that for now.
• 48:37
  Speaker 1: Remember our hypothetical retiree in Indiana. She gave an insurance
• 48:41
  Speaker 1: company her retirement savings because she wanted something back, and
• 48:44
  Speaker 1: in the insurance company needs investments that pay enough to
• 48:46
  Speaker 1: keep the promise it made to her Meanwhile, private credit
• 48:49
  Speaker 1: managers have discovered an enormous new business making loans outside
• 48:53
  Speaker 1: the traditional banking system. Borrowers loans higher yields, and it's
• 48:59
  Speaker 1: patient money. Totally understandable. Okay, So now we've got two
• 49:04
  Speaker 1: things looking for each other. On one side, it's the
• 49:06
  Speaker 1: private credit. They've got companies that want to borrow money.
• 49:09
  Speaker 1: They can make loans that pay more than a Treasury
• 49:11
  Speaker 1: bond or a conventional investment grade bond. But to make
• 49:16
  Speaker 1: more loans, you need more money. What has more money?
• 49:20
  Speaker 1: Life insurance companies. They've got enormous amounts of money coming
• 49:26
  Speaker 1: in every day from people buying life insurance and annuities.
• 49:30
  Speaker 1: Constant cash flow coming in, and that money has to
• 49:33
  Speaker 1: earn something. So Wall Street puts the two together. And
• 49:37
  Speaker 1: this is where the machine starts to become really powerful.
• 49:40
  Speaker 1: And how Mark Walter ended up with enormous amounts of
• 49:43
  Speaker 1: money to use to make enormousnt amount of purchases. So
• 49:47
  Speaker 1: let's go back to our retiree in Indiana. She gave
• 49:50
  Speaker 1: an insurance company one hundred thousand dollars for annuity. The
• 49:52
  Speaker 1: insurance company now is one hundred thousand dollars. It also
• 49:55
  Speaker 1: made our promise years from now, it has to make
• 49:58
  Speaker 1: good on that promise. Insure invests the money. Treasury bond
• 50:02
  Speaker 1: is safe, but it doesn't pay much. Corporate bond, it
• 50:05
  Speaker 1: pays a little bit more private equity, private credit even
• 50:08
  Speaker 1: more so. Then you multiply our retirees thousand dollars by
• 50:13
  Speaker 1: hundreds of thousands of customers. Suddenly we're talking about billions,
• 50:17
  Speaker 1: tens of billions. And imagine you're not simply an insurance company.
• 50:20
  Speaker 1: You're also connected to a giant investment manager. The investment
• 50:23
  Speaker 1: manager is out finding loans. The insurance company needs investments.
• 50:27
  Speaker 1: The investment manager says, I've got some. Now you see
• 50:31
  Speaker 1: why this arrangement can become so attractive. What happens, though,
• 50:34
  Speaker 1: when the guy who owns the insurance companies also wants
• 50:36
  Speaker 1: the investments. Now you see where I'm going here, right.
• 50:39
  Speaker 1: The insurance company collects a premiums, the investment manager finds
• 50:42
  Speaker 1: or creates more investments. The insurer buy some of them.
• 50:46
  Speaker 1: The private loans potentially pay for more pay more for
• 50:49
  Speaker 1: this than the conventional way to buy bonds. The insurer
• 50:52
  Speaker 1: potentially earns more. The investment manager gets paid for managing
• 50:56
  Speaker 1: the money. Regardless the borrower gets the loan and everybody
• 50:59
  Speaker 1: can win. So it's inherently not a scam, and it's
• 51:04
  Speaker 1: inherently not a loophole. It's potentially a perfectly legitimate economic
• 51:10
  Speaker 1: rationale behind all of this. But this has become a
• 51:14
  Speaker 1: huge part of modern American finance. And I'll be honest
• 51:17
  Speaker 1: with you, folks, I didn't fully understand. You sort of
• 51:20
  Speaker 1: know things, but you don't know these things. I'm sure
• 51:23
  Speaker 1: people in the financial space have understood this better, but
• 51:26
  Speaker 1: we Americans don't. And I have a real problem with that.
• 51:29
  Speaker 1: And this is why I want to do I'm spending
• 51:31
  Speaker 1: so much time here, so stick with me. They've all
• 51:35
  Speaker 1: of these major private equity firms love their life insurance companies.
• 51:39
  Speaker 1: Apollo has a theme KKR as Global Atlantic, Blackstone manages
• 51:43
  Speaker 1: enormous amounts of insurance money, and there are plenty of others.
• 51:46
  Speaker 1: This is not Mark Walter sitting alone in some Chicago
• 51:49
  Speaker 1: business tower inventing some weird financial trick. This is an
• 51:53
  Speaker 1: entire industry. Walter was just early in it's and that's
• 51:58
  Speaker 1: the piece of his biography. I had skipped over a bit.
• 52:00
  Speaker 1: Walter and Guggenheim began moving aggressively into insurance right around
• 52:05
  Speaker 1: the financial crisis and its aftermath. They just saw this.
• 52:09
  Speaker 1: They saw this before many others.
• 52:11
  Speaker 2: Did good for them.
• 52:13
  Speaker 1: I guess we'll find out if this is what brings
• 52:16
  Speaker 1: down our economy again. We're not going to say good
• 52:18
  Speaker 1: for them, are we. But in two thousand and nine,
• 52:20
  Speaker 1: Guggenheim acquired what became Guggenheim Life and Annuity. Then came
• 52:24
  Speaker 1: other insurance deals, including Security Benefit, and in twenty thirteen,
• 52:27
  Speaker 1: Guggenheim was part of the group that acquired Delaware Life
• 52:30
  Speaker 1: from Sun Life. So by the time sports fans got
• 52:35
  Speaker 1: to know who Mark Walter was as the guy who
• 52:37
  Speaker 1: owned the Dodgers, he had already spent years helping build
• 52:39
  Speaker 1: something much less visible, a financial business with access to
• 52:45
  Speaker 1: enormous sums of money, insurance money, specifically, These ownership arrangements
• 52:51
  Speaker 1: changed over time. Some insurance businesses separated from Guggenheim. Guggenheim
• 52:55
  Speaker 1: Life and Annuity eventually became Clear Life and Annuity, Delaware
• 52:59
  Speaker 1: Life and and Clear Spring ultimately became part of the
• 53:02
  Speaker 1: insurance group known as Group one thousand and one, led
• 53:05
  Speaker 1: by Daniel Tauris, a longtime Walter associate. By the way
• 53:10
  Speaker 1: Group one thousand and one isn't some mysterious Wall Street code.
• 53:13
  Speaker 1: It's simply an address. The company takes its name from
• 53:15
  Speaker 1: one thousand and one Pennsylvania Street and Indianapolis.
• 53:18
  Speaker 2: I was just there this past weekend.
• 53:20
  Speaker 1: Walter Controls Group one thousand and one Guggenheim continued managing
• 53:24
  Speaker 1: substantial amounts of money for the insurers. Don't let this
• 53:27
  Speaker 1: get lost in the corporate genealogy. Walter's connection to insurance
• 53:31
  Speaker 1: isn't new. It goes back well over a decade, and
• 53:34
  Speaker 1: it's an important part of the financial ecosystem he built. Now,
• 53:38
  Speaker 1: if you bring all these together, Delaware Life, clear Spring
• 53:41
  Speaker 1: Group one thousand and one, Guggenheim Partner's Investment Management, Walter's
• 53:45
  Speaker 1: new holding company that the Dodgers were part of, TWG Global,
• 53:49
  Speaker 1: basically the Walter Group Global. I'm deliberately simplifying this corporate
• 53:53
  Speaker 1: structure here because the legal relationships are very complicated, and
• 53:57
  Speaker 1: we're going to discover that these legal relationships matter enormously,
• 54:01
  Speaker 1: and the complication is designed.
• 54:02
  Speaker 2: To confuse you, folks.
• 54:04
  Speaker 1: The ecosystem is frankly unnecessarily complicated, but it's complicated in
• 54:11
  Speaker 1: order to hide what's going on here. That's my thesis.
• 54:14
  Speaker 1: I'm not going to sit here that I've come to
• 54:15
  Speaker 1: that that's the conclusion I've come to. I have a
• 54:18
  Speaker 1: feeling you may come to the same. But for now,
• 54:20
  Speaker 1: check out the ecosystem. It's Walter, it's investment management, it's insurance,
• 54:24
  Speaker 1: it's private credit. Now back to our shiny object, the Dodgers.
• 54:29
  Speaker 1: Remember sports Net LA. That's the media company. They're the
• 54:32
  Speaker 1: regional television network that carries the Dodger games. Now, there's
• 54:35
  Speaker 1: a company that owns sports Net LA. It's called the
• 54:37
  Speaker 1: American Media Productions LLC. Guess what its mailing addresses. It's
• 54:41
  Speaker 1: pretty memorable if you're a Dodger fan. One thousand Lace
• 54:44
  Speaker 1: and Park Avenue, Dodger Stadium. According to the insurance filings
• 54:48
  Speaker 1: examined by Mispriced Assets, Delaware Life and clear Life together
• 54:54
  Speaker 1: held roughly five hundred and eighty seven million dollars of
• 54:56
  Speaker 1: American Media Productions debt. How about that he took his
• 55:00
  Speaker 1: two insurance companies and he allowed them to essentially be
• 55:03
  Speaker 1: the investors into the television network. That's how shohe A
• 55:07
  Speaker 1: tany's getting paid. Folks, if you're trying to figure this out,
• 55:11
  Speaker 1: by the way, this is mispriced assets a terrific substack.
• 55:13
  Speaker 2: I'm going to tell you more about it in a minute.
• 55:16
  Speaker 1: The filings also show millions of dollars of notes issued
• 55:18
  Speaker 1: by something called Dodgers Tickets LLC, its debt tied to
• 55:23
  Speaker 1: Dodgers ticket revenue. He's slicing and diicing the Dodgers up here.
• 55:28
  Speaker 1: At this point, you may be wondering something I was wondering.
• 55:31
  Speaker 1: Are the Dodgers one entity or a million entities? Is
• 55:34
  Speaker 1: it one company? Or is this incredibly valuable baseball franchise
• 55:38
  Speaker 1: been financially engineered into a collection of separate companies, assets
• 55:42
  Speaker 1: and revenue streams that can all be financed separately, turned
• 55:46
  Speaker 1: into different little projects. You see where we're going here.
• 55:49
  Speaker 1: Think about what a baseball team actually has. The baseball
• 55:51
  Speaker 1: operation Dodger Stadium, there's land, there's ticket revenue, television revenue, sponsorships, merchandise,
• 55:56
  Speaker 1: minor league teams. There's future streams of money coming from all.
• 56:00
  Speaker 2: All of them.
• 56:01
  Speaker 1: And in modern finance, those things don't necessarily have to
• 56:04
  Speaker 1: remain one thing simply because you and I call it
• 56:07
  Speaker 1: all of it to Dodgers. They can be potentially separated
• 56:11
  Speaker 1: into seven or eight or nine or ten LLCs put
• 56:15
  Speaker 1: into different legal entities borrowed against separately. Something used as
• 56:20
  Speaker 1: collateral over here that's not used over there, turned into
• 56:23
  Speaker 1: financial instruments slice and diceed. And remember how Walter got
• 56:29
  Speaker 1: to start asset back securitization. This is what he knows.
• 56:33
  Speaker 1: This is the core sort of financial instrument he learned
• 56:37
  Speaker 1: in the nineties, taking streams of money that arrive in
• 56:40
  Speaker 1: the future and turning them into financiable assets today. Now,
• 56:45
  Speaker 1: I've not established that every piece of the Dodgers has
• 56:47
  Speaker 1: been carved into a separate financial vehicle, but we're learning
• 56:50
  Speaker 1: there's at least three and there could be more. We
• 56:53
  Speaker 1: don't have a complete picture because this is not a
• 56:55
  Speaker 1: public company, something we continue to examine and something subpoenas
• 56:59
  Speaker 1: would help with. But we know enough to see that
• 57:01
  Speaker 1: there are separate entities in separate revenue streams Google I
• 57:04
  Speaker 1: in Baseball Management, American Media Productions, Dodgers Tickets LLC. And
• 57:09
  Speaker 1: we know the insurance company money ended up invested in
• 57:11
  Speaker 1: some of the debt associated with those separate entities, which
• 57:15
  Speaker 1: gets us to the question that matters. Is lending money
• 57:21
  Speaker 1: against the Dodgers television revenue inherently bad. No sports in
• 57:24
  Speaker 1: at LA is a real business. Television rights can generate
• 57:27
  Speaker 1: money alone against that revenue could be a terrific investment,
• 57:31
  Speaker 1: But what's the relationship between the people deciding to make
• 57:33
  Speaker 1: the investment and the people economically benefiting from it. He
• 57:37
  Speaker 1: controls both sides of this. Think about lending money to
• 57:41
  Speaker 1: your brother. Nothing wrong with that. Maybe your brother owns
• 57:44
  Speaker 1: the best business in town. Maybe lending him money is
• 57:47
  Speaker 1: a fantastic investment. But if you're investing somebody else's money,
• 57:51
  Speaker 1: that person probably deserves to know that the person you're
• 57:55
  Speaker 1: given the money to is your brother. Because the relationship
• 57:59
  Speaker 1: creates a potential conflict. And that's why insurance filings cares
• 58:05
  Speaker 1: about things called affiliated investments and related party transactions. Extra
• 58:11
  Speaker 1: words added there to find out is there a conflict
• 58:13
  Speaker 1: of interest? He controls the money in the insurance companies
• 58:20
  Speaker 1: and the other side of the transaction with the Dodgers.
• 58:25
  Speaker 1: It's an inherent conflict of interest. There is no way
• 58:29
  Speaker 1: a bank would have allowed that. But he wasn't with
• 58:32
  Speaker 1: a bank, now was he? That brings us to February,
• 58:34
  Speaker 1: a federal grad jury in Manhattan, san subpoenas to Delaware
• 58:37
  Speaker 1: Life in Clear Spring. According to the insurer's subsequent filings,
• 58:40
  Speaker 1: investigators were asking whether certain private credit investments introduced to
• 58:44
  Speaker 1: the companies by an affiliate should have been treated as
• 58:47
  Speaker 1: affiliated or related party transactions, i e. My brother to
• 58:51
  Speaker 1: brother example. Now we're getting one of the more to
• 58:54
  Speaker 1: the one of the most dramatic numbers in this story.
• 59:00
  Speaker 2: Okay, the assets.
• 59:02
  Speaker 1: Were already on the books, so they didn't hide it.
• 59:05
  Speaker 1: The loans existed, they appeared elsewhere in the insurer filings.
• 59:09
  Speaker 1: The question was how the companies were characterizing the relationship
• 59:12
  Speaker 1: to those investments. Essentially, did they admit that they were
• 59:16
  Speaker 1: essentially loaning to themselves. There's a question in the annual
• 59:20
  Speaker 1: insurance statement General Interrogatory thirteen point two. Apologies for the
• 59:25
  Speaker 1: detail there. Don't remember the number. You don't have to.
• 59:27
  Speaker 1: Just remember what they're trying to get at. How much
• 59:29
  Speaker 1: of your investment portfolio is connected to your parent, subsidiaries, affiliates,
• 59:34
  Speaker 1: or related entities. Right? Are you related to? Are you
• 59:38
  Speaker 1: related to these entities?
• 59:39
  Speaker 2: Okay?
• 59:40
  Speaker 1: Before the subpoenas, Delaware Life had reported roughly one point
• 59:43
  Speaker 1: four billion dollars, or about three percent of the portfolio
• 59:47
  Speaker 1: in the conventional affiliated investment category were discussing. Then came
• 1:00:01
  Speaker 1: the federal subpoenas. The company conducted an internal review, and
• 1:00:05
  Speaker 1: in its next quarterly statement.
• 1:00:08
  Speaker 2: They said errors had been identified. Okay.
• 1:00:12
  Speaker 1: The company identified roughly sixteen point four billion dollars of
• 1:00:15
  Speaker 1: private credit investments whose returns were described as predominantly contingent
• 1:00:20
  Speaker 1: on the performance of affiliates. In other words, these loans
• 1:00:23
  Speaker 1: were there for the Dodgers. Okay, that's what.
• 1:00:26
  Speaker 2: This is about.
• 1:00:27
  Speaker 1: It's not necessarily the same thing as saying we discovered
• 1:00:30
  Speaker 1: sixteen billion dollars of loans made to companies we own.
• 1:00:35
  Speaker 1: That's different statement. A loan can be legally issued by
• 1:00:38
  Speaker 1: an unaffiliated entity while its economic performance depends on an
• 1:00:42
  Speaker 1: affiliated business. Okay, so it's not illegal that they're doing this.
• 1:00:48
  Speaker 1: But there are at least three separate questions.
• 1:00:50
  Speaker 2: Here, was the.
• 1:00:51
  Speaker 1: Borrower legally an affiliate, Was the investment economically dependent upon
• 1:00:57
  Speaker 1: the affiliate i e. The Dodgers here? And how should
• 1:01:00
  Speaker 1: that relationship have been disclosed to the regulators? And from
• 1:01:04
  Speaker 1: the public record alone, we cannot completely resolve these questions
• 1:01:07
  Speaker 1: because a broader reading of the regulatory question could account
• 1:01:10
  Speaker 1: for at least some of the enormous change in the
• 1:01:12
  Speaker 1: disclosed number. But we don't know where this ends, but
• 1:01:15
  Speaker 1: we do know this. After federal investigators started asking about
• 1:01:18
  Speaker 1: these relationships, the insurers reviewed their disclosures and concluded, Hmm,
• 1:01:23
  Speaker 1: maybe they didn't tell the full truth, or we've found
• 1:01:25
  Speaker 1: some errors, excuse me. And the resulting picture of economic
• 1:01:29
  Speaker 1: dependence now on Walter's affiliated businesses is much larger. Both
• 1:01:37
  Speaker 1: companies made revisions, Clear Spring did and Delaware Life, so
• 1:01:44
  Speaker 1: a third of that investment portfolio turns out to be
• 1:01:48
  Speaker 1: essentially invested in Walter's other businesses. Now, let's compare with
• 1:01:52
  Speaker 1: another number. We're going to come back to you later.
• 1:01:54
  Speaker 1: Delaware Life currently reports about three point nine billion dollars
• 1:01:57
  Speaker 1: of capital and surplus. I have a credit exposure. We're
• 1:02:01
  Speaker 1: talking about the investments the company says are predominantly dependent
• 1:02:05
  Speaker 1: upon this affiliate performance i e. The Dodgers is more
• 1:02:08
  Speaker 1: than four times at capitalists or plus cushion. Now, sixteen
• 1:02:12
  Speaker 1: point four billion dollars of economic dependence does not mean
• 1:02:15
  Speaker 1: sixteen four billion dollars is at risk of disappearing. Doesn't
• 1:02:20
  Speaker 1: mean the loans are bad, and it doesn't mean they're
• 1:02:22
  Speaker 1: worth less. And it certainly doesn't mean that Delaware Life
• 1:02:25
  Speaker 1: is insolvent, but it does tell you why concentration and
• 1:02:29
  Speaker 1: valuation here matters so much. If the assets perform, the
• 1:02:34
  Speaker 1: ratio will never matter. And if everything keeps going up,
• 1:02:37
  Speaker 1: everybody's happy island. My brother one hundred dollars and he
• 1:02:40
  Speaker 1: pays me every penny plus interest.
• 1:02:41
  Speaker 2: I made money.
• 1:02:42
  Speaker 1: That fact that he's my brother doesn't make the loan bad.
• 1:02:46
  Speaker 1: The issue is different here, though, concentration, the conflicts, the
• 1:02:49
  Speaker 1: governance and the disclosure, and whether somebody entrusted with other
• 1:02:52
  Speaker 1: people's money is making investment decisions on genuinely economic terms
• 1:02:56
  Speaker 1: rather than because of relationships elsewhere in the organization. They
• 1:03:01
  Speaker 1: decided that the Dodgers were the best investment. Dodgers' TV
• 1:03:04
  Speaker 1: was the best investment. They didn't want to look into
• 1:03:06
  Speaker 1: Yankees television. They didn't want to look into the NFL network.
• 1:03:09
  Speaker 1: You see where I'm going here. So the revelation isn't
• 1:03:12
  Speaker 1: that sixteen billion dollars disappeared. Nothing disappeared. The revelation is
• 1:03:15
  Speaker 1: simply the same portfolio now looks dramatically different. When somebody
• 1:03:19
  Speaker 1: asked a different question about the economic relationship between the
• 1:03:24
  Speaker 1: money at the insurance company and where it was invested.
• 1:03:31
  Speaker 1: Don't just tell me the LLC's name. Show me where
• 1:03:34
  Speaker 1: the money came from, show me where it went, Show
• 1:03:36
  Speaker 1: me where sits underneath the investment. Show me who benefits
• 1:03:40
  Speaker 1: if it works, and show me who loses if it doesn't.
• 1:03:43
  Speaker 1: And show me whose economic performance ultimately determines whether the
• 1:03:46
  Speaker 1: loan gets paid. Those are the questions that matter here,
• 1:03:49
  Speaker 1: and here's where the opacity becomes part of the story.
• 1:03:52
  Speaker 1: There are questions about these investments that public findings just
• 1:03:55
  Speaker 1: don't answer. Maybe there's perfectly good explanations. It's no proof
• 1:03:59
  Speaker 1: of wrongdoing, it's proof of limitation. It's one reason the
• 1:04:03
  Speaker 1: subpoenas matter. Investigators can can demand the actual contracts, they
• 1:04:07
  Speaker 1: can demand emails, they can identify the ultimate owners.
• 1:04:10
  Speaker 2: We can't.
• 1:04:11
  Speaker 1: What we could do is look at what's public. And
• 1:04:14
  Speaker 1: somebody did exactly that. They stopped looking at the enormous
• 1:04:18
  Speaker 1: totals and started looking at the individual borrowers, one by one,
• 1:04:23
  Speaker 1: hundreds of them. And that's where the next part of
• 1:04:25
  Speaker 1: the story needs to change slightly from how I originally
• 1:04:28
  Speaker 1: understood it, because the important question isn't whether one of
• 1:04:32
  Speaker 1: these LLCs has a website. Maybe it is. Maybe it
• 1:04:35
  Speaker 1: isn't supposed to. It's just simply a holding vehicle, right,
• 1:04:38
  Speaker 1: Maybe it's simply a special purpose vehicle. Remember the whole
• 1:04:42
  Speaker 1: spack acronym, right, created for one financial transaction.
• 1:04:46
  Speaker 2: That's normal.
• 1:04:47
  Speaker 1: Plenty of LLCs get created just for a transaction. But
• 1:04:51
  Speaker 1: what's inside the LLC? What does putting the investment inside
• 1:04:54
  Speaker 1: the box accomplish? So there's this company called Verse tomont
• 1:05:00
  Speaker 1: Hill's Financial that was part of all this. And this
• 1:05:03
  Speaker 1: is where I want to give some credit to the
• 1:05:04
  Speaker 1: person who's reporting I leaned on here to go down
• 1:05:08
  Speaker 1: this particular rabbit hole. His name is Nick Nemoth. He
• 1:05:10
  Speaker 1: publishes an independent financial research newsletter on substack called Mispriced Assets,
• 1:05:15
  Speaker 1: and he runs a research and consulting firm called Wyandanche Consulting.
• 1:05:20
  Speaker 2: And this isn't the.
• 1:05:21
  Speaker 1: First time Nemath has gone through the less visible corners
• 1:05:25
  Speaker 1: of private credit. This is what he promises to do.
• 1:05:27
  Speaker 1: And if you, I will admit sometimes you read his
• 1:05:29
  Speaker 1: stuff and you're not quite sure. I've stumbled upon this,
• 1:05:33
  Speaker 1: got to know his work, and you realize, look, this
• 1:05:35
  Speaker 1: is his It's like me going through crosstabs of a poll.
• 1:05:39
  Speaker 1: That's what I felt like I was getting with him.
• 1:05:41
  Speaker 1: And he's built the following in investment world doing this
• 1:05:44
  Speaker 1: kind of forensic research, if you will, reading filings, tracing
• 1:05:48
  Speaker 1: the individual securities, trying to figure out what sits underneath
• 1:05:51
  Speaker 1: all these financial structures that most people like you and
• 1:05:53
  Speaker 1: I would never think to look at. Right, He's previously
• 1:05:57
  Speaker 1: done some detailed forensic work on large private credit funds
• 1:06:00
  Speaker 1: and other opaque park parts of the market. Okay, so
• 1:06:04
  Speaker 1: he knows what he's doing here. So when I tell
• 1:06:06
  Speaker 1: you he went through the statutory insurance filings lined by line,
• 1:06:09
  Speaker 1: this is, like I said, kind.
• 1:06:10
  Speaker 2: Of what he does.
• 1:06:11
  Speaker 1: And by the way, this is also one of the
• 1:06:13
  Speaker 1: reasons I love this new media world. Right, a Wall
• 1:06:15
  Speaker 1: Street Journal reporter can uncover one piece Bloomberg uncovers another.
• 1:06:19
  Speaker 1: An independent researcher with an unhealthy appetite for five hundred
• 1:06:22
  Speaker 1: page insurance filings cancover something else. And then we all
• 1:06:26
  Speaker 1: get to put it on the table and ask, huh
• 1:06:28
  Speaker 1: are these pieces connected and if so, how so? Here's
• 1:06:31
  Speaker 1: what Niemath and Mispriced Assets did. He went through hundreds
• 1:06:34
  Speaker 1: and hundreds of pages of statutory filings from these life
• 1:06:37
  Speaker 1: insurance companies at Walter owns Delaware Life in clear Spring.
• 1:06:40
  Speaker 1: He went through its security by security, loan by loan,
• 1:06:42
  Speaker 1: borrow or by Bauer. Then he compared it to the
• 1:06:45
  Speaker 1: corporate formation records, dates, amounts, ID numbers, the insurer owned what,
• 1:06:49
  Speaker 1: when it bought it, et cetera, and he identified roughly
• 1:06:53
  Speaker 1: two hundred and thirty holdings with some interesting similarities. The
• 1:06:57
  Speaker 1: formation dates are the formation dates. Now, so let's look
• 1:07:02
  Speaker 1: at what he found. The borrowers have names like Vertemont
• 1:07:05
  Speaker 1: Hills Financial, Pine Zanita Hills Financial, Iroquois Collateral, Mature, Yellow
• 1:07:12
  Speaker 1: Creek Collateralized Finance, bomb Free Corporate Finance, Cinke Chisholm. Now,
• 1:07:17
  Speaker 1: when I first encountered this reporting, I had the same
• 1:07:19
  Speaker 1: reaction you did. Who the hell are these companies? What
• 1:07:22
  Speaker 1: the hell's Vertemont Hills?
• 1:07:24
  Speaker 2: Right?
• 1:07:24
  Speaker 1: I can't find much about them? But after spending more
• 1:07:26
  Speaker 1: time with this, you realize that's not the right question
• 1:07:29
  Speaker 1: to ask, because these may not be companies in the
• 1:07:31
  Speaker 1: way you and I normally use the word company. They're
• 1:07:34
  Speaker 1: simply financial boxes, special purpose vehicles. They're referred to SPVs,
• 1:07:40
  Speaker 1: and they're all over the place. In this modern financial world,
• 1:07:44
  Speaker 1: you basically create an entity for one particular transaction, no employees,
• 1:07:48
  Speaker 1: no storefront, no product, no marketing department, and yes, no website.
• 1:07:52
  Speaker 1: So it doesn't mean it's a wrongdoing. It's just what
• 1:07:54
  Speaker 1: it is, what's inside the box. Impressed More importantly, why
• 1:07:59
  Speaker 1: put it in the box in the first place, Because
• 1:08:01
  Speaker 1: a financial box can have all sorts of perfectly legitimate
• 1:08:03
  Speaker 1: things that can isolate risk make bankruptcy easier to handle.
• 1:08:07
  Speaker 1: It's about like, could be a liability thing. Look, people
• 1:08:10
  Speaker 1: put their own homes in LLCs in order to limit liability.
• 1:08:13
  Speaker 1: So maybe if you get sued for somebody have any
• 1:08:15
  Speaker 1: accident on your property, they can't get all of your assets.
• 1:08:18
  Speaker 1: They only go after your house or something like that.
• 1:08:20
  Speaker 1: So there's all sorts of normal reasons to do this.
• 1:08:23
  Speaker 1: But a financial structure can also change how investments get
• 1:08:26
  Speaker 1: treated for regulatory purposes, and that's where this becomes important. Remember,
• 1:08:30
  Speaker 1: insurance company regulators don't treat every investment the same way.
• 1:08:34
  Speaker 1: A conventional high quality bond gets one kind of treatment,
• 1:08:37
  Speaker 1: a private equity investment gets another. A stake and a
• 1:08:40
  Speaker 1: private fund can get another, and the riskier the investment
• 1:08:43
  Speaker 1: is considered, generally speaking, the more financial cushion and ensure
• 1:08:47
  Speaker 1: may have to hold against it. So now the question
• 1:08:51
  Speaker 1: isn't whether these vehicles are why did somebody invent a
• 1:08:54
  Speaker 1: company called Vernamont Hills, it's what economic exposure sits underneath
• 1:08:59
  Speaker 1: this no, that's sitting inside this box, and does putting
• 1:09:02
  Speaker 1: that exposure inside this structure change how the insurance company
• 1:09:06
  Speaker 1: is allowed to treat it. So basically, this is an
• 1:09:10
  Speaker 1: attempt to get around regulators and to avoid the questions
• 1:09:14
  Speaker 1: of how connected are all these things? Right, Suppose an
• 1:09:19
  Speaker 1: insurance company wants exposure to a pool of private investments.
• 1:09:21
  Speaker 1: Owning that exposure directly might receive one regulatory treatment, But
• 1:09:25
  Speaker 1: perhaps the assets can be put inside a special purpose vehicle.
• 1:09:29
  Speaker 1: The vehicle issues the debt, the debt gets rated from
• 1:09:32
  Speaker 1: that vehicle, and the insurance company owns a bond issued
• 1:09:34
  Speaker 1: by the vehicle rather than directly owning whatever sits underneath it.
• 1:09:40
  Speaker 1: Those two things may receive very different treatment from the
• 1:09:42
  Speaker 1: capital markets. Does that explain two hundred and thirty of
• 1:09:46
  Speaker 1: these vehicles? We don't know, and I know I keep
• 1:09:50
  Speaker 1: saying that we don't know. There's just so much smoke
• 1:09:52
  Speaker 1: around here. It's hard, it's hard to see.
• 1:09:55
  Speaker 2: Clearly.
• 1:09:56
  Speaker 1: Some may be totally ordinary financing vehicles, but some may
• 1:09:59
  Speaker 1: do something thing entirely different. And that's one of the
• 1:10:02
  Speaker 1: questions regulators and investigators with access to these transaction documents
• 1:10:06
  Speaker 1: are going to be in a better position to answer.
• 1:10:09
  Speaker 1: But the question matters because insurance regulators themselves have been
• 1:10:12
  Speaker 1: wrestling with exactly this larger issue. Does the legal wrapper
• 1:10:16
  Speaker 1: accurately describe the economic risk underneath it? I mean, this
• 1:10:20
  Speaker 1: goes back to what we saw during the financial crisis.
• 1:10:23
  Speaker 1: You have all these home loans, you start mixing and matching,
• 1:10:25
  Speaker 1: and then you start isolating them around, and then you
• 1:10:27
  Speaker 1: issue them over here, and you show over here you
• 1:10:29
  Speaker 1: kind of diversified all your debt, and you know, I'm
• 1:10:31
  Speaker 1: doing my best Charlie Day here and then all of
• 1:10:34
  Speaker 1: a sudden, right you can't tell the good debt from
• 1:10:37
  Speaker 1: the bad debt it got. And again, this is what
• 1:10:40
  Speaker 1: Mark Walter learned, This is what he did for a living,
• 1:10:44
  Speaker 1: and this is the confusion here. What's interesting is some
• 1:10:50
  Speaker 1: of the patterns that Niemath found in mispriced assetts identified
• 1:10:54
  Speaker 1: became useful for understanding the machinery rather than trying to
• 1:10:57
  Speaker 1: prove wrongdoing. So like if you take Vertemont Hills and
• 1:11:00
  Speaker 1: Pinesanita Hills. Those two special boxes, if you will. According
• 1:11:03
  Speaker 1: to Delaware corporate records reviewed in by Mispriced Assets, both
• 1:11:08
  Speaker 1: were incorporated on the same day, July third, twenty twenty four.
• 1:11:12
  Speaker 1: Their filing numbers were only fifty apart, which means you
• 1:11:15
  Speaker 1: could tell it was done on the same day. And
• 1:11:17
  Speaker 1: then a few months later, the insurance investments appear or
• 1:11:22
  Speaker 1: bomb free Corporate Finance, and according to reporting that was
• 1:11:24
  Speaker 1: in Corporate October thirty of twenty twenty seven days later,
• 1:11:27
  Speaker 1: funding appears alongside other newly created entities, So it was
• 1:11:30
  Speaker 1: clear the entities were created as these vehicles, right, And
• 1:11:34
  Speaker 1: according to miss Priced Assets, roughly forty four percent of
• 1:11:36
  Speaker 1: these positions were held by both Delaware Life and Clear
• 1:11:40
  Speaker 1: Life and they were purchased on the same day. So
• 1:11:42
  Speaker 1: he took his two insurance companies and essentially split the
• 1:11:46
  Speaker 1: risk right with these special LLCs that he created. And
• 1:11:53
  Speaker 1: the amounts were too similar. And that's why you can
• 1:11:56
  Speaker 1: see it. Five million here, five million here, five million here, all.
• 1:11:59
  Speaker 2: Done on the day.
• 1:12:00
  Speaker 1: Right now, you could say, there's I'm sure that you
• 1:12:03
  Speaker 1: can come up with an innocent explanation for a lot
• 1:12:05
  Speaker 1: of this. It could be just organized financing, right, all
• 1:12:09
  Speaker 1: this is normal. So we're not saying that this pattern
• 1:12:13
  Speaker 1: proves concealment, but it does tell you that this is
• 1:12:17
  Speaker 1: a systemic situation here. They've built the system. This is
• 1:12:21
  Speaker 1: a machine, right. Nobody's acting independently. These are investments being created, structured,
• 1:12:26
  Speaker 1: and allocated through some organized process. What is the process?
• 1:12:30
  Speaker 1: Where are the underlying assets? Who created the vehicles? Who
• 1:12:34
  Speaker 1: determined how much delaware life would hold, how much clear
• 1:12:36
  Speaker 1: spring would hold? Who rated the notes? What regulatormy treatment
• 1:12:40
  Speaker 1: did the structure receive? These are all the questions. By
• 1:12:44
  Speaker 1: the way, none of the some of these were not
• 1:12:46
  Speaker 1: the same vehicles that were involved in the Dodgers purchase.
• 1:12:48
  Speaker 1: Most of those entities that we're talking about were created
• 1:12:51
  Speaker 1: years earlier, so it's different transactions. But essentially it's a
• 1:12:58
  Speaker 1: similar pattern. Doesn't mean it's one continue scheme, but it's
• 1:13:03
  Speaker 1: really Walter's long standing involvement with that kind of structured
• 1:13:06
  Speaker 1: finance That raises an alarm bell. And there's another clue
• 1:13:10
  Speaker 1: in these filings. They identification numbers. Think of it as
• 1:13:14
  Speaker 1: a bond social security number. Some of these private investments
• 1:13:16
  Speaker 1: use different identifiers. Again, it's not inherently suspicious. Private securities
• 1:13:20
  Speaker 1: are private, but it means an outsider can't necessarily type
• 1:13:23
  Speaker 1: the number into a terminal and immediately see, here's the security,
• 1:13:26
  Speaker 1: here's the issuer, and here's yesterday's price. Right, We just
• 1:13:31
  Speaker 1: don't know. The insurers have investment professionals, they have valuation procedures,
• 1:13:35
  Speaker 1: and they have accountants, they have auditors. Regulators receive some
• 1:13:38
  Speaker 1: information from the entity, so we'll see. There may be
• 1:13:41
  Speaker 1: sophisticated models and detailed infos supporting all the values that
• 1:13:44
  Speaker 1: are on these books. And the fact that we can't
• 1:13:48
  Speaker 1: see the process doesn't mean there isn't one. But it's
• 1:13:51
  Speaker 1: different from a public market. If you look at Apple,
• 1:13:54
  Speaker 1: you tell me what Apple is worth right now, you
• 1:13:57
  Speaker 1: can do that. Millions of buyers and sellers are constantly
• 1:14:00
  Speaker 1: testing the price of Apple. A public corporate bond, same idea.
• 1:14:05
  Speaker 1: Now take a private note issued by one of these vehicles.
• 1:14:08
  Speaker 1: What's it worth this morning? Maybe precisely what the insurer
• 1:14:11
  Speaker 1: says it is, but there may not have been a
• 1:14:12
  Speaker 1: public trade that day, or last week or last month.
• 1:14:16
  Speaker 1: There may be no public market continuously challenging the number.
• 1:14:20
  Speaker 1: So the question isn't who made up this valuation. The
• 1:14:23
  Speaker 1: question is what replaces the public market is the independent
• 1:14:26
  Speaker 1: check on the valuation. That's a part we can't answer
• 1:14:30
  Speaker 1: merely by reading the annual statement miss price assets. The
• 1:14:34
  Speaker 1: substack that I refer to here raises concerns about the
• 1:14:37
  Speaker 1: fact that a number of these investments continued to be
• 1:14:39
  Speaker 1: carried at or around what the insurer originally paid. That's
• 1:14:44
  Speaker 1: their interpretation of the filings. There may be good reasons
• 1:14:46
  Speaker 1: for it. But if conditions change, if the underlying borrow
• 1:14:49
  Speaker 1: or weekends, well, then who's making that call? And now
• 1:14:55
  Speaker 1: we write one of the great ironies of the story.
• 1:14:57
  Speaker 1: We started this podcast because twelve and a half billion
• 1:14:59
  Speaker 1: dollars like an absolute ridiculous valuation for the Los Angeles Lakers.
• 1:15:05
  Speaker 1: But the Lakers may be one of the easiest things
• 1:15:07
  Speaker 1: in Mark Walter's financial words of value. Why because somebody
• 1:15:10
  Speaker 1: just offered twelve and a half billion dollars. There's a buyer,
• 1:15:13
  Speaker 1: there's a seller, there's a transaction, there's a price, a
• 1:15:15
  Speaker 1: market tested valuation. The Lakers are not a mysterious asset.
• 1:15:19
  Speaker 1: The private note is a mysterious asset, doesn't mean it's
• 1:15:23
  Speaker 1: not worth what the insurance Ratings Agency says it's worth
• 1:15:28
  Speaker 1: But because you and I don't have an independent public
• 1:15:30
  Speaker 1: market telling us whether the number is right or not.
• 1:15:33
  Speaker 1: And remember who owns these investments, the life insurance companies.
• 1:15:36
  Speaker 1: And remember who controls the life insurance companies, Mark Walter.
• 1:15:39
  Speaker 1: They've made long term promises to policyholders. So eventually the
• 1:15:42
  Speaker 1: value of these assets will matter. If one hundred dollars
• 1:15:46
  Speaker 1: loan really is worth one hundred dollars, fine, But what
• 1:15:49
  Speaker 1: if it's worth ninety people need to know. And what
• 1:15:51
  Speaker 1: if it's worth seventy? And a disputed valuation still doesn't
• 1:15:55
  Speaker 1: mean the insurance company can't meet its obligations.
• 1:16:02
  Speaker 2: Hey,