The Korea Investment Corp. plans to buy a 19 percent stake in the Los Angeles Dodgers for $400 million, which would mark the first time for the sovereign wealth fund to invest in a sports team.
The KIC has completed due diligence and if talks with Guggenheim Partners, the largest shareholder of the pro baseball club, go well, a contract is likely to be signed in late May, according to KIC officials.
They said under the possible deal, the KIC will share revenue from ticket sales and broadcasting rights, and it will be given 10 percent of its investment if the club makes a profit. An annual return of at least 3 percent will be guaranteed even in case the club loses money.
If these safeguards will stand and if the investment decision as a whole was made based on a sound, sensible judgement, the plan should sound good. It is a fresh idea to invest in a foreign sports team, and it would help the KIC diversify its investment portfolio.
But we hear a different story. What the KIC did not say is that if the club makes losses, the minimum-guaranteed 3 percent dividend will be deferred, which means the KIC would be unable to retrieve a dime for an extended period.
There are more questions, like the one raised by Rep. Kim Hyun-mi of the New Politics Alliance for Democracy. The lawmaker said that under the possible deal, the KIC will be blocked from selling its stake for 10 years once it buys the team.
As Kim told Yonhap News Agency, if a public fund like the KIC invests in an asset that can be frozen for a certain period, it can undermine the country’s capability to respond to a foreign exchange crisis.
By law, the KIC and other government funds should pull out their investments when the nation’s foreign reserves shrink more than 10 percent for two consecutive months. It is aimed at averting a foreign exchange crisis like the one that hit Korea and Asian countries badly in 1997.
The size of the KIC’s possible investment in the Dodgers ― buying a 19 percent stake for $400 million ― also raises suspicion that it was trying to dodge the rule that requires it to gain prior government permission if it were to purchase 20 percent or more stake of a single entity or make a $500 million or more investment.
The KIC ought to answer these questions before proceeding with the negotiations.
There are more reasons why we urge the fund to take a cautious approach to the deal. The sports market is usually volatile and as unpredictable as the real world of sports, in which the strongest, the most-favorite teams do not always ascend to the throne as champions.
Moreover, the financial performance of the Dodgers had been very bad in recent years: It has been losing money since 2013, with last year’s red figure surging to $12.2 million, partly owing to the expenses for refurbishing its stadium. The club reportedly expects to go into the black in 2017. But it’s almost like saying it will win the World Series that year.
The KIC, launched 10 years ago, lost half of its $2 billion investment in the U.S. bank Merrill Lynch in 2008. Any such bonehead play should not be repeated, even if it won’t be easy for the investment fund to perform as well as our proud son, Ryu Hyun-jin, who is leading the Dodgers’ pitching force.
