MARKETS L.A. Dodgers Are Part of an Unorthodox $20 Billion Plan to Backstop Insurers Team Chairman Mark Walter, along with Magic Johnson and other owners, pledged personal holdings to support insurance companies connected with Guggenheim Partners Mark Walter, chief executive of Guggenheim Partners and chairman of the Los Angeles Dodgers, takes in a game in March 2018. PHOTO: PRENSA INTERNACIONAL/ZUMA PRESS By Justin Baer, Margot Patrick and Leslie Scism Nov. 24, 2018 7:00 a.m. ET A group of insurance companies associated with Guggenheim Partners LLC provided at least $300 million to help the firm’s chief executive and co-investors buy the Los Angeles Dodgers for a record $2.15 billion in 2012—an unusual arrangement that drew scrutiny from regulators before they eventually concluded that nothing was amiss. Now the CEO is going public with an even more unusual arrangement he said is designed to protect policyholders and eliminate any potential conflicts of interest: He said he and a group of business associates have pledged more than $20 billion of their personal net worth to backstop the insurers if they run into financial trouble. If this sounds convoluted, consider that the owners of the insurance companies include the same CEO, Mark Walter, and two of his fellow Dodgers owners: basketball legend Earvin “Magic” Johnson and former Guggenheim President Todd Boehly. Guggenheim’s outside lawyer, Dan K. Webb, said a fourth Dodgers co-owner, Texas businessman Robert Patton, as well as other individuals Mr. Webb wouldn’t identify, have also pledged assets. Todd Boehly, a Dodgers co-owner, speaks during the Milken Institute Global Conference in May.PHOTO: DANIA MAXWELL/BLOOMBERG NEWS Mr. Webb said the structure, known as Safe Harbor, makes the Guggenheim-affiliated insurers “likely among the safest insurance companies in the U.S.” He said the law firm of Winston & Strawn LLP, where he serves as co-executive chairman, created the structure. Much about Safe Harbor, whose existence hasn’t been previously reported, is opaque. Guggenheim executives and Mr. Webb won’t say when and where it was established or how its assets are valued. A Wall Street Journal review of insurance filings found no references to Safe Harbor, and a search of corporate registries was inconclusive. There are several legal entities named Safe Harbor registered in the U.S. Safe Harbor isn’t used as a selling point to attract new policyholders, and its existence isn’t disclosed in any marketing materials. Mr. Walter said there aren’t any tax benefits for the participating individuals. Nor is the structure detailed in any ratings firms’ assessments of the insurers’ financial strength. “It is an unusual concept” in the insurance world, said Deep Banerjee, a senior analyst with S&P Global Ratings, which rates three insurers covered by the pledge. He said he wasn’t aware of Safe Harbor before being contacted by the Journal. Even if he had known about it, he said, the structure wouldn’t factor into S&P’s ratings of the insurers because Safe Harbor itself isn’t rated by the firm. Guggenheim executives disclosed the structure after the Journal asked about a series of loans and other transactions at the insurers involving companies and entities linked to Messrs. Walter, Boehly and Patton. Among the assets pledged to the insurers through Safe Harbor: stakes in the Dodgers, a company operating one of the nation’s biggest Wendy’s hamburger franchises and shares in online car dealerCarvana Co. Shares in online car dealer Carvana Co. are among the assets pledged to a group of insurance companies if they run into financial difficulty. PHOTO: BRIAN SNYDER/REUTERS In 2014, two annuity holders filed a lawsuit in Illinois federal court alleging that Guggenheim had used the insurers as a cash machine to help buy the Dodgers and then concealed the activity in regulatory filings. Guggenheim and its co-defendants, three of the associated insurers, denied the claims. While the lawsuit was voluntarily dismissed by plaintiffs after a day, without a reason stated in court records, the fresh attention on the insurers’ role in the transaction led state insurance regulators to review the deal later that year, former regulators said. Jose Daniel Saenz, a former deputy Texas insurance commissioner, said he was briefed about Safe Harbor during this multistate review that studied how insurance money was used to help buy the Dodgers. The review, conducted on the states’ behalf by law firm Boies Schiller Flexner LLP, “resulted in no action taken against any of the insurance companies,” Mr. Saenz said, “and no findings of anything materially wrong.” Mr. Webb said the Dodgers transaction “has been thoroughly reviewed in every aspect by regulators” and that “the regulators concluded it was fully compliant and proper in all respects.” The $2.15 billion Dodgers transaction included the team, the broadcast rights to its games and real estate around the baseball stadium. Regulatory filings show the Guggenheim-related insurers invested $100 million directly into the Dodgers. They lent at least $200 million against individuals’ stakes in a Dodgers-related media company and real estate around the baseball stadium that are held in private investment accounts at the insurers, according to people familiar with the transactions. Mr. Walter became the chairman and controlling owner of the Dodgers organization. In 2014, the insurance companies and another owned by Mr. Patton bought $1.5 billion in bonds issued by a company of the Dodgers owners. Mr. Webb said the proceeds from the bond sale were reinvested in assets still in Safe Harbor. The Safe Harbor structure, Mr. Saenz said, serves to provide a “comfort level to the regulators” that there is “contingency planning” for sufficient capital. Mr. Walter said Safe Harbor was inspired by his belief that credit downturns and losses are inevitable. He said he and his associates in Safe Harbor believe portfolios of investment-grade bonds—the most common insurance-company investment—might not make sufficient returns to protect the companies and policyholders from stress or losses in a significant market crisis. He said making higher-yielding investments, outside of the companies’ balance sheets, provides extra capital support. A minority of the investments, which also include commercial real estate, infrastructure and financial businesses, were made with loans from the insurance companies, he added. “Safe Harbor aligns the interests of investors, insurers and policyholders and thereby addresses any potential conflicts,” a spokesman for Mr. Walter said. Basketball legend Earvin ‘Magic’ Johnson waves to the fans prior to Game Three of the 2018 World Series between the Los Angeles Dodgers and the Boston Red Sox. PHOTO: EZRA SHAW/GETTY IMAGES EquiTrust Life Insurance Co., one of the companies covered by the agreement, is majority-owned by Mr. Johnson. Eric Holoman, operating partner of Magic Johnson Enterprises and chief executive of EquiTrust, said Mr. Johnson “has ownership interest in entities that have substantial assets pledged to Safe Harbor.” Three other insurers entitled to contributions from Safe Harbor if their capital falls below certain thresholds are Guggenheim Life & Annuity Co., a unit of Guggenheim Partners; Delaware Life Insurance Co., controlled by Mr. Walter; and Security Benefit Life Insurance Co., owned by Mr. Boehly’s firm, Messrs. Walter and Webb said. Together, the four Safe Harbor insurers had around $66.4 billion in general-account cash and invested assets at the end of June, according to regulatory filings. Their collective capital and surplus was $4.88 billion, according to A.M. Best data. Guggenheim, which helped purchase the four insurers and holds or held stakes in each of them, earns fees for its investment-management business by selecting portions of the insurance companies’ assets. Dodgers co-owner Robert Patton sits in the stands during a game. PHOTO: ICON SPORTSWIRE/ASSOCIATED PRESS Mr. Patton has pledged assets to Safe Harbor, according to Mr. Webb, but the legal agreement doesn’t cover the insurance company he owns, whose main business is reinsuring EquiTrust and Security Benefit policies. Mr. Patton didn’t respond to requests for comment. A spokeswoman for Mr. Boehly said the financier “was part of the group initially pledging assets to Safe Harbor” but “no longer has personally pledged assets to Safe Harbor.” “He has minority, non-controlling investments in businesses that have, themselves, pledged assets to Safe Harbor,” the spokeswoman said. Some agencies that have had regulatory oversight over the insurers or their affiliates, such as New York’s Department of Financial Services and Indiana and Iowa insurance departments, said they don’t have a record of the Safe Harbor structure. Insurance regulators in Kansas and Delaware, where three of the insurers are supervised, declined to comment. Illinois, the main regulator of EquiTrust since 2014, didn’t respond to inquiries. A Major League Baseball spokesman said: “We are aware of the relationship between the insurers and the various entities of the Los Angeles Dodgers, and we are completely comfortable.”