Korean Investment Corporation: No Better Investments than the Unreliable LA Dodgers?

The Korean Investment Corporation is currently in negotiations for the purchase of a 19 percent share, a $400 million investment, into the LA Dodgers, an American Major League Baseball team. The team’s current owners, the Guggenheim Partners group, are predicting that the purchase will be concluded by the end of next month. It has been explained that although the KIC would not be able to attend the board of directors meetings, in the case of a surplus, there would be a 10 percent dividend return. In the case of a deficit, there would still be a 3 percent dividend return. However, there is also the risk that in the case of multiple deficits, the dividends and stocks may be delayed, posing a long-term risk on investment that cannot be easily recovered. Although the Dodgers worked at a profit from 2006 to 2013, between then and 2014, the organization lost $12.2 million. This extra spending was due to stadium renovations and scouting for the next star player, but the KIC seems to be banking on the club’s projections of earning a profit again by the year 2017.

The issue at hand is whether or not it is appropriate for the South Korean sovereign wealth fund to be targeting the shares of an American sports club. Although some Middle Eastern sovereign wealth funds invest in European soccer clubs, it is uncommon for a sovereign wealth fund to invest in a club that is not generating a profit, especially since these funds should be relying on safe management practices. Although the KIC has investments in media, sports, content generation and other alternatives in its middle- to long- term portfolio, it is unclear if the LA Dodgers can keep up with the standard 10 to 15 percent rate of return for investments.

The KIC has defined that purchases under $500 million or equity stakes of less than 20 percent can be at their own discretion. Because of this, the Ministry of Strategy and Finance cannot get involved with this purchase. However, the sovereign wealth fund, commissioned and managed by the government’s Foreign Exchange Reserve, must still be weary. We cannot forget that in 2008, KIC lost half of its investment of $2 billion with U.S. financial firm Merrill Lynch. Furthermore, if this investment was brought to light in order to create political controversy by the opposition party to demand the resignation of Hongchul Ahn, the president and CEO of KIC, because of his problems, all the more reason to fold this hand.