(The Center Square) – Los Angeles Dodgers owner Mark Walter is under criminal investigation, and taxpayers in 44 states could ultimately pay billions of dollars if his life insurance companies collapse.
The Center Square has learned taxpayers would be exposed thanks to a little-known system of state insurance laws that are rarely discussed and sometimes bypassed by the politicians who implemented those laws.
Walter has been under investigation by the U.S. Department of Justice (DOJ) and Securities Exchange Commission (SEC) over the lending of money between businesses within his financial empire. No charges have been filed, and he insists the insurance companies remain solvent. But Walter is now under pressure to replace or restructure billions of dollars in loans and investments that were not previously disclosed as being tied to his related businesses.
The potential for a taxpayer bailout is easy to miss and largely hidden from public view. The system first charges rival insurance companies before public money gets pumped in on the back end through tax credits.
Only six states have chosen not to shift the burden to taxpayers via tax credits: Alaska, California, Illinois, Maryland, New Mexico, and West Virginia.
There is currently no reliable estimate of how much taxpayers could ultimately pay if Walter’s insurance companies became insolvent. The cost would depend on the size of the losses and the states in which each policyholder lives.
Affiliated after all
Walter became the controlling owner of the Dodgers in May 2012 when Guggenheim Baseball Management – one of many investment groups he led – bought the team for a record $2.15 billion. At the time, the Dodgers were emerging from bankruptcy.
In February 2014, less than two years later, Guggenheim Partners was hit with a federal class-action lawsuit alleging that Walter fraudulently duped policyholders, using insurers “as a cash machine to buy the most expensive sports franchise in world history… with over a billion dollars in policyholders’ funds.” The case was promptly settled and dismissed, according to ESPN.
Two of Walter’s life insurance companies have since vastly underrepresented the amount of money they loaned to Walter’s own businesses, according to statutory financial filings. One supposedly “unaffiliated” investment even had “Dodger” in the title: Dodger Tickets LLC. As federal investigators began issuing subpoenas, the life insurance companies “identified errors” and revised their paperwork to disclose roughly $20 billion of “affiliated” investments that they previously classified as “unaffiliated.” At one of the insurance companies, disclosed money tied to Walter’s other businesses jumped from 3% to 42%. Walter is now under pressure to replace or restructure the money.
Walter abruptly agreed to sell his stake in the Los Angeles Lakers for $12.5 billion in August 2026, less than 10 months after he purchased the team. The sale is currently pending approval.
Walter’s holding company, TWG Global, says the Lakers sale is not a “fire sale” and it is “committed to working with the (DOJ and SEC) to resolve their inquiries.”
TWG Global says the life insurance companies remain financially strong.
“Despite what has been reported, there has been no fraud,” according to TWG Global. “There is no victim here. No one has been harmed, and no one has claimed they were harmed.”
The statement stopped short of promising no one will be harmed in the future, and the assertion that “no one has claimed they were harmed” is not true. Multiple policyholders have filed lawsuits against Walter or Guggenheim-affiliated insurance companies alleging they were financially harmed by the companies’ practices. The insurance companies have not been found liable or admitted fault.
Rivals pay first. Taxpayers pay later.
University of Texas law professor Andrew Granato and Yale financial-economics researcher Pranjal Drall believe Walter will hopefully be able to come up with enough money to keep his insurance companies solvent, even if that requires selling the Dodgers.
Months before Walter’s criminal investigation became public, Granato and Drall were researching how taxpayers are held responsible for insurance companies that fail due to risky investments. They point to a set of 1980s laws, submerged deep within the state tax system.
“The government doesn’t want the policyholder to get screwed, so they have a system in place,” Drall told The Center Square. “The moment an insurance company goes under, all of its rival insurers in that state will have to pay for the policyholders.”
The system is called a “guaranty fund.” It’s essentially a state-mandated safety net.
After paying for the mistakes of their rivals, surviving insurers receive tax credits and are often made whole by taxpayers over time.
“The result may look like an industry rescuing its own, but in practice it is a public bailout of the failed insurer,” wrote Granato and Drall. “Life insurers get to keep the upside if risky investments pay out, but taxpayers foot the bill if they do not.”
Just one bankrupt insurance company that sells policies in 50 states could result in rival insurers having to pay in all 50 states, regardless of whether the states issue tax credits. Walter’s insurance companies are licensed to do business in 49 states – every state except New York.
While some state legislatures have made changes to their laws over time, others haven’t touched them in decades. Maine was the last state to add tax credits in 2005. Illinois voted to remove its tax credit in 1998.
“You can win the lottery, but life insurance companies should not be buying lottery tickets,” Granato said. “If I was to redesign this whole system from the ground up, I would not have the tax credits… I would convert the system to a pre-funded system like the Federal Deposit Insurance Corporation (FDIC).”
Rival insurance companies paid approximately $3.7 billion to bail out policyholders when Executive Life Insurance collapsed in 1991. The company had invested heavily in risky junk bonds and was seized by state regulators after policyholders began pulling out their money. It had policyholders in all 50 states, which means taxpayers across the country were ultimately impacted – minus six states that did not provide tax credits at the time. Florida passed retroactive tax credits in 1996.
The collapse of insurance giant AIG in 2008 would have been much larger, but the company was deemed too big to fail. Rather than charging rival insurance companies and issuing tax credits, the federal government committed up to $182.3 billion to keep the company from collapsing. The government reported ultimately recovering its investment with a $22.7 billion profit.
“You should not have a tax bailout because that incentivizes the insurer to go under, to keep doing risky things, because they know they’re socialized at the end,” Drall said. “Then you have to raise debt, or you have to raise taxes, or you have to cut services. One of those three things has to happen.”
Granato and Drall believe most taxpayers never realized they were funding a socialized safety net for insurance companies. They say tax credits are often seen as less controversial than government spending – a phenomenon known as the “submerged state.”
“Lots of spending in the United States is done via tax credits and tax exemptions,” Granato said. “One way to reduce attention to spending is to not have the government appropriate money, but instead pass a tax deduction or tax credit for the exact same thing… even though they are economically equivalent.”
Dodger blue is in the black
For years, sports franchises were seen as risky and illiquid investments. Most teams require permission from the league to even begin the process of a sale.
But the Dodgers have the highest payroll in Major League Baseball, investing more money in superstar players than any of the other 29 teams. They also have the highest revenue.
“The Dodgers being a good investment is saving Mark Walter’s bacon,” Drall said. “They made a bunch of investments that were clearly related to their owner, and it’s hard to imagine that being an accident… but the regulator has no incentive to force Mark Walter to sell at a discount. Ultimately, the regulator wants the policyholders to be made whole, and the way you make the policyholders whole is you give Mark Walter time to unwind all the transactions in a smart way… The Lakers and the Dodgers are so successful. Their TV deals are worth billions. It sort of makes the problem much less bad because, worst-case scenario, there’s going to be someone who can buy the Lakers, or the Dodgers, or these TV deals.”
Walter’s team has repeatedly emphasized the Dodgers are not for sale. Others aren’t so sure.
“If I was trying to bid up the price for an asset, I would be very insistent that it was not for sale,” Granato said.
