Magic Johnson + 4th Grade Teacher Team Up to Buy the Los Angeles Dodgers
This is not an Onion story. In a piece titled A Costly Toy Subsidized by Others New York Times reporter Andrew Ross Sorkin provides details on the record-setting $2.15 billion purchase of the Los Angeles Dodgers (which nearly doubles the previous record for the purchase of an American professional sports team, the $1.1 billion 2009 sale of the Miami Dolphins). While Magic Johnson and financier Mark Walters garnered the lion’s share of publicity for their role in the purchase, Sorkin points out another participant: a fourth grade teacher; actually, a lot of fourth grade teachers. You see, it turns out this astronomically high purchase is being subsidized by insurance companies, including the National Education Association’s favorite 403(b) provider, Security Benefit. Writes Sorkin:
In addition to their own cash, Mr. Walter plans to use money from Guggenheim subsidiaries that are insurance companies — some state-regulated — to pay for a big chunk of his purchase of the Dodgers. Guggenheim controls Guggenheim Life, a life insurer, and Security Benefit, which manages some $30 billion, among others.
Anyone who follows 403(b)wise knows we are no fans of Security Benefit. This is the financial firm that pays the National Education Association lots of money to sell a very high-priced 403(b) product called the NEA Valuebuilder. According to the Los Angeles Times, in 2004 the NEA received $49.6 million from endorsed companies including Security Benefit. According to its prospectus (5/2011), the NEA Valuebuilder product sports:
- 7% deferred sales charge
- Total Separate Account Expenses range from 1.05% - 2.60%
- Gross Annual Underlying Fund Operating Expenses range from 0.78% - 3.56%
We have always thought these fees and surrender charges obscene. We have always thought NEA’s unholy alliance with such an onerous product discredits much of the good work it does on behalf of teachers. But given that a Security Benefit 403(b) is helping purchase (overpay some might say) the Los Angeles Dodgers, perhaps we have been too harsh. Sure, when compared to investors in lower cost products (see this chart), teachers in Security Benefit’s NEA Valuebuilder will accumulate less for retirement, but hey, what TIAA-CREF or Vanguard investor can say they own a piece of the Los Angeles Dodgers? And who cares if the Security Benefit investors might not be able to afford to actually attend a Los Angeles Dodgers game?