Goals
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Audio Recording by George Hahn
In the past 30 days I’ve been approached by three groups asking if I’m interested in joining a consortium to bid on European football clubs. The prospect violates two of my core investing tenets: stoicism, and boring > sexy. I try to remain unemotional and avoid investments with sex appeal (i.e., things that sound cool). They attract too much capital, which drives down returns. However, I also thought I’d never go on a cruise, and I just returned from one. Aging changes you, and my midlife crisis wants to sit next to me in the owner’s box.
I’m not alone in this. There’s a gold rush for sports franchises right now, with buyers coming into the market and valuations rising. Some thoughts on the sports team market:
Nonprofit
Historically, the economics of sports teams are ugly. Despite being one of the most iconic assets in sports, Manchester United lost £116 million last year and £92 million the year before. At one point, the Brooklyn Nets were losing $395,000 per day. It makes sense: Teams are mostly owned by uber-wealthy men whose competitive juices dilute the fiscal discipline that built their fortunes. (Teams also make great tax shelters.) In sum, sports teams are the fourth wives club, where instinct, arrested adolescence, and the fear of death have an orgy on a bed of money. As in a fourth marriage, a lot can go wrong. It’s sports: By definition, each team has a chance … at losing every time they walk onto the pitch.
For over a century, team ownership has been a minefield. In 1880 a saloon owner named Christian von der Ahe bought the St. Louis Brown Stockings. After a few good years, the Stockings fell to the bottom of the league, their stadium burned down, von der Ahe’s creditors kidnapped him, and his wife filed for divorce. Just a few years ago, Hall of Fame catcher Mike Piazza spent $10 million to buy an Italian football club, bankrupted it in two years, and left town after receiving multiple death threats. He’s still married.
However … as with a Birkin bag, a Picasso, and a college degree, the value of a sports team is only loosely tied to fundamentals. And recently those values have turned upward. In the past decade the average value of MLB, NFL, and NBA franchises have exploded 242%, 303%, and 629%, respectively. (The S&P gained 163%.)
Fueled in part by foreign money (mainly American and Persian Gulf), Premier League football clubs are also registering valuations in the billions.
Why has the river of team economics reversed direction? Is this a bubble, or a shift in fundamentals that will make the increase in value more enduring?
Born Every Minute
Like any asset, sports teams trade on supply and demand, and demand is a function of the number of uber-wealthy people desperate for relevance. A sports franchise is the most conspicuous consumption imaginable. A nice car and a house mean you’re prosperous. A plane makes you interesting. Owning a sports team cements you as fucking fascinating. Only 550 people have ventured into outer space, roughly the number of people who own large stakes in major league teams. Pro tip: It’s more impressive to be an astronaut. Especially a real astronaut, like Sally Ride, vs. the son of a private equity billionaire. But I digress.
Just as crypto and SPACs, for a short time, were driven by Greater Fool Theory, sports teams are driven by Greater Fear of Death Theory. A Lamborghini impresses the valet; a sports team impresses Kim. And there are a lot of wealthy men arriving at the realization that biology is unimpressed by their money. So they spend it on their last meal of sorts: a sports team.
Big Leagues
Even as we mint more billionaires, sports offer increasingly “soft” returns to wealthy people and organizations. Foremost is wealth that needs washing. As we wrote a few weeks ago, the amount of Gulf state money pouring into sports is staggering: Qatar spent more on the 2022 World Cup than host nations spent on the last seven tournaments combined, and it saw the greatest attendance in World Cup history. (BTW, the winners of this year’s French and English championships will be Qatar and the UAE.)
The rise of influencer culture and the monetization of fame has also increased the value of sports teams to celebrities, as they can leverage their own brand to promote the team. Ryan Reynolds and Rob McElhenney’s celebrity wattage (complete with a Disney docuseries) has powered Wrexham A.F.C., an obscure lower-division Welsh football club, to global fame. Bill Murray has juiced the value of several Minor League Baseball teams he’s invested in, and Matthew McConaughey’s Austin F.C. finished second in its second year in Major League Soccer.
Hedge
Forces ranging from streaming to AI to globalization are creating drama in the sector that produces drama: entertainment. Online ads are awful, TV ads are worse, and radio ads haven’t been heard by anyone under 65 since they were 40. Live sports are different: Brands that advertise during sporting events still feel seen — because they are. Sports are immune to time-shifting; being the person who doesn’t want to know the score because “I taped the game for later” has morphed from being annoying to futile. Live viewers can’t skip commercials — and can’t ignore the logos, product placement, and naming rights.
The result is not just more revenue, but something increasingly scarce in media: reliable revenue. Once, ticket sales were the primary revenue stream, but broadcasting rights, coupled with corporate sponsorships, have expanded the foundation supporting these organizations. Manchester United now gets twice the revenue from broadcasting deals as ticket sales, and over the past decade annual sponsorship revenue across the NFL, MLB, and NBA has grown from $2.2 billion to $4.7 billion.
Fueling the left-brain business results is a right-brain experience that can’t be refactored or replaced by generative anything. You haven’t heard of “Leeds United AI,” as it doesn’t exist. Real humans, occupying the same physical space, under lights and between lines, where anything can happen — human experience. From the Colosseum to medieval jousts to that wild Aztec ballgame where the losers (and sometimes winners) were sacrificed, sports have always had an inherent value that’s singular in a world of sameness. There are few greater hedges against technological disruption than sports.
Monopoly
A decent investment thesis is to put money into unregulated monopolies. Sports still operate like a 19th century trust, with all the major parameters under careful joint control to protect returns for the incumbents. Sports teams are natural monopolies — fan loyalty discourages anyone from opening up a competing franchise near an established team — and leagues enforce this by controlling where a new team can start up. There hasn’t been a new Football League club in England since 2002, when Wimbledon’s team moved to Milton Keynes and a new club was formed in its place. Before that, the last truly new club was Burton Albion, formed in 1950. The U.S. Supreme Court has largely exempted Major League Baseball from antitrust law, and other leagues have been permitted to collude on revenue and salaries in ways that would land any other industry’s management in prison.
Professor Canary
It’s become increasingly clear that I am the canary in the business media coal mine. Vice, Bloomberg Quicktake, CNN+, and BBC+ all offered and began production of TV shows centered on an angry professor. At least three of those networks are dead. When networks are so overinvested they’re calling me, it means the air has become noxious and you need to escape the mine. Similarly, if I’ve been asked to bid on sports teams, we may be at the top.
Soccer Dad
I played golf and soccer as a child. I wanted to be closer to, and impress, my dad, and that’s what he was interested in. I didn’t have natural soccer talent, but I became a decent golfer. About 20 years ago, my dad got too old to play golf, and I’ve maybe played three rounds since. Pro tip for dads: Your kids don’t inherit your interests — it’s your job to foster and adopt theirs. Truth is, I didn’t care much for soccer. But my sons love it, so I love it. Only we call it football. I played twice today in the backyard with my 12-year-old, and this Sunday I’ll be with both sons at the Emirates stadium watching Arsenal play Wolves.
I don’t watch the game so much as I register moments that inspire my boys. I observe their reactions. I hope I’m alive when they have kids, so we can share, and discuss, the intensity and range of emotions you have for your children. The only time I ever feel “this is enough” is when I’m with my boys. And football provides some of those moments. They call it “the Beautiful Game.” Maybe. What’s clear is that football offers us something increasingly scarce: an in-person experience where men are encouraged to express their emotions and bond with one another. Dozens of people and organizations are paying billions to feel younger. That’s fine. I’m grateful, as I’m getting older and enjoying some of the ROI on the billions invested: I feel closer to my sons.
Life is so rich,
P.S. For more on the economics of big-time European football, check out our Prof G Pod interview with Rory Smith, the New York Times soccer correspondent.
P.P.S. Want to hear my Predictions on the Post-Covid Workplace? Join me and Josh Bersin next Tuesday at 1:00 p.m. ET, and come with questions.
Consider a comparison between investment companies and sports franchises. Investment companies must bid for talent on more or less an open market. As a result, talent earns a stable fraction of returns (I’m not sure what). Sport franchises conduct a “draft” for talent. If you don’t want to work for that team, your option is to sit out. Imagine how much more profitable investment companies would be, if they could conduct an annual “draft” of talent, who would have to agree to work for the outfit that drafted them, or sit out. You wrote recently of labor management relations regarding the writers strike. Consider the success of recent ‘lockouts” in particular the NHL lockout a decade ago, which in the end locked in profitabilty for team owners at the expense of players. I believel the right to sell once labor on an open market should be considered a human right.
I’m interested in your opinion (as a father of 2 boys, investor and son of a single mother) on the quality of leadership and the success of a company based on the number of female in leadership roles. Should we invest in women-led companies. Just like Richmond FC in Ted Lasso, Rebecca turned the club around where her ex-husband drove his club down. When is the right time to invest in women-led companies? What qualities do these women exhibit? Do female leaders have different goals than male leaders? What advice would you give your son if he tells you that he has to chose between working with women in charge or men in charge.
Check your ego, please. Over the last few months it’s become so increasingly clear that you’re sucking on the fumes of your own success. “For every one person who recognizes me in an airport and says so, there are likely 3 or 4 who recognize me but don’t approach me”, etc……And this week we get to hear that the future of European football is all about you. Please, go back to humility, as that makes you a better writer, and one that a reader can actually relate to.
A.nice, informed perspective as always, prof. I wish you had also delved a little into the IPL or Indian Premier league, easily the fastest growing league in terms of valuations and other metrics.
A.nice, informed perspective as always, prof. I wish you had also delved a little into the IPL or Indian Premier league, easily the fastest growing league in terms of valuations and other metrics.
Interesting read… One element in the United States is the connection to real estate. Several owners are creating master planned communities when building new stadiums. Within my community, we have Stan Kroenke who recently paid off his purchase of the pepsi center (now Ball Arena) and the surrounding 47 acres and has put in a re-zoning request for a multi use community of homes, businesses, shopping and entertainment. He has a similar plan with massive acreage he owns in a nearby city where his soccer team plays. I speculate that he will partner with the new owners of the NFL Denver Broncos, who was recently bought by a relative to build a similar concept of a residential, business, entertainment and shopping district.
Fantastic read as usual!! I enjoy these reads as much as I enjoy watching the World Cup and that is why it is important to note though that the Qatar World Cup does not hold the largest attendance record. The 1994 US World Cup saw the largest attendance followed by the World Cup held in Brazil in 2014. You also made this reference in “The Mother of all Pivots”.
I am curious, will you join the consortium (any consortium) to buy a football club?
In a Fukien Chinese speaking house, “fourth wife” has a most different meaning. Even more so when your wife has a lot of half-aunts and half-uncles because your grandfather in law had multiple wives.
Being an economist, statistician, and a deep football fan, born in one of the founder countries of world football, I would highlight from your reflections, on the real big risk and Aquiles-heel that the strong world monopoly means, particularly in football.
Where the biggest global corporation of all, named FIFA, with its corrupted operation system, demonstrated before and after the Qatar 2022 World Cup.
Before, buying the votes to do it in a 2.7 million inhabitants country without football market, and investing more than the sum of the last 7 world cups. And during the championship, helping Argentina’s Messi to become world champion, by many ways, particularly instructing the referees to give them penalties in close to all their games, with FIFA CEO Infantinno selling to and accomplishing the double dream of the Emir of Qatar, to have the world cup at his home country and making worldchampion his employee and heroe at the same.
As all the monopolies, it will take time, but it will become a bankruptcy in the future, when many countries will get angry and tired and will found another world federation.
Ps.: As you are now living in England, take in consideration as a recent example, the counter attack of British fans to another football monopoly attempt, that was the Big European League Proposal instead of the current Champions League.
In that context it will be interesting to watch the plan of Fortuna Düsseldorf in the German second league do away with tickets altogether and just rely on sponsorship. “Football for everyone”
In that context it will be interesting to watch the plan of Fortuna Düsseldorf in the German second league do away with tickets altogether and just rely on sponsorship. “Football for everyone”
I was greatly amused at this one..so thank you for that, at last. Read like an episode of of The Great. Proving once again, that women are the superior human species. Have a nice summer and get out of our way. Huzzah!
So true. I’ve heard many Americans claim that soccer is boring because there isn’t enough scoring. I think that misses a key point. Because there are fewer goals, those moments of intense emotion are more intense. Hard to get as worked up every time Lebrun hits a layup, but when Messi makes a ridiculous goal? Euphoria.
The way you tie in facts, opinions, and an emotional perspective on the worlds most important sport reality, is real. I loved this piece.
Seriously bummed that all of your examples were men’s sports. Angel City FC has the largest female-led ownership group in Pro-Sports, including Natalie Portman, Serena Williams, Abby Wambach, Jennifer Garner, Billie Jean King, to name just a few. There have been 4 female NFL owners. The Louisville – Iowa women’s March Madness game was ESPN’s most-viewed Elite Eight game on record, with 2.5M views, more than any regular NBA game on ESPN this season. (For comparison, the regular season’s most watched college game, the men’s Duke/UNC match up had 2.85M and 2.63M when they played twice this year). March Madness finals ratings set a record high for women, record low for the men. And I hope you’ll be taking your boys to the Women’s World Cup in AU/NZ where the USWNT will be defending their 2019 Championship and playing for a 5th star.
And how was the cruise?
So good, in so many ways! Thank you!
Don’t do it, Prof. G. You already spoke the names that should tell you everything you need to know: Reynolds, McConaughey? These people in their wildest dreams will never be able to purchase the interestingness that you already possess. And nice final emotional appeal, but there are far better ways to connect with your boys. Hard pass.
Hi Scott,
I loved the musing of the week as I do every week. I just wanted to point out that sports league and team profits and vulations have additionally benefitted from at least three other related entities. These include video game playing and online gaming, male (predominantly) participation in fantasy leagues and sports betting and gambling. In the past people that engaged in watching and attending sports events did it because they were emotionally invested in the teams success or an appreciation and admiration of the sport. or team. Today, the marginal fan that watched sports from the periphery through a spouse or loved one can engage much more directly and participate in related sports activities that have nothing to do with watching the event or attending a game. Add to that the mobility of social media and the desire by fans to “feel closer” to their athlete-heroes by following them on social media platforms and now all professional have pulled in the casual, distant fan and who now permanently “lives” in that teams ecosystem. Video games, fantasy leagues, online gambling and social media are like the outer rings of a planet that lassoed that causal fan and now has made them part of their orbit. Thanks!
Best,
Rich Obando