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:
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.
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.
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.
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.
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.
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.