It’s your Sunday Snack! Sorry we missed you on Wednesday.

This week we’re covering the business of sports.

More specifically, the buying of sports.

Let’s get to it.

3 Questions around Team-Buying

Why can’t WE buy sports teams? Why couldn’t we take part of our 401k’s and just put it into our favorite ‘Team Index Fund’?

The answers are complicated, but also not at all.

1. How are sports teams as an asset class?

Uhh, well they’re great performers. On the whole, if you owned a sports team between 1991 and 2015, you would have outperformed the S&P 500 by at least an annualized 3.5%.

What’s been the primary driver of this growth?

TV Revenue. Plain and simple. TV rights have continued to double with every new deal, even more than that in some cases.

2. Yeah…but why can’t we buy them?

Well, you can. In some unique cases.

• The Green Bay Packers are publicly owned, and they have a stock sale occasionally.
  

• You can buy Atlanta Braves stock or Toronto Blue Jays stock on the open market through their parent companies.

But basically, most of the public gets ruled out because leagues have intense and strict capital requirements. 

The hardest of these leagues to crack is the NFL.

The NFL is like an über restrictive country club, turning down even some of the most well-connected people.

Here’s a high level criteria:

1. First - you have to be able to buy at least 30% of the team based on its current valuation AND AND…. you can’t finance more than a billion dollars of the deal.
   

2. It’s even restrictive about the kind of buyer you are.
   YOU CANNOT BUY A TEAM if you’re a:

   • Private Equity Investor

   • Public Company

   • Sovereign Wealth Fund (really…wow)

   • Ownership group >25 people.

Mental Model: Let’s do the math

Okay, so let’s say we want to buy a piece of the Patriots. We’re lifelong fans. Peter has stopped rooting for the Ravens. We've made our money, We want the VaNitY asset finally, dammit.

Step 1: The valuation of the Patriots is about $7 Billion dollars.

Step 2: We need to buy at least 30%, which is about $2.1 Billion dollars

Step 3: We can’t finance more than a billion, so we’ll need $1.1 Billion up front

That’s 1.1 Billion just for the transaction. Not to mention the vetting process, and making sure the owners’ vote goes our way for the approval (if we’ve charmed the Pats ownership into buying a partial stake, we’re gonna get in).

3. Okay, what was the point of all this?

Sports have constantly been sold as vanity assets. It’s the crown-jewel of a rich guy to have a newspaper or a sports team.

But vanity pays…a lot.

We could come up with all sorts of reason why the public shouldn’t be invested in them (the upfront risk, etc.)

But what we DO know, is that the following teams were all sold in 2022-2023.

Here’s the ROI of the previous owners:

1. Washington Commanders ROI: 650%

2. Phoenix Suns ROI: 898%

3. Denver Broncos ROI: 5,862%

Again, all of these teams beat the annualized returns of the S&P 500.

So…..let us buy sports teams.

Again, none of this is investment advice.

What AI made this week

wow cool not bad.

Have a great week!

Ahmed and Peter