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Thanks for joining us for the latest episode of Financial Longevity, the Merlin Wealth Management Educational Podcast. In each episode, Michael Merlin, founder of Merlin Wealth Management, along with various experts, breaks down complex financial topics to help you increase your wealth span and gain the confidence to enjoy your bigger future. For more information about Merlin Wealth Management, please visit our website at rockco.com/merlin. You can also find Michael's book, Financial Longevity, on Amazon, Audible, or wherever books are sold. And with that, here's founder of Merlin Wealth Management, Michael Merlin.
Thanks, Tom, and welcome back to Financial Longevity, the Merlin Wealth Management Educational Podcast, where we take the complex and try to make it simpler for decision-making and long-term investing. As you all know, I'm Michael Merlin, and today on our episode, we will be discussing sports as an asset class. I have been waiting to do this episode for so long. As many of you know, I am a huge sports fan. Always have been. You know, but for many, sports ownership kind of sits in a category of its own. It's always been very exclusive, very scarce. But in more recent times, it's become a little bit more accessible. And we're going to talk a little bit more about that today: the ideas of how to invest in sports, what drives real long-term value, what risks are there in owning sports assets, how does governance work, how does liquidity work, and then how should an investor really compare a sports asset to other types of alternative investments—private equity, private real estate, private credit.
So today we'll look at this through more of an investment lens. We'll evaluate kind of how sports economics are looking today and the big thing, which obviously is media and distribution, which, as we all follow, is changing drastically in this environment. So, I am very fortunate today to have Marc Lasry as my guest. There's really no one I could think of that would be better to talk about this topic than Marc. Beyond being a sports enthusiast, Marc most recently, up until recently, was the owner of the NBA's Milwaukee Bucks, but Marc is an incredibly seasoned investor. He's the co-founder and CEO of Avenue Capital Group, which is a global investment firm known for work across distressed credit, private capital, and opportunistic strategies. He's been deeply involved in lots of things: complex capital structures, value creation. I remember when I was at Morgan Stanley, we would hear from Marc a lot during the financial crisis. He was extremely active during that period of time and was a wonderful voice of reason during those times as well. I remember that vividly.
And so his experience gives us a real unique lens to look at unconventional assets. And luckily for us, more recently he's gotten involved with investing in various sports assets. We are fortunate to have on our platform, and we are currently investing in, the Avenue Capital Sports Opportunity Fund, which is something that he's running, and we'll talk a little bit about that as well. But looking forward to having a wonderful conversation about what makes sports a great or potentially great investment opportunity, and happy to have Marc here. So, Marc, thanks so much for joining us today.
My pleasure. Thank you for having me.
So, before we start, tell everyone, are you a sports fan? Have you always been a sports fan? And how have you always been connected to sports?
Well, love sports. I guess part of it is I was a frustrated athlete. So played basketball in high school and college. You know, you play soccer, you run track. So we all have dreams of going to the pros. My dream was dashed by a lack of talent, which is horrible.
Yes. Other than that little detail, I could have been somebody. So, you know, after you play in college, which is a lot of fun—my wife constantly reminds me that it's Division III, it doesn't really count. I think it does, but whatever.
Right? I don't know, I thought it was good. I stayed involved. You end up playing in all these different leagues. And then as I started making money, I started investing in sports very, very early on. I was an investor in the Brooklyn Nets when they were out in Brooklyn and tried to buy the team. I screwed up. I could have bought it for about 375 million. I bid 325. Prokhorov ended up buying it and sold my investment when Joe Tsai ended up buying it. Had done exceptionally well. I mean, whatever, 300 million to—I invested, I think, around a 250 valuation when Ratner bought it. So whatever, we made about eight times on that investment. Got involved in pickleball. I ended up buying a team for 50,000, sold it for about 5 million.
Got involved in rugby. And then when the Bucks became available, you just had been so frustrated by not being able to buy a team, I ended up investing in it and bought that team in 2013. So, yeah, it's been a long journey, but a fun journey.
So obviously, you've had a lot of experience in this. Help our listeners understand, when you evaluate sports as an investment, what are the most important characteristics? I know when you talked to me about this a long time ago, we spent a lot of time talking about media rights being kind of a big component, but talk through for people how you look at a sports asset regardless of what sport, what league, etc., and which parts are typically the most mispriced by the market?
I think so you can only make money in sports three ways, right? If you own a team, it's ticket sales, sponsorship, media. Media is about 60% of your revenue. And I think what people don't fully appreciate, and to be honest, it took me a while to understand it as well—so I'm not going to tell you I figured it out right away. It's like, do you have an iPhone, right? I assume, or an Android, whatever it is.
Okay, great. If your iPhone sucks, if you're not getting emails, if it breaks down every 30 days, what would you do? You'd buy a new iPhone or you'd switch?
Throw it against the wall first probably, and then I'd buy new.
Right. So, after you pick up the pieces, you end up going to get something else, right? And the reason is, for all of us in a consumer economy, what we want from our products is excellence, right? You either want excellence or you want utility. What do we want from our sports teams? So, what's your favorite team? You're a fan of who?
I'm an Atlanta fan. I'm a fan of the Braves, the Falcons.
Okay. So, let's use the Falcons. All right. I know, I know. It was a horrible loss. But if the Falcons go 0 and 16, and they're horrible and they're the worst team in the NFL, you're still a fan.
And in fact, you end up saying, "Ah, next year is going to be better, right? We get the number one draft pick. We should be better."
"We'll be better." But if your iPhone is breaking down, you have no tolerance. So, it's actually interesting the psychology that in sports you actually, yes, you want your team to win, but if it doesn't, you don't switch to something else, right? And that is actually a pretty unique thing, that I can never lose my customer.
And it took me a while to understand that, right. And because of that, what you've got is an asset that's very hard to depreciate because what you will do is you'll always be making money. And the question is, are you increasing ticket sales by 5% or 20%? If the Falcons suck, it's probably 5%. If they win the Super Bowl, it's probably 20%, right? And what you quickly find out is when you own a team, the goal actually is to win, right? You don't say to yourself, "Oh my god, I hope Falcons ownership makes a lot of money." You're not really focused on that. You're focused on spend, spend, spend, get us the best team because I want to go and I want to win.
And that is what drives value.
Right. So that, and I think as a fan for everybody who's listening or watching this, the reason why sports is so valuable is because I can't ever lose the customer. And the customer, if I do a good job, if I do a bad job, you're still there, right? If I do a good job, then the value of that franchise increases tremendously because you will go to more games. You will end up watching more. You're still a Falcons fan, but if they're not winning, you may only go once or even if you have season tickets, you'll give them away or whatever. But if they're winning, you're going and you want to be part of that community. And that's very valuable.
Absolutely. So based on that—and again, I think that's a great description of why lots of people have found that sports assets are unique and why they've become such an asset class for typically extremely wealthy investors. I remember talking to one of the Falcons owners during the financial crisis and he said, "The one investment I don't worry about is the Falcons for exactly the same reason you said. No one's going away. Even if we can't have fans in the stadium during COVID, like they're not going anywhere. They're going to watch on TV. They're still buying the jerseys. That investment I'm not worried about." So if that's the case, why all of a sudden are we starting to see a little bit of a democratization where sports assets are being made available to people kind of below that echelon?
I think a lot of it started with the NBA. And what I mean by that is when I bought the team, it had to be an individual. And what the NBA did is they changed the rules and said that a fund could invest in a team. You couldn't be the majority partner, but you could own up to 20% of the team and you could actually invest in six different teams. Then Major League Baseball did it, then hockey did it, and then NFL was the last. So today, you have the ability to invest in a team by investing in a fund. And that's what's unique about it, and you're starting to see that more and more as more people want to be involved and view that, look, here's a unique asset.
And the reason it's a unique asset, and you and I have talked about this, is nobody records, let's say, the Super Bowl, right? You don't record it and say, "Oh, I can't wait to watch it in six months." My favorite show is Landman, I don't know.
It's a great show. And you know, you'll watch the whole season.
If you miss it when it came out, you don't care because you know you'll watch it in a week or two weeks or three weeks. Nobody records the Super Bowl and says, "You know what? I'm going to wait. I'm going to watch the last five Super Bowls." I've never met anybody who's done that.
Right, no one's binge-watching old Super Bowls.
No. So that's actually, if you sort of think about it, it's why the media is so valuable, because it's the one thing that people will watch live. Like you and I—not your kids, but you and I used to watch TV, and you would sit there and you'd watch a show from beginning to end because if you missed it, you had to wait like six months for the reruns, right?
And it was at a specific time. It wasn't when you wanted to watch it.
So today, if we're watching Landman, there's no commercials, right? You've just paid your fee to Netflix, or if you're doing something on Amazon or—
Yeah, Paramount Plus, yeah.
Yeah, it's just a unique asset, and people have to watch it live. And sort of for media companies, they know that, so that's why they pay quite a bit for that.
Yeah, and that's a great point. With all of these different media content providers that are now out there, how does that change the landscape for sports franchises as far as the media is concerned? I know there was a piece on ESPN the other day that NFL watchers are going to be frustrated because now part of the season is on Fox and CBS, part of the season is on Amazon, part of the season is on NFL Network. The jockeying around of the distribution—obviously from the ownership and the league perspective, they're looking for the best deals, but how do you think that's going to impact both the value of the franchises and also the fan experience?
Look, I think it's a great question because I think fans are going to be massively frustrated because what it means is, all right, I've got to get a subscription to Amazon. I've got to have a subscription to Fox. I've got to have a subscription to ESPN. Everybody's mad because instead of just sitting down and watching it on one channel, you got to find where it is. And trust me, you'll find it, right? When you're a fan, you're going to find it. And then you're just mad that you're paying more, but that's life, right? And what ends up happening is the NFL knows that you're going to pay more. You as a consumer will pay to watch it.
But last year, here's what's fascinating: linear TV. On TV, of the 100 highest-rated shows, 93 were an NFL game. So think about that. 93 of the 100 highest-rated shows were NFL games. People will find it. People will do it. What I find more fascinating, because I see it with my kids, is they don't even watch the game. They just watch RedZone.
Right? That's all everybody's watching. And you know, they just want to see the scores. They want to see the touchdowns. They're not going—
