Here at CNBC's Converge Live in Singapore, I sat down with Joe Tsai, Alibaba's co-founder and chairman, who joined me on stage to talk about his growing portfolio in sports and the latest advancements in AI.
Great to be with you, Joe. Thank you so much for being here.
Thanks, David. In front of the waterfall, we're here to converge. And I wanted to start off on that theme, kind of bring a lot of things together. I'd love to start off actually on sports. Certainly Alibaba, China, US, if we can a bit. But you own a lot of sports teams in our neck of the woods in New York, where you spend some time as well. Of course, the Brooklyn Nets, the New York Liberty, champions of the WNBA, a couple of lacrosse teams I believe as well. When you think about these investments, I'm curious, many who invest in sports certainly are aware of the asset values rising over time, seemingly inevitably in many of these areas. Is that the play ultimately to create value over time through the asset value and a potential sale at some point, or do you really look for a return season after season, every season you're trying to win the championship?
The final payoff for me is less financial, even though the financial aspects are important. I have to make sure that's sort of bottom line, the investment can make sense. But at the end of the day, it's through the love of sports. I have a passion for sports. That's why I invested in these teams. Now, I have a few principles when I do make these investments. Those are sort of financial, commercial principles. Number one, I want to invest in a league that is where the best players in the world play. So if you look at the NBA, the NFL, around the world, the best players play. It's different in soccer. The best players are playing in Europe, and I don't want to touch European soccer because they don't have salary cap, and it's a very, very different system. And you're also competing with sovereigns when you get into that. And the second thing is you look at the media value. So you really need to pay attention to audience, either online streaming. I think the world is moving towards streaming, but still linear TV is still quite important. So the NBA just completed a massive deal, an 11-year deal with a number of broadcasters, including my own of course. NBA, welcome back to the NBA. We paid quite a price for that as well.
Joe, is it going to be worth it? Because ratings actually have not been as strong, and I think there is some concern. Are you concerned at all about that?
I'm not concerned about it. I think I just saw some stats. The latest Lakers-Celtics game, something like four and a half million viewers for a regular season game. That's really extraordinary.
You were talking about how you evaluate in terms of some of your rules. So media rights obviously is important. I didn't want to interrupt you. What else?
Well, I think that Americans have done it right in their sports leagues. If you look at both the NFL and the NBA, there's a salary cap. And the cap is really less about depressing the cost of players, it's more about coming to a balance, a fair balance between the owners and the players. So for example, in the NBA, the players share 50% of the revenue of the entire league. Now that's on the top revenue share, as opposed to profit share. So they are getting the majority of the profits. As long as you set the rules and the rules are very clear how you split the economics between the players and the team owners, then I think that's a very good framework to work with. The other thing about American sports leagues is it's kind of like a socialist system. Doesn't matter whether you win or lose, the sharing of economics is actually quite fair. So for example, TV revenues are shared evenly among 30 NBA teams equally.
You still see opportunity though in terms of buying sports franchises now? I mean, you bought the Brooklyn Nets in 2016, 2017 somewhere in there. And obviously it's done quite well, I would assume, in terms of the overall asset value. But is the same opportunity there? Or where are you if you were to look? I mean, is it lacrosse? Is it emerging sports? How do you view it at this point?
I would continue to look at these first-tier sports. They seem to be very expensive. I think the latest NFL teams traded for something like 7 to 8 billion dollars of enterprise value. NBA team average is like 4 plus billion enterprise value. Now they all look expensive, but then again, as long as you can grow the fan base, these are global audiences. So there's a lot of upside to go. When I invested first in 2017, everybody thought I overpaid for it. But seven, eight years later, I didn't overpay. There's a very important reason for this. They call these teams franchises, and it's because it's not like anybody can start a team. Someone has to grant you the franchise to have a team. So supply is by definition limited. The league controls how many teams are in the league. Any kind of expansion discussions will have to go through the league, and all the owners have to vote on it. And it's a very economic decision. They have to look at the potential dilution of additional teams coming in, sharing all the revenues like TV revenues and whatnot, versus does an additional team help increase the fan base, increase viewership, and all the rest of the economics that follow.
You mentioned in other interviews and the like that you want control. You obviously have control of the Nets, you have control of the Liberty, and on from there, and the arena. But you spent what, $200 million to buy a very small stake in the Miami Dolphins, which gives you no control whatsoever. Why do that?
My philosophy approaching the Dolphins is very different from basketball. In the case of NFL, first, I'm a football fan. I love the NFL. I played high school football. And I saw the opportunity, and I told the team in my family office, look at this thing as a pure financial investment. I told Steve, I'm not even going to call myself an owner of the team. I'm a guest. When I come to Miami, I hope to sit with you in the owner's box if you invite me. But I have an economic stake in 3% of the team. The whole business is not just an NFL team, but it's also Hard Rock Stadium, and they have the franchise for F1 Miami as well as the Miami Open tennis tournament. So it's a collection of great assets under one roof that I invested in.
You mentioned the venue in Miami. You obviously control the Barclays Center in New York City as well, or own it. How is that evolving the fan experience? And how important is it as an owner of the franchises that play in the arena to actually have control of the arena so that you can evolve that experience? Or is it early days sort of in what you can offer fans?
Well, it's like in any business. If you're McDonald's, it's a franchise, it's IP, but it's better if you own the real estate. Otherwise, every few years, the landlord has to negotiate rent with you, or you have to negotiate rent with the landlord. You have to beg. In the case of sports, the team is the IP business, and the real estate is a venue-based kind of business. So in our Barclays Center, we not only host basketball games, but most nights we have concerts. We're generating revenue from renting out the space to artists. And that's a great business.
Has it proved to be a better investment than the team?
Oh, no, I don't think so. I think in the case of real estate, your upside is kind of limited. You're collecting rent. But teams, the IP value will continue to rise as long as you can continue to build a fan base.
I want to move on to Alibaba. You've been back as chairman since I think it was late May of '23, right? So in a letter to shareholders about a year ago, your '24 letter, you wrote that Alibaba had acquired large company characteristics and you would be going back to seeing yourself as a startup. How important is that mindset?
It's the reason why we exist. We have to exist as a fast-moving startup, see ourselves as a small company, and be nimble and be humble. Large companies move very slow, and it's because the decision-making structure is too complicated. If you have to go through 19 layers of approval, it doesn't work. So we really needed to get back to nimbleness and act fast. And why is that? It's because our competitors are all startups. We're competing in the e-commerce space, the ByteDance format, the live short video format, all the social type of commerce. They're all startup companies. And how can you compete if your decision is very, very slow and it takes like 10 days to make a small decision against a startup that will make that decision in 10 minutes?
How do you change that culture? And I should say, just by point of history, I mean, you and I got to know each other in the run-up to your IPO, which was what, 2015? And now I think about ByteDance and Pinduoduo, even Tencent, we weren't talking about then. Obviously, the competition in your market intensified greatly. So how do you get the large company—and clearly that was not a, you were not keeping praise on that idea—but how do you get that mindset amongst your employees back?
First of all, the e-commerce industry is the most competitive industry in the world of any industry. There's really basically no barriers to entry. And that's because the infrastructure of e-commerce when it comes to logistics and payments is already provided by a number of companies. So as an upstart, you don't need to worry about logistics, you don't need to worry about payment, you can just do your e-commerce. And that's why it's so competitive. When I came in, I partnered with our new CEO, Eddie Wu. The first thing that we said is we need to streamline the company. Instead of talking about Alibaba as six different business units, we talked about ourselves as having two core businesses: e-commerce and cloud computing. That simplified everything. And it's very important that we communicate that to our employees. And then the next thing is you empower people, especially younger people on the management team that are actually on the front lines dealing day-to-day with users and customers. I think that empowerment is very important. What does that mean? It means actually letting them make some decisions and letting them make mistakes and train them so that they can recover from mistakes. You have to give them some rope to hang themselves.
