Ressler Talks Sports Strategy & Atlanta Redevelopment

I might have been, but I wasn't getting playing time.

Well, I think it's a much larger asset class than most of the marketplace, most of the financial marketplace gives it credit for, if you will. But one of the points Grant didn't make, and sometimes everyone comes at valuations differently, when we looked at buying the Hawks and did in fact buy the Hawks together, Grant, I think was even more bullish and actually wanted to put up more money into what this asset was and could be. And I was still at that time very much focused on the fact that it was losing money on an operating basis. I was trying to counsel Grant, I think to his great misfortune, to put up less money because losing, you know, businesses that lose money have much more risk than you might appreciate. He had a view of where this industry and business was going. He was actually more right than I was. And he's never really held me up on that and probably should. The truth of the matter is many of these, as Grant actually mentioned, a lot of these businesses and industries and certainly leagues and teams have gone through this massive revolution. And at the end of the day, it takes a long time for leagues and franchises to make money to show the valuation that the market is now seeing. And yes, your point earlier, this is an asset class. We in areas would argue, I don't know, two and a half, three trillion dollar asset class and people take a step back and say, well, what are you even saying? If you think about the NFL, there's 32 franchises, average franchise is maybe five or six billion. So 150, 160 billion, 180 billion of value in just franchises. And each of those franchises has all sorts of ancillary businesses from stadiums to real estate development, technology related businesses, retail and food and beverage related businesses. So when people say, what is the size of this industry? I would argue at least most folks looking at it are woefully underestimating the value of this sports world globally.

Yeah, and there's so much to unpack in what you just said.

Well, firstly, it's so hard, at least in my mind, to answer a question like that, because each of the leagues and each of the franchises have enormous differences in what they're doing. Those teams that really have a global or the ability to have a global following. Those leagues and those sports that actually incorporate or expect to incorporate sports betting and therefore increasing the obsession of young people into their sport have advantages. Those that have really huge amounts of cachet and stars that can attract global media rights. These are things that distinguish, I think, the long term winners versus there may not be as many losers as people might argue. But there'll be some that aren't extraordinary and that aren't global and phenomenally valuable sports and sports franchises. So I kind of go by sport. And yes, I do believe at the end of the day, global media rights is something that you have to aspire to. And yes, I'm being a little partial to the NBA, but there are so many additional ancillary values that come from a global following. So to me, sports are not a single entity. And one of the things we would argue is understanding the benefits and detriment of not just the sport, but of the market that they play in and of the league that they operate in. And I don't want to disparage a certain city versus another. But if you're the 30th largest metro in America versus the first, second or third or even the top ten, dramatic difference. So, again, that too is awfully relevant, not just the league and the sport.

Well, again, I've now owned the Atlanta Hawks for ten years and downtown Atlanta, well, let's start with the positives, which is metro Atlanta is booming. And six or 6.2 million or 6.4 million population. Enormous economy, the capital of the southeastern United States. So everything is extraordinarily positive when you talk about metro Atlanta and for whatever reasons, and there's a whole bunch. But downtown Atlanta hasn't really developed in the way an extraordinary metropolis like Atlanta should have. And one of the reasons is there happens to be 50 acres in the middle of it that literally is subterranean underground with railroad tracks and has been so difficult, so difficult to develop. So over the past ten years, literally since the time we bought the team, we knew that really to transform the area and to really build something where people want to come two hours before, stay two hours later, you had to develop downtown before and after a game. So at the end of the day, we weren't absolutely committed to the fact that we had to do what we are doing. It's called Centennial Yards. We're building at least 6 million square feet. It'll be a million square feet of retail, 4,000, 5,000 apartments, half a million square foot entertainment district. It really is going to transform downtown Atlanta. And don't forget, when we just bought the team, the Atlanta Braves had just moved out to Cobb County. Which for those that don't know, a suburb of Atlanta, they did a beautiful job developing the Battery and credit to the Atlanta Braves organization. But it didn't help downtown Atlanta. And it left a hole, as it were. So we were determined to really stay in downtown Atlanta, refurbish the State Farm Arena and really develop downtown and hopefully transform the city of Atlanta. And ultimately, it's good for business. I mean, it's good for your business. No question. The Hawks, right? No question. And again, when we talk about the size of the sports media world, right? There isn't a meaningful sports franchise that I know of. And I must have gotten at least 30 calls from different team owners just about what are we doing in downtown Atlanta? Because virtually everyone wants to take advantage of this phenomenon of live, work and play right in a downtown environment. But the idea of creating life around your arena, because many times arenas and stadiums are built in less than ideal locations because the land is cheaper. So you have a situation where that community has not developed in the way it should. So we think we're changing that. We're not there yet. But I'll tell you this, we have enormous momentum. And I do believe that downtown Atlanta is going to be transformed. And I do believe it will be better for our business. But much more importantly, and I do mean this much more importantly, it's going to transform the metro Atlanta region.

And at the end of the day, I think that that's a risk that all of us, at least that invested in this development, chose to take. And again, the Battery was an example. The Atlanta Braves developed an incredible development right attached to their stadium. That's both office, that's retail, office. Fantastic, fantastic development. But this is a bit larger. I would say that the 4,000 apartments and bringing real life to downtown Atlanta is something that I think the community is looking forward to. And I do think the rising tide lifts all boats is a fairly good analogy. It's going to help downtown and we're excited. And with a little bit of luck, we'll do okay on the investment as I promised Grant and to me as well that I thought it would do. Other big investors with us. So we do think it's going to do pretty well. But more importantly, we do think it's going to change the way people perceive downtown Atlanta.

Well, I'm wearing so many hats on this answer. I'm not sure. But at Ares, as the chairman of Ares, we are huge believers in investing, lending to sports, to sports franchises, to leagues, to development. So it's an important business for us. And we have, I think we recognize somewhat early that this is a massive asset class and bigger than, as I said earlier, bigger than most folks probably appreciate. But the NFL, let's not kid ourselves. What is it? Someone said if you own a day of the week, you're a pretty important sports league. And the NFL is extraordinary in everything they have done. The success speaks for itself and the NFL being the last, but certainly embracing institutional capital. It just acknowledges the obvious, the valuations, the complexity of some of these businesses, of how they are growing ancillary businesses. It just makes it a better business to have institutional capital and folks hopefully that are somewhat expert in investing, whether in debt instruments or preferred stock instruments or a pure common, but understanding minority investment capabilities with expertise to make them better businesses, right? Maybe not better businesses in the core, what's on the field. But quite possibly better businesses and what's off the field, what's across in the development or ancillary activity. So it's something that the NFL, I think, recognized under the commercial, I guess the Ares being one of the three or four that they've accepted is a, I think, a great testament to what we've been trying to do.

Well, again, when I bought the Atlanta Hawks, I thought it was an interesting asset that was losing money that could be run better. And I learned a whole lot over the last ten years, no question. But I thought it was a decent personal investment, hedge against inflation, if you will, something that would at least hold its value. But over the ten years, I must say, what I did recognize is not just that the asset class is much bigger, but that most of the teams and leagues need help to be run better. Most of these companies, believe it or not, most of these franchises were small family companies. And as the valuations have grown so dramatically, they need more professional expertise and they've been getting it. And you're seeing a professionalization, if that's the right word, of how these leagues and teams are run. And again, under the category of a team is worth five or $600 million ten years ago, but five or six billion today, as you can appreciate, it has to be run differently. And I think you're seeing all of that happen in the last ten years. And I think you're absolutely going to continue to see that over the next ten years. And bringing institutional capital, I'd say it always makes a team run better or a league run better. But it can offer insights, it can offer best practices, it can offer experiences that we've had with other teams in other leagues that certain franchises or commissioners or league investors could say, well, I could benefit from that.

Well, again, it's kind of like parenting. There's a whole lot of ways to win championships, and we haven't won one since I've owned. So the fact that maybe I shouldn't be giving that advice. But there is all about winning a championship, and there's all about running your business better, right? I actually think we've been a little bit better at the latter, but we're similarly focused, I promise, on the former. But listen, one of the things I do say, and it does come back to what I mentioned earlier about when we first looked at the Hawks, when you're used to looking at assets and businesses based on multiples of cash flow and expected cash flow growth, the sports world quite often can be a complicated analysis for people. And I do try to argue in certain leagues, against certain league, certain franchises, you do have to utilize almost that infrastructure type mentality where this should be a long lived, relatively low risk investment in the right league, in the right market with the right franchise. I believe that emphatically. In other leagues that are much, much more young in their lifecycle, it's a whole different game and it's very much a venture like investment and you should approach it that way. So again, I try not to use that single brushstroke, right? But in certain businesses, certain leagues, certain franchises, this is an infrastructure like investment and your rate of return shouldn't be lower because I think the safety of the asset is pretty extraordinary in many cases.

Oh, I think, again, following Grant is not the ideal move here either, I might add. But basketball is a global sport. And what the NBA is doing and what the league office is so talented at doing is that international PR and not just USA Basketball, which is a huge part of what's going on in the sport, not just the NBA, but you're going to see extraordinary things I really believe happen in NBA China, in NBA Europe, in what will be a European basketball league at some point, and NBA Africa. You have all of this global growth and interest. And I think again, to Grant's earlier point, it's driven by the excitement that's on the court in the NBA. And these 30 franchises need to have superstars and extraordinary play, which they do to grow the sport globally. I think they're doing just that. I'm not saying it's the only sport doing it, but it's one of the, I think on one hand, you could count what sports have true genuine global opportunities because of the excitement it has created in its home. And I'd say the NBA is one of them.