Chris Haroun explains why billionaires like Mark Cuban buy sports teams despite terrible returns. Sports franchises are illiquid, generate no cash flow, and are usually overpriced. Haroun says he'd short a founder's stock if they bought a team, convinced the distraction would damage their main business.
Why is it that ultra high net worth individuals invest in a sports team like Mark Cuban does with the Dallas Mavericks? A lot of times it's about ego, because sports teams are not the best investments. And the reason I say that is because when you invest in a stock or a bond or real estate property, you can get cash payments from all of those in terms of a dividend, a coupon or rental income. When it comes to a sports team, it's a highly illiquid asset. You're not collecting money off of it, they're usually overpriced, and the only way to make money on it is to sell it many years from now and hopefully realize large capital gains. When I used to work in the hedge fund industry, whenever I saw an entrepreneur or a founder of a large company that I was investing in buy a sports team, I might look to short the stock. Of course, I do more due diligence. But the reason I say that is because they take their eye off the ball. I always like to invest in entrepreneurs or CEOs or founders of companies that are all in.
