How Investors Make Millions From Sports Teams (From Fans to Shareholders)

Hey, everybody, it's Tony Robbins. Welcome to the Holy Grail Investing podcast.

When they consider investing in the world of sports, most people think of it as just a trophy asset.

There's a narrative that develops every 20 years. Baseball's dying.

The aggregate revenue generated has tripled.

This is an exciting episode because my co host is going to sit down with the pioneers of professional sports investing, Arcto Sports Partners. We're also going to have a special guest, Sam Kennedy, who's the CEO of Fenway Sports Group. They own the Boston Red Sox, the Pittsburgh Penguins, and Liverpool Football Club.

It started with league baseball working to allow for institutional investment.

The market is just starting to appreciate how valuable this content is.

Viewership is up, attendance is up. We need to continue to innovate the.

Product that's over $400 million. Before you ever play a game or sell out a seat, what are you.

Doing to attach to the younger fans through the digital streaming services?

I'm really glad you asked that because.

You'Ll be able to upload a photo of your child and watch your kid in the game real time.

Now we finally have a real podcast because we've talked about AI right.

What's the most exc exciting thing that sets you up for high returns over the next five, ten years?

Listen. Historically, owning a professional sports franchise used to be that trophy asset reserved only for billionaires. But in 2019, Major League Baseball changed the rules. They allowed investment firms to take a minority interest in their franchises. But very few firms obviously qualify. Today, every other league has followed suit, including the NBA, NHL, mls, and, and of course, just recently, the NFL. This allows individual investors, people like you and me, the opportunity to participate in this time tested uncorrelated asset class. Now, I love this because if you understand the holy grail of investing, you understand Ray Dalio, one of the greatest investors of all time. His most important principle, he teaches, is if you can find 8 to 12 uncorrelated investments that you believe are a good bet, you reduce your risk by up to 80% and increase the chance of your upside. That's why investing in sports is one of my personal favorites, because it's an uncorrelated investment. And also think about it, you're not just buying a sports team. How'd you like to have a company you're investing in has a legal monopoly? Like if you're in Boston, you got the Red Sox, you know, if you're in la, it's the Dodgers. These franchises also have customers they call fans. That original term comes from the word fanatics and they're multi generational. Think about it. This passion for the sport is often passed down from father to son to daughter through generations. And today they're not just selling tickets and hot dogs. They own real estate and they control extraordinarily valuable media rights. And they're building powerful businesses that go far beyond the stadium walls. Plus, you're investing something that embodies the fullness of human experience. From tragedy to triumph. We get to feel and experience the raw emotion that fuels that pursuit of greatness while we're investing. So stay tuned because this is an episode that will fire you up.

Thank you for joining us for the Holy Grail of Investing podcast. I'm Christopher Zook with today's co host Mark Wade. We're joined in this episode by some of the leading figures in the world of sports today. Ian Charles, Doc o', Connor, Arctos Partners, and Sam Kennedy of Fenway Sports Group. Thank you for joining us for what we know is going to be a lively conversation to discuss a sector that is changing dramatically. And literally right now that's where we're going to start. Because obviously on everybody's mind right now because of the settlement is what's happening at the college level. With the settlement now in place, the business of college sports has changed forever. So Ian, Doc, tell us what's happening in college sports and what does it mean for private equity? What's the private equity role going to be in college sports going forward?

Wow.

Listen, that's actually a really tough real time question. Collegiate sports is going through a period of incredible transformation and change. You have conference realignment. You have the advent of name, image and likeness or nil. You now have revenue share with players. All three of those things are going to amplify each other and create even more uncertainty around Title 9. And which sports have enduring, lasting relevance within each of these programs? And the backdrop of all of this is that as collegiate athletics becomes more about money, revenue generation and revenue creation around this experience, consuming this particular form of live entertainment, the professionalization of that experience is becoming more and more important. What is private equity's role in collegiate athletics? I think is a big question that we're thinking through ourselves as the pioneer in bringing private equity to the sports ecosystem. There's lots of different forms of private equity. There's lots of different forms of private capital. Some people are attacking this as a lender or as a credit provider or preferred equity provider to organizations that quite frankly, probably aren't ready for that. We think collegiate athletics is all about revenue generation and helping the schools create a better fan experience, a better player experience. And if you do both of those things and unlock incremental revenue, that revenue can be reinvested back into the fan experience and the player experience. And so we think that is the big unlock in collegiate athletics is can you help these universities monetize the power of their brand locally? And if you can do that, there's an opportunity. If you can't, you're just extracting value from a very fragile system. And we think that that's a recipe for disaster, so.

Well, it's interesting because the fact that literally just the other day, and Doc will come right back to you, is, you know, the Texas Permanent School Fund, obviously Arctos is based in Texas. We're based in Texas. You know, has actually invested, agreed to invest a half a billion dollars into the space to basically help the big four schools in Texas be competitive. So it could be a really interesting arms race developing if Calpers decides to do that in California or the big plans in Florida or Tennessee or wherever. That could be really, really interesting. Doc, you were about to say something. Go ahead.

No, just to layer on what Ian just said. You're right, Christopher, in pointing out that, yes, this is a landmark moment because this settlement has. Now, that issue has been resolved, but litigation has blown apart the entire regulatory system around college sports, and nothing, There's. There's nothing to fill that vacuum right now. There's a. It is a complete wild west, unregulated landscape that we're facing in college right now, which. That dovetails into the points that Ian just made, which is there, there's. There's. There's this arms race that is now going to unfold, but it's going to unfold in a way with absolutely no guardrails. And unless and until those guardrails are put in place, it creates a very volatile and very risky landscape for private capital.

Sam, I'd be curious for your perspective here. Professional sports was largely in a similar position about five years ago. And if memory serves correct, you guys were the first mover here to accept institutional capital and to partner with private equity. So as a leader of an organization like, what advice would you give the other leaders in colleges in athletic departments about things they should be thinking about having now done a transaction, partnered with Arctos, and you're five years into it.

Yeah, it's a great question. And thanks for. Thanks for having me on, guys. Real pleasure to be with all of you. I think it's pretty simple. It's all about the people and the relationships that we have in the sports industry are so critical. The Arcto story is one of relationships. Doc, we've known for. Sorry, Doc. Three decades, and we knew him back to his CAA days and msg. So having been in the operating side of sports gave us the confidence that, you know, he. And then partnering with Ian would come in and really understand what it's like to sit in our shoes. We are not a private equity firm. We are not institutional investors. We are at our core at Fenway Sports Group, operators that work to elevate teams and brands and venues that really matter. So I think for the college space, you know, at the end of the day, it is going to be very, as Ian said, very similar to our business. There's going to be a huge amount of competition for the best players in the world. It's. This industry is all about the players. Kudos to Charlie Baker at the NCAA for getting this. This first step, this settlement done. It's very exciting time. I. I think for base. But two sports that we are heavily invested in, baseball and golf specifically, there's big opportunity for growing our sports at the collegiate level. And the venues, the brands, the opportunities for. For kids to come and stay in school longer and develop longer in a. In a Division 1 college program is terrific. So we welcome it. There's a lot of people who are upset, but it's sort of like sports betting when you have the Supreme Court take the position they've taken. We're not going back, so we all need to embrace it in the sports industry. And if I'm a college university president, athletic director, or coach, you want to make sure you're partnering with the right people as you figure out a. A course forward. It's exciting time.

Well, speaking of that, that personal experience you've had, why did you choose Arctos? I mean, go back five years ago, six years ago, when the rules started changing.

What.

What made you want to do a transaction and then why specifically with the team at Arctos?

Well, we had a.

We're in our 24th year, and. And we've always been quite aggressive about trying to build Fenway, our platform of teams and venues. And we've recently league ownership level with the PGA Tour, and we knew that we were going to need additional capital and additional expertise. But if I'm being honest, again, it goes back to the people and the relationships that we've had. And we worked with Major League Baseball on this because our principal owner, John Henry, actually, as Ian and Doc will recall, had an idea that potentially bringing on institutional investment would be a great thing for Major League Baseball. And we worked with Commissioner Manfred and Bob Starkey on this for a long time. The Arcto strategy is one that is, that is rooted in identifying, I think, blue chip teams and hopefully great management teams and supporting them. And we are a bit unique. We're a bit of a unicorn in that we've got our fingers in a lot of different industries. But I have to say it started with Major League Baseball because they went through the process and made that rule change. So for us we're biased. But a real tip of the cap to MLB in working to allow for institutional investment in our cap table. It was only 2019. I mean, it's really, it's still early days. And so we were, were proud to get that deal done first. And the relationship's been, been extraordinary for, for the past five years.

Here's the thing is that, you know, I saw Ian, you chuckle a little bit because, you know, Sam talked about great managers, talks about great operators and you know, but that does lead to the next question, which is obviously right.

Now, guys don't look at the American League East.

So the, you know, it does flip it around to where we've got to say, all right, what did Ian and Doc and the team at Arctos see in Fenway that said, okay, this is the first mover, this is what we want to do. This is why we want to choose this particular franchise to be able to, this particular management team to be able to invest capital. What was so appealing to y' all about Fenway Sports Group?

Well, Sam, I'll, I'll take a stab at it. Sam's being modest. Look, Fenway Sports Group is one of the real innovators, particularly when it comes to their ownership platform and the platform. It's a multi asset platform. They're one of the first true multi asset platforms in the world of sports and they operate at the highest level. So you know, for us, when, when we started, there was really only one major North American league that was even open to institutional investment. But they also inhabited and had numerous other assets as part of their platform, from real estate to Liverpool Football Club to an agency business and other diversifying elements that, you know, when you're talking about, in our opinion, the best operators in the business as well as this very potent multi asset platform. It was an absolute no brainer for us and a real privilege for us to be invested in it.

Our model really boils down to partnering with incredible owners who have really talented Management teams that control very unique assets in really important markets. And if they have a vision of growing that platform and there's a way that we might be able to help them, we get very excited and dial in and if we can enter into that transaction at what we think is compelling value, help them unlock their vision. That's a deal that Artos gets really excited about in sports. So for Fenway, when we partnered, like Doc said, iconic Major League Baseball team in one of the most important markets in the United States, an iconic English Premier League team in Liverpool Football Club, a really unique real estate strategy in both markets, and a really cash generative regional sports network. That was the initial platform, but we knew they wanted to build more under the leadership of John, Tom and Mike and then Sam as the CEO. That's a team you want to back and a vision you want to be a part of. And it's been an exciting run for the last five years as that platform has grown. Now with an NHL franchise, with the PGA League level investment, it's just an incredible platform to be a part of.

Well, you mentioned helping FSG realize their vision. So Sam, I'd be curious to hear specifically or more specifically from you as far as like, what do you get out of the partnership with Arctos beyond capital. Right. Capital is frankly pervasive these days. I think a lot of people. Yeah, sure, sure. What is it about helping run the business or, or, or what capabilities do they provide that, that help, you know, bring that vision not from a dream but into reality?

Yeah, I think we have a healthy dose of paranoia around here about sort of what we're, what aren't we doing, what are we missing, what are we not spending time on that others are. Especially when you're in a place for so long. John Henry and Tom Werner and Mike Gordon and our team put this deal together in 2002 and we're always afraid of being complacent. Complacent in baseball operations or football operations, with our hockey operations or with our venues and the fan experience and how we're dynamically pricing tickets or selling sponsorship or what are we missing and how are we distributing our, our content, what are we not doing with the leagues? And Arctos strategy has been to really invest and partner with best in class people across all of sports in different leagues, different teams. Lot of people that we respect. So specifically the forum that they've created with their, their team president forum, with their investor conferences, with the, the way they've structured the relationship, we're constantly in touch with them on what's working in other markets, what doesn't work from a business perspective. And that's really, really important. The second thing is when you have a long standing investment group, we do know that Arctos is there, they came in and bought a primary investment into the team or, excuse me, into the platform. But if there are investors, thankfully we've had investors that have wanted to stay in. But if there are investors who are looking for a source of liquidity, that's something that Arctos would be willing to look at and discuss with us. And I know that that's been something that the industry generally has appreciated. So it's really been interesting because at the outset there was a lot of hesitation and worry at the league level. The different league levels, Doc and Ian have lived that over this past five years. And each year it feels like to me the worry is sort of going away. And in fact, leagues and teams are pivoting more to institutional capital to go out and build their businesses and retire debt and take out LPs who might want to get out because they've been in investment for so long. So I think the thesis has worked, an institutional perspective and it's been, it's been exciting to be a be a part of that for. And it's only been. I really do believe it's early days.

No, it's definitely early days. And you know, we talked a little bit about college being the wild, wild west. We know that that is basically in the infancy stage. But Ian and Doc, you know, as we look at the rest of the world of sports outside of college, you know, what's the most exciting thing right now? What's the most interesting that you all are seeing that really, you know, sets you up for the deployment of capital, high returns. Hopefully over the next five, 10 years.

I think we'll probably have slightly different answers to this. I'm sure Sam's answer to this question will also be a little bit different for me. I think the market is just starting to appreciate and understand how valuable this intellectual property and this content is both to the tradition, the traditional kind of legacy media system and the new streaming technology driven kind of media platforms. This content is critical to both of those very profitable, very large ecosystems. And the leagues are starting to unlock partnerships across the legacy structure and the new streaming infrastructure. They're also starting to figure out how to build new lines of connectivity and fan engagement through augmented reality, which is going to create a whole nother layer of monetization of this content and engagement with the fan globally it's the combination of unlocking this IP through a variety of different technology layers and then providing access to this content in wrappers that are customized again through technology and augmented reality for the end user. The way they want to consume it in the language they want to consume it in with the skin kind of wrapper that they want to consume it in with the thread. Gambling. No gambling. Everything will be able to be customized for the end user over the next five to 10 years.

Well, let's talk about that for a second, Ian, because I want to make sure the audience is following. Augmented reality to the vast majority of people is something that's a term most don't follow. So what do you mean by that? Let's get real specific.

I'll give real time examples. For the last couple of years, you've been able to watch the super bowl on Nickelodeon with spongebob and slime cannons. You've been able to watch football games with a Toy Story augmented reality where it looks like the game is happening on Andy's bedroom floor with all of his toys. You'll be able to watch games with your child, uploading a photo of your child onto the favorite player that you have on the team, and watch your kid in the game real time, no lag. They're going to watch the game because they're in the game. You're going to watch the game because you love the Red Sox and that kind of application and reach into the home, into the family, as a way to connect people to this content for generational kind of longevity. The technology enables that kind of opportunity for this ecosystem and it's incredibly powerful. Another example of this would be applications of generative AI. If you just listen to the broadcast of a baseball game or a football game, you hear these very weird terms like bottom of the eighth, a pigskin, clouded dust. It's really hard to get a real time translation of a Red Sox game into tie. But that is an application of generative AI where you can start to stream content real time in market, in the native language, no lag, with a very, very high accuracy rate, and expand the reach of these leagues and their content globally in a way that they haven't been able to do so far. So the technology enabling this content to be monetized in different ways and reach a global audience is something I'm probably the most excited about over the next five to 10 years.

It took us a couple of minutes to get into it, but now we finally have a real podcast because we've talked about AI exactly Otherwise, it doesn't count.

The good news is Doc can't spell AI so we're in good shape.

I can't spell.

We waited this long to get to the first insult. You know, it just is what it is.

Well, I'd be curious, maybe, Sam, thinking about, like, specifically on the baseball side of things. I know you guys touch a lot of different sports, but you have one of the most iconic franchises in the history of baseball. And there's been a lot of talk about the things that baseball has done recently, about changing the way the game is played and the different things. How are you thinking about connecting the today to America's youth so that it stays America's pastime?

How. What.

What are you. If you think about this AI and generative this and, you know, augmented reality that? Like, how does that boil down to, like, what you're doing day to day, you know, at Fenway park to, you know, to. To bring in the younger fans and to enter and to attach to them through the digital streaming services in their home?

Yeah, I'm really glad you asked that question, because, you know, if you go back in history over a hundred years, there's a narrative typically that develops every 15, 20 years. Is baseball dying? Baseball's dying. You know, you go back way, way, way back, and you talk about gambling scandals or you talk about what happened in World War I and World War II. You talk about the steroid era and baseball. The last 20 years, we were slow to adjust and innovate on our product. And there was another narrative that baseball is becoming boring. It's slow, there's not enough action. Thanks to the leadership at the team level, at the union people within Major League Baseball, we made some aggressive rule changes around a pitch clock or bigger bases around banning the shift, and we saw immediate results from those changes. So I think we need to continue to innovate the product, number one, the way the game is played on the field, we need more balls in play. We need to have more triples. We need to have an exciting brand of baseball that's more athletic, and we're getting there. And we need to continue to be bold in innovating how the game is played on the field, number one. Number two, we. We have to make it accessible. Every ballpark across the country has to be accessible to all fans. So whether it's Fenway park, where we do have incredibly high ticket prices for our premium inventory, we have a $9 student ticket every night. You're a college kid. You can come to Fenway park for less than the cost of a movie ticket. And we have to recognize, we have to meet fans. The last thing is meet them where they are. You know, my son's 21 years old. He is not going to put up with putting in his credit card and the password and the code and the email and the, you know, and remembering his password from 14 different streaming services or his. His linear cable. We need to transition to a model with one or two click, you can find the content where you want it, when you want it, on the device you want it. We're getting there. Baseball is taking steps towards getting there, as are the other sports. We have seen such disruption from technology and streaming services, but therein lies the opportunity. We have to make it easy for our customers to watch baseball games wherever they are, whenever they want it. So those are some things that we're thinking about each and every day. And I'm really bullish on the future of baseball for those reasons.

Can I just add something real close on the Christopher look, baseball. Baseball doesn't get enough credit for its history of innovation. You know, to Sam's point, the rule changes are. When you think about it, there are few, if any leagues that have ever taken on that kind of radical change in terms of how the game is played. It's very controversial to do so because it affects, you know, his history and statistics and all of that kind of stuff. But baseball took it on and the trajectory, all the key metrics around baseball are headed in the right direction. Viewership is up, attendance is up, all of these unobtrusive measurements are in the right place. And look, baseball is on the front end. The league is on the front end or the leading edge of a number of the challenges in the ecosystem, particularly in how content is consumed. But baseball is choosing, as is their history, to look at those challenges as opportunities. And so what we think is coming in baseball is wholesale economic reform across the board and changes in how.

The.

Content is consumed, such that we think that baseball is going to have a real renaissance in terms of value over the long term.

That's fantastic. And it gets to the point of what I think most people get stuck on when they consider investing in the world of sports is they think of it like it maybe was 30, 40, 50 years ago, is just a trophy asset, that you own it because of the pride factor and because you just want to own it. It's not actually an economic return. So obviously at Arctos, which I'll have done, is completely institutionalize the approach and look at it as true institutional investment Capital. So what would you say to the audience that says, oh, this is not a good business model, it's just a lot of fun, but this is not where you're going to make money by investing in it. How would you answer that question, gentlemen?

Well, I just think, first of all, there's literally zero data to support that, that statement. And so what I always try to do is, is break it down for people so they understand the fundamentals of these businesses. In the last 15 years, the aggregate revenue generated across the North American leagues has tripled over that same time frame in partnership with the players. A big part of that revenue growth can be attributed to collaboration between ownership and players. And the players have benefited from that rise in aggregate revenue because they have a material share of the revenue that they've collectively bargained for. When you grow revenue 3x and you have operating leverage in your business, the profitability of the businesses improves dramatically. And so over the last 15 years, the profitability of the North American League has gone through a transformation. Over the last 50 years, owning equity in the North American clubs has been able to compound in a really bad kind of 10 year run, it's sort of high single digits, low double digits. In a really good decade, it's high teens. And that return profile has been generated despite the fact that these assets are not allowed to have a lot of leverage. So Sam is constrained in the amount of leverage he can use to build Fenway. They have been unable to access institutional capital until the last three to five years, depending on the league. That return, that high single digit to high teen return profile with low leverage has been generated with very low volatility and almost no correlation to every other major industry or asset class. And our thesis is that you can pick great operators and ownership groups like Fenway. You can enter those assets with a disciplined kind of valuation framework. You can help them unlock their vision. And the combination of those three things should allow you to outperform the aggregate performance of sports over a long horizon. And if you are an institutional investor or you're an individual investor trying to build a diversified portfolio, it's very hard to find a return stream that has a historical compounding potential that's kind of low double digits with very low leverage and very low correlation with an alpha opportunity.

And that's one of the combination of interesting things right now.

Yeah, is what we're trying to do.

No, I totally get it. And one of the things that's fascinating is of course, you know, it's all very public knowledge right now, but Arctos just recently acquired a stake in the Buffalo Bills and the Los Angeles Chargers. And so the average person sees these eye popping numbers of seven, $8 billion now on team valuations and they just think, oh, this is a bubble, this is going to pop, et cetera, et cetera, you know, rebut that explain why those two teams were great to partner with. And ultimately what you see as the driver of economic value for something like the NFL, which is just brand new as of December, to be able to invest in.

Yeah, when, when, when people react to the headline value of any transaction in this market, one of the things that they're reacting to is the fact that this market has, has very low frequency. Price discovery is the technical term. It's very rare for one of these assets to be valued in a proper buy sell negotiation. They might go a decade without that price discovery. And over that time frame you have this sort of compounding of revenue growth, this improving in profitability and it's really hard for most people to process that headline number into an annualized return profile. So a lot of people see these numbers say, oh my gosh, sports valuations seem out of control or bully. The S&P 500 has combated at a higher rate than sports in the last five years.

Right.

A lot of people would argue that the S and P might be a little bubbly too, but that's a different.

Conversation for a different, that's a different conversation. I think the thing that is a sign of a market that has.

A.

Really imbalanced supply demand relationship that creates pricing anomalies. You have an influx of new buyers, you have an influx or opening of leverage, availability. Neither of those things are true in sport. A number of institutional investors have been approved to invest in sport in the big five North American leagues, less than five. And what you really have is these assets have gone through a transformation in the last 10 to 15 years where they used to have what's called a cost of carry, where from time to time you'd have to put money in to keep them running. Now more than three quarters of them have a negative cost of carry. They generate free cash flow and EBITDA that can be reinvested in the platform. And so you actually get paid to hold these assets for long periods of time. And they have this very unique compounding, diversifying benefit.

I love the way that you put that Ian, is that for so many people, they just see the headline number, it goes from 4 billion to 8 billion. But the fact that revenue has doubled is not something they Think about, right? They don't think about actually the value has actually gone up because the revenue's gone up and the corresponding profitability has gone up. And people just hear of something in a vacuum and you know, the discovery that you talk about, just another layman's term would be they don't trade very often. So as a result, people just look up and go, oh my gosh. Well, what hopefully everybody understands is that the opportunity set is now so much greater and so many new lines of revenue are opening up that the valuations are logical to be going up at this rate. Because the fact that the opportunity set is also going up at an accelerating.

Rate, you know, to layer on that, you got to. There's this, there's this whole evolution and transformation that's happened with a given sports franchise, right? I'm old enough to remember when all of these assets were purely, primarily local assets, local audiences, local media, local live events. Today we are living in a world where these are truly global assets. If you're talking about major leagues, you're talking about global assets. Liverpool Football Club is known world round around the world. The Boston Red Sox known around the world. And their content is consumed around the world. There's fandom around the world and the ability to monetize that fandom has exploded. It's exponential from what it was just 20 years ago.

Well, look, this is an investing podcast, so I don't want to have anybody think that investing in this space is without risk. The biggest risk in investing in sport is paying too high a price. You can take a great asset and overpay for it and have a bad deal, right? But in this market there is this really high friction that makes it really hard for lots of people to come in and invest in these assets. And that friction makes it really hard for efficient pricing. There's one exception to that and that's in when control of one of these assets is available. Being the control owner of one of these assets is the fastest path to civic leadership in this country. It comes with tremendous non economic benefits. And when these assets come available for sale for control, they do tend to sell for 20 to 40% above their intrinsic value. That's not a place where we spend a lot of time. We spend time helping existing owners and operators unlock their vision. Right? And so your entry point matters. The pricing in this market is actually quite logical. And the key to generating alpha is having disciplined entry valuations in great assets with great operators in great markets and then diversifying your error in that by building the portfolio across 10 to 12 positions.

My name is Christopher Zork, founder of CAS Investments. We wanted to provide a little bit more detail about the conversation that we're having today, so we created a white paper for you. Go to why prosports.com why prosports.com and you can download that white paper where you can get some more detailed information about this topic. With that, back to the program.

Well, speaking of that diversification, I've got kind of a question for, you know, maybe everybody here of not relative value, but just looking across the leagues. I mean, each of you, Sam, Doc, Ian, are investors and own interest in various teams in various leagues in various markets. Right. So thinking about that and maybe even something that you don't already own a stake in or you would like to or you want to grow into, which leagues are you most interested in? And I recognize, I mean, I'm the father of four young kids, if you couldn't tell from the bags under my eyes. But, but you're sort of asking, like, which one of your kids do you love the most? It's probably the one who's not screaming at me in that moment. But, but it's probably a little bit of the same question to you all, but how do you guys think about, okay, we're, we're deploying money. We have the opportunity to deploy money and to invest into different teams in different leagues. How do you decide which one you want to buy? Like, what's, what's interesting to you? What are you pursuing? Where are you, where are you looking for opportunities, you know, to, to deploy more capital into?

Sam, we'll start with you.

Gray. Well, we've, in 24 years of Fenway Sports Group, we've actually been quite, quite disciplined. And the biggest mistakes we've made is when we've gotten sidetracked by valuation and saying, oh, my goodness, 20 years ago, the Boston Celtics are selling for $400 million. That's insane. We would never do that. And we've had our shots at NFL teams, NBA teams, other NBA teams. So we've made plenty of mistakes along the way. But in terms of where we are, not to specifically answer your question, we are great admirers of the NFL. Not, not just because of the eye popping, you know, valuation, but if you look at what the Commissioner Goodell and their leadership team have done to make sure the product is changing and innovative, has connected with the next generation of fans, making rule changes at almost every meeting, it seems like as an outsider, and then you peel back the onion, as Ian said, I Think you could make a case that the valuations there are extremely low. Given at least what I've seen from the outside, the cash, the cash flow of these businesses seem to be, I don't know, I'm an outsider, but very, very, very fond of, of the NFL and what they've been able to do. And then you look at the NBA and, and Adam Silver's leadership has been just extraordinary. Where we're not involved in the NBA today, it is, it is an incredible success story of turning a league into a global phenomenon and really celebrating the partnership between the players and the owners playing around the globe, taking their product to the next level. So we've always had an interest in those two leagues. We haven't found the right point of entry, but from a Fenway Sports Group perspective, that's something we think about. And then internationally and globally, our experience. We've been in Liverpool football club since 2010. It's been a magic carpet ride. We made every mistake in the book in the early days and we've had some success more recently. It's given us the courage to think about places we could invest internationally, maybe other football clubs, other international sports. I was watching with great interest just the unbelievable drama associated with the French Open over the weekend. Amazing and it was incredible. And at the end of the day, it comes down to great, compelling, cutthroat content that matters more than just about anything in our lives other than those four kids you have and many people and maybe your religion people really focus on sports as a great connector and as the world gets smaller and smaller, I, I, I would, and I'm speaking my own book here as someone who spent his whole career in sports, but I would put my money on sports becoming more and more important and think Ian said it well, especially the control position in sports in our world. That's John W. Henry and what he has built. The, the importance of these, these, these clubs and these teams really matter to people around the globe. And that's a very, very, very serious responsibility that John takes. Very responsive, responsibly and it has a ton of value associated with it. So sorry for the long answer, but that's how we, we think about the future.

No, that's perfect. Doc, what about you?

Look, I'm not going to dodge the question, but, but I'm going to dodge the question.

You're going to dodge the question?

No, because, because look, when you're talking about. I'm going to confine my comments to major leagues. It's a different story when it comes to emerging sports, emerging leagues, niche sports. That's a whole different equation. But there's an argument to be made and I make it to myself every single day about specific situations and opportunities in major leagues. There's a. I previously I talked about major League baseball and what I think is an undervalued landscape today, given what is likely to come in the future. The NBA, you see this tremendous opportunity because it is truly a global sport. There's tremendous opportunity for the NBA to expand globally. Similarly, the NFL, which is in a league of its own when it comes to North America.

Why is that? I mean, I'm really curious about this, right? Like why. What do you think the NFL has done that makes it so much more valuable? I mean, like there's all the statistics around being the most watched sport. I mean, I read an interesting article, talked about the media rights of. Of all the English Premier League and French Premier League and Italian Premier League still added up, don't equal the NFL. Like why, why, why, why is it such a premium media asset? Is it just because Americans spend a lot of money or what else is going on there?

Well, it's, it's does have to do with the fact that it resides in the largest single largest consumer market. Consumer market in the world. And this has been built over decades, but it's become a cultural touchstone. It is part of our. It's embedded so deeply in our culture that it has become a tradition and a ritual to consume this content on Sundays and Monday nights and there's now Thursday nights. And it's just. It is, it is. It has transcended other leagues. It's. There are some things structurally that make it that. That cause that. So there's only, you know, 17 games a year, maybe soon to be 18. The season is relatively short relative to other leagues. The scarcity of content makes the individual games more valuable. I mean, every weekend and every game becomes consequential and drama. It has a number of structural elements that lend it to be more valuable from a content standpoint. But remember, that's confined mainly to North America. So when you're talking about opportunities, the ability and commissioner rightfully is very focused and the owners too very focused on global expansion. There's big opportunities out there to grow the NFL market, the NHL similarly, there's arguments to be made for its value. We're looking at European football. In certain areas of European football, where you have these iconic clubs like Liverpool, like Paris St. Germain, where we're invested as well, where their global brands are just so valuable. And the promotion and relegation risk is, is, is theoretical more than it is real. And, and given where a lot of these leagues are going in terms of regulatory frameworks and really focusing on the cost side of the business and trying to rein that in, that's becoming a landscape that's much more interesting for, for us to look at. So there's a number of arguments to be made about each of these leagues without, without truly favoring one over the other.

So, Ian, close on that question with you.

So I, I do love my kids equally, but, but from time to time, the way that I have to interact with, with each of them is different. Their needs are different, their challenges and the opportunities that they face are different. And so if I, as their father, come to them with the same type of lens and conversation, I'm actually not going to serve them and lead them the way that I'm supposed to. In a similar way, we have five incredible partners in each of the leagues and we have a thesis and we know the opportunities ahead of them and have tremendous confidence in the operator that is the league in unlocking value for all the owners. And our job, as we build our funds for the client is to diversify across the leagues and find the single best opportunities we can in each of those leaks. And so that's really about being able to measure skill and quality of the operator of the local market opportunity and helping convert a vision into an action plan that creates value for the fans and the stakeholders of that platform. And so for us, it's really about identifying the right opportunity where Arctos can be the right partner for that ownership group and that asset during our intended hold period and then diversify across the leagues because we believe in all of them and we're partners with all of them.

Well, what's interesting about that, Ian, is that there's been this huge dichotomy between the North American sports leagues where the league's job is effectively to maximize the value for the teams themselves. And that's obviously so different than European football as an example. You know, there's been rumblings about European and other things, other sports, trying to get more like the North American model. Does that have legs or is it a non starter? Is that something that potentially Arctos could help facilitate in a place like Europe?

Well, I'm not. You're arming these mines and just laying them in front of us, hoping that one of us blows ourselves up walking through this minefield. And I'm not going to do that.

Would I do that to you, Ian? I would Never do that.

I like my legs, right? So one of the things I would say is, look, when we started this thing five and a half years ago, it's going to be embarrassing. I never heard of relegation. I didn't know what that was. And for the audience that doesn't know what that is. If your team sucks and you finish at the bottom of the league, you get demoted. It's like if the Red Sox finish in last place, they become a AAA baseball team. The idea that that could happen was insane to me. When we started this thing, it really is kind of a mind trip for the first time you hear it. But that risk exists in Europe, right? And even if it's very small 1%, a 1% risk compounded over 30 years in a row is not immaterial. Right. It actually matters. The other thing that I think is really different about these international leagues relative to the North American leagues, where you place in the league determines your payout from the league, right? It doesn't matter what place the Red Sox finish this year, they're going to get the same check as every other team in Major League Baseball, right?

Well, let's be clear. It does matter.

It does. It matters. It matters. But in relation to your share of the league generated value, it doesn't matter in North America, but it's critical over there. Where you finish qualifies you for European tournaments that generate even more lucrative sources of value. And at the local league level in Europe, you asked earlier, why is the NFL so much bigger? The United States GDP and consumer market is 35 to 50% bigger than all of Europe. And we have 10 to 12 real companies that need the content that comes out of the North American links. In most European countries, there's one dominant media company. If you're lucky, there's two. And so it's like you have one or two bidders for the meteorites in Illinois. That's a completely different monetization opportunity than having one of the most critical pieces of content in a market where there's 10 to 12 bidders. That's the US sports intellectual property monetization at the league level, in a nutshell. That's why it's so much different. It's also why the European leagues look at what the North American leagues have with envy. It's a combination of that premium content that has to be viewed by all European consumers, all global consumers, without the threat of relegation. That's the thing that is so appealing.

It's very interesting. And that's why I know there's Rumblings about changes going on in Europe. But, but at the same time, it's really hard to unwind the Spaghetti bowl that exists there right now. So let's transition a little bit and do something different for the audience. And let's talk a little bit to Sam about. You've obviously led the organization at Fenway for 20 plus years. You've been involved in other organizations in your career. What were the most important people in your life and that you worked with that shaped your leadership style and how you go about day to day managing the organization.

Well, we've been, we've been blessed with incredible mentors along the way. I know Doc and Ian would say the same thing for me. It's hard to think about anybody other than Larry Lucchino, who was our CEO when I started in my, my first full time job in baseball at the San Diego Padres and he came here to Boston and I had a chance to work for him for 25 plus years. But I had lots of other mentors along the way. I think of people like Theo Epstein who is back now as an investor with us, as our general manager here and in, in Chicago with the Cubs. So we've, we've been blessed with great, great, great people along the way. And, and there's so many across the industry, people like Todd and Tim Lewiecki. I know that'll bring a smile to Doc's face. And they're just, they're just everywhere. And I think that's what's so great about sports. By definition, it's a team game and they're mentors everywhere that are, that are willing to help out. So really fortunate to have had some of the very best.

Well, thinking about things from a bit of a different perspective now, speaking of leaders and mentors, I mean, what, what are some of the things that you guys look for in leaders amongst these teams? I think sports is one of the most beautiful opportunities to teach leadership to young people, to older people. We get to see it and live it every day when we watch these teams play and we, and we watch teams practice and develop and sports was a huge part of my own development personally, as I know it was for yours, Christopher and other people. So anybody feel free to take this. But like from a leadership standpoint, what are you looking for of leaders of sports organizations?

Doc, why don't you go first?

Well, I think the first thing that comes to mind is when Ian and I first met and we first shook hands in partnership, the very first thing we did before we ever tried to source a deal or raise a dollar of capital was to spend an enormous amount of time, as it turned out, developing our core values as a, as a firm. Like what did we want to stand for? What type of people did we want to attract to our platform? And we boiled it down to six core values that become the lenses through which we look at every decision, including hiring. And you know those, I won't bore you with all of them, but you know, it, it boils down to a couple of important ones, mostly character. And you know, the components in my mind of character are integrity, excellence, trustworthiness, collaboration and, and humility, both intellectual humility as well as interpersonal humility. And those are the things that personally I look for in anybody. We look for it in terms of our potential partners, whether that's ownership or the operating groups. Look for that in every single employee that we add to our firm and we've looked at it with each other. It's those values that I first saw in this guy that really made me want to be his partner and go on this journey together.

That's great. Sam, what about you? What do you look for? You've got to hire coaches, GMs, you got to hire all kinds of teams, different types of talent. What are you looking for?

I, you know, Doc rattled off a lot and I would just lean into the, the concept of humility sort of being life's greatest achievement. There's so many things that are just fundamentals and non starters, but anyone who takes themselves too seriously typically does not work out well at Fenway Sports Group. And that goes for all of our clubs, our venues, our, our teams. Because if you can't have fun and, and laugh at what's happening around us, you know, we wake up every day, we come in here and it's like, I can't believe this happened today. And that means laughing at yourself as, as well. That's fundamental. So really humility is, is something we value going all the way to the top of this organization.

That's great, Ian.

For, for me it's, it's character, it's courage and it's curiosity. Those, those three things are, are really, really important for me to see in the people that, that I'm partnering with, that I'm working with, that I'm counting on to, to be my partners, but also help steward our clients capital. Right. Embedded in character is humility. That's in short supply in the industry that we work in. Most sponsors, they like to outshine the operators that they partner with. One of the things that we try really hard is to take a step back and make sure that we're not front and center, that the groups that we partner with, whether it's in our private markets business or our sports business, we let them shine because they're the stars and we're lucky to be partnering with them. I think some sponsors like to use the fund to pretend that they're a control owner, or they like to use the fund to articulate that maybe they invented sport or they invented meteorites or whatever. Our job is simply to try to create value and be the best partner we can for as many of the great operators that want a partner. And if we just focus on that and partner with people that have character, courage, and curiosity, the rest of it's going to take care of itself.

Well, one of the things that I hear all the time from listeners and people who watch the podcast and other places is those are great things, but they're really hard to know before you hire somebody. So how do you go about, you know, as much practicality as you were willing to share to figure out who's got character, who's got curiosity, and who's got courage before you actually get married to them, so to speak, by bringing them into the organization?

The method is called the Torque method.

You arm wrestle them, Is that what you're telling me?

There's not a lot of people that would take that bet with me, but if you threaten them with a reference check when I speak to your former boss, what are they going to tell me about your character? When I speak to your former boss, what will they tell me your greatest weakness is? Right. Knowing you're going to go and make that check is a truth serum for people. And if they don't have those characters that you're asking about and testing for, but they know you're going to make the call, magically, they vanish from your pipeline. They opt out because they're a fraud. Right. And so that method combined with making sure that the people on your team responsible for talent are some of the best people at your firm, because stars attract stars. If a grade talent sees a grade talent, they get excited and they want to be a part of what you're doing. If you're a B, you undermine A's. You don't want A's around you. So the key is to make sure the people selecting your talent are some of the best talent that you have.

So I picked up two really interesting new terms today. The Torque method, to be able to hire people more effectively, and cutthroat competition, that is what actually makes people want to watch live sports. That's. That's what I heard from Sam earlier today. But so we are going to need to wrap it up there. And it's been great content. I know the audience got a huge amount of value. You know, Ian, Doc, Sam, you know. Thank you for being with us today, everyone. Stick around, because Mark and I are going to break down what we learned throughout this conversation. Thank you for joining us, guys.

Thank you all.

Thanks, guys.

Thanks, guys.

Thank you, guys. Thank you very much. Appreciate it. That was fun. Well, Mark, obviously, that was a fascinating conversation with people that we know pretty well, but when we talk about sports and we talk about the changes in it, I mean, what were some of your key takeaways?

I have a hope for this podcast that I haven't had yet, which is that people who are curious or maybe even skeptical about what it is that goes into investing in sports franchises, I don't see how they can listen to this podcast and walk away without just a very strong conviction of, like, this is. This is something that is altogether different than what I expected it to be. If they come in with that skepticism.

No. And I think it's important for the audience to know. When we started investing in sports, you know, four or five years ago, we were. We were the skeptics, okay? And I personally, we.

We were.

We were the skeptics, okay? So I'll be. I'll be very transparent. I was the skeptic. It took us 18 months to get across the goal line, so to speak, to be able to get really comfortable with it. And what really compelled me, finally, after the team at Arctos and others had really just kind of, you know, made the case over and over and over again, poking in some of our internal people, poking me over and over and over again, was that, you know, from my personal capital, what I want to see is resiliency and predictability and as much of a moat as you can have around a business. Well, obviously, if you have a monopoly, a legal monopoly, that's a pretty good moat. And it wasn't until I fully appreciated the magnitude of what these teams get as they talked about, whether you're first place or last place, you're going to get your 1/30 or 1/32 of the league's revenue. And all this is public information, but in the NFL last year, that's over $400 million. 400 million. Before you ever play a game or sell a hot dog or sell out a seat, literally $400 million is what you're going to receive at the beginning of the season. It makes the business model a whole lot easier. So I agree with you, Mark. I think if people will fully understand the business of sports and you know, really just dig into how it becomes that, it becomes very compelling.

Yeah.

And I agree. I hope that they'll take this and run with it.

It's an easy asset class in the private markets to be a sort of tourist in where all you do is sort of observe the random data points that get into the press because you don't get to do that. And like nobody really cares what the local industrial manufacturing business traded for. Right. That's not like, that's not. Maybe there's a small segment of a local population that cares about that, but it's not the same as if the Celtics and you're in Boston, what did they go for? Right. So, so there's, there's these various data points that get out there to people, but if that's all you ever get, then you have a very incomplete picture of what's happening with this, with this investment, with the nature of this company or whatever it is that you're buying a stake in. And so I, I think that, I think that it's, I think Ian and Sam and Doc did a great job of outlining those specific areas and why franchises go up or down in value. Like what are the value drivers. I thought it was really interesting to. I love the way Ian always puts this where he talks about how it's very hard to find any asset that has compounded at an attractive double digit rate of return over any long period of time. But to have done so with very little volatility and very little correlation. I think investors often ask the question, like, why should I care about this? It's the right question to ask. Here's why. Right? If, if you can find something that can make as much money as this while taking as little volatility risk as this with as little correlation to something else in the portfolio, please tell us because we're probably going to want to invest in it. Right? But absolutely. But it's very hard to do.

And you know the holy grail of investing, the book as well as this podcast is about adding things that don't zig and zag at the same time. Fancy world correlation. We don't want everything to move in the same direction at the same time because it creates more volatility for the overall experience. Sports has virtually no correlation to anything else that most people have in their portfolio. And it just creates this really unique opportunity to be able to invest in something that's fun to be involved in. I got to tell you, I was in Europe when Paris Saint Germain was playing, and, you know, it was. Everybody was talking about it, and every single screen had the game on. And while I'm not usually watching European football, I certainly did as I was walking around the streets of, in that particular case, Prague, and. Which is obviously not even close to, you know, what you would expect to be all in for Paris Saint Germain or for, you know, for an Italian team as well.

Something.

Something I'm looking forward to seeing and watching come to fruition. They all kind of got into this a little bit, was how with all the new technology that's coming into play, and here's your buzzword, artificial intelligence and generative AI, how that's going to impact this space is this notion of augmented reality and the screen basically being removed between you and the content, where you can inject yourself or inject your family or inject your friends into it. And to experience it in a new way, to put personalize it, I think that's going to be super cool.

Right.

I'm a little worried that we're going to end up with, like, you know, headsets. I'm going to be sitting next to my family and we're going to have headsets on, and we're going to be looking at each other that way. But, you know, they'll probably do in a way where you're going to want it and not.

Not regret it. No, I mean, I. I will tell you, the thing that was not mentioned that I think is worth repeating is that when you have all of these different ways to engage with the fans, and it was stated that, you know, you can monetize that. Well, again, fancy word for you can make money off of that. If, you know, if I could put my grandson onto the screen and make him want to sit down and watch a game with me, I'm gonna pay eight bucks for that game, or I'm gonna pay 20 bucks for that game. What is the price I would pay to be able to have that experience with my grandson or my granddaughter? And the answer is people will pay for that. And for someone to literally be, in the example that Ian gave, to be in, you know, in Thai, be able to watch a game, understand the terminology and to understand the language and to be able to enjoy a game they've never been able to really watch before, they'll pay for that. And obviously, advertisers will pay significant dollars to get in front of all of those new audiences that they haven't been able to reach before. But folks, there's so much more we could do, you know, on on sports, and we hope that you will engage with us and all of the things that we're doing in the world of sports, because it's really very interesting. But we appreciate you joining us. Please share the link of the podcast with everyone you know and via all your social channels. We look forward to sharing more valuable insights and our next guest that we have on the Holy grail of Investing podcast, all our very best.