Finding the stop-loss in sport.
The hardest thing in finance is to admit an error and reverse the positioning, because it crystallises losses and bruises the ego, especially in such a testosterone industry.
The Albachiara Journal is an eclectic collection of our opinion and perspective, from our travels and encounters.
Many thought that the Wrexham FC celeb story would have legs.
It was, and is, the early poster child of Sportbiz 2.0, where audience, influence and followers can trump tradition and the natural hierarchy of things.
To be clear, in old money, proper footballing currency, Wrexham is a diddy team. But Bloomberg now reports that the Welsh club and its Hollywood owners are looking to raise money at a $475m valuation. Explained here.
Half a yard!
Even in today’s distorted capital markets, that’s having a laugh. You could buy all the clubs in the Scottish Premier League for that amount, including the massive institutions of Celtic and Rangers.
In fact, watching all this, you can easily feel yourself going insane. The entire world, certainly the capital markets, all look to have lost their collective marbles.
A sense of perspective.
For many, "The Bird Cage", a remake of "La Cage aux Folles", is one of the greatest films Hollywood has ever made, included here today as a belated homage to the giant that was Gene Hackman. And of course Robin Williams, giving arguably his greatest ever performance.
One misses the balance and common sense of the 90s, a time when a team like Wrexham didn’t ever trouble the sporting and financial news cycles. When we were all Likely Lads, self-ironic and up for a laugh, but always very aware when someone was taking the piss irrationally exuberant.
Today we seem to have lost the skill of just calling out obvious bullshit nonsense.
🎶 Oh, what happened to us, whatever happened to me; what became of those people, we used to be.🎶
Time passes, but not everything changes. Today’s Sunday Column is a reminder of the old harsh realities that are still out there, and really never go away. They just get forgotten.
Mr Market has no opinion, only arithmetic.
Any market (price) will always be a simple supply/demand meeting point between people who have different views on the value of an underlying asset. Economics 101.
There is no right or wrong, because, de facto, price reflects exactly the weight of buyers as opposed to sellers, and goes up and down based on the preponderance of people who are optimistic (bulls) or pessimistic (bears). You get upward moves in price action when more buyers come in, fewer sellers are around; and vice versa.
Assessing the future direction of sport valuations is no different, and that’s why it can screw with your head. On fundamentals, multiples of real profits and cash flow, Wrexham isn't worth anything like half a yard. But if you think of how many more patsies buyers can still get sucked into the narrative, who knows?
Value, like beauty, is always in the eye of the beholder. And subject to context. A bottle of water in the Sahara doesn’t have the same worth if located in the newsagent in Salford.
In recent weeks, our Column has lost itself romancing over these intangibles, and the huge underlying glory of traditional sport. Everyone who loves our games, who maybe even claims that they are more important than life or death, is similarly convinced that our industry is unique, and of infinite value. It is what they want to believe.
It is what I want to believe.
So, when we see really bullish reports on its present, and future, commercial value, we all naturally feel good, and not just because it’s the industry from which we earn our crust. Two Circles recently gave us one of those very reports: Global sports industry revenue reached record high in 2024: Report"
The London-based sport and data agency has taken in significant private equity investment, as a “pure play” vehicle on exactly this: the commercial growth of the sports sector. So, in capital markets lingo, some may call this type of report “talking up your own book”.
And so Two Circles should. To date they are moving very well with their build-and-buy strategy, and Gareth Balch is strutting around with more than a little panache. Chest out, a soupçon of arrogance. Confidence often is a self-fulfilling prophecy.
I want to be believe that Gareth’s report is true. And very possibly it is. But I shall leave my conclusion to the end of today’s diary.
You can make money in all markets. It’s just about spotting mispriced risk.
Seeing the “value bet”.
What we can say with absolute certainty is that there are today so many great situations from which to make a lot of return in sport, simply because the underlying product is indestructible and popular. When its business models and value chains are also changing so dramatically, that’s just perfect fertile terrain for investors. Where people are desperately divesting of assets because they need to pay down debt, even better again. Forced price-insensitive sellers are always the best prey, especially when VOL (volatility) is high.
Regarding divestment specifically, isn’t it rather disconcerting that Sky Broadcasting Group and TNT, the financiers of sport in Europe for 30 years, have now been marginalised by their parents Comcast and WBD, as non-core content assets? The entire broadcast model that has financed us for decades is being thrown overboard, because seen as ex-growth. That’s not banal. Watching where Sky ends up in the Comcast/Versant spin-off will be educational. If with Comcast, its future is as a connectivity company. If with Versant, the vision is more around content and rights. Either way, we are in a new world for rights holders, where bids ain’t going north.
Even in sleepy Como, we see good opportunities every single day. But, amongst all that, we also note what any serious corporate financier would label as the delusion and complacency of the bull. Or better, the sheep. The lazy paint-by-numbers accepted wisdoms, often with misguided core assumptions, that too many throw around as an “unmissable opportunity”. The stuff that never wants to consider both sides of Mr Market’s personality.
In good investing, timing is everything.
For sure, some people may very well make money in women’s sport, but nine out of ten will absolutely lose their pastel chemise. I can guarantee that. [£200m for Chelsea Women? That makes Ryan Reynolds's Wrexham “ask” look positively undervalued.]
It’s going to be very very hard, because the ladies have got very unlucky in timing. They, as a movement, are coming of age exactly in the eye of "Sport’s Perfect Storm", with decaying media values, and a likely upcoming recession. Those are massive headwinds when you still have to prove product/market fit, and build audience. Ten years earlier would have been a completely different investment landscape for them. They got unlucky.
Oops… you don't hear that very often, sorry!
In fact, being a good operator and investor is always exactly about forcing oneself to consider these places, where the heart and soul don’t really want to go. Actively resisting confirmation bias. Asking “yes, but” and “are we sure?” questions. And most of all never ever listening to the pack.
The pack doesn’t make money. If the pack likes something as an investment theme, get to the other side of the boat as quickly as you can.
Wanna know why fund managers can’t beat the S&P 500? Because they’re sheep, and sheep get slaughtered.
- Gordon Gekko
CVC has got “slaughtered” in its sports investments: football leagues, volleyball, rugby. Its mark-to-market in all of those is likely a haircut of at least 70%. Were they sheep? Did they have the wrong advisors? Hubris after F1?
All of the above is the answer.
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