The Two Way Wall Street

Private equity can be a deal beneficial to both parties but it's not clear that sports administrators are savvy enough to grasp the risks.

Welcome to the latest edition of SSWOS, the Sick, Sad World of Sports, where sports is the mechanism by which we learn about the depths of shithousery and assholery and dipshittery of the human soul.

I hope you find it fun or informative but not both. If you want more of this particular species of brain worms, follow me @scksadwos.

I also write exclusively about rugby league on pythagonrl.com and @pythagonrl.



The Two Way Wall Street

Since the Global Financial Crisis of the late 00s, interest rates have been at rock bottom. This has resulted in rich people holding less cash, because the return on it is so abysmal. For a while, that money was pushed into stocks and other traditional investments, which drove their prices higher and as a result, lowered their return on investment. In this (possibly permanent?) low interest rate environment, big time investors have to be more creative or take bigger risks to maintain the growth rate of their portfolio.

This impulse, grossly simplified as it is, is equally to blame for ever spiralling house prices, as it is for the frankly absurd (read: any) money that people are currently spending on owning a link to a picture of a cartoon monkey. There’s probably a fantastic book to be written about how a lot of the cultural weirdness of the 20s can be explained by the sloshing around of excess capital1.

Enter the besuited chuds.

Your view of the wealthy and their involvement in your sport or team of choice will vary greatly, depending on that sport, team and your personal politics on that day2. Despite what they will tell you, most sports fans don't hate money in sports. To borrow from Drew Magary, “I want them to be an open bank vault and nothing more. Write the checks and then fuck off for eternity.”

For the rich owner, the entire point of having a sports team is that you can play a real life version of Football Manager and if you’re in the mould of Dan Snyder, use your power to do very unsavoury things. There's a tradeoff, the cliche deal with the devil, the Two Way Wall Street if you will.

Private equity, however, is a little different. Silver Lake is a private equity group, that is they have equity (the raw value of the assets a company owns) in a group of businesses and that equity is held privately3. Put another way, they have some rich people’s money - see above about chasing returns - and they employ people to do the maths on what to invest it in. In return, and this would depend wholly on the arrangements they have with their rich people, they would either get a slice of the profits generated or charge what are effectively transaction fees or both.

Silver Lake are all over the news right now. They’re looking at rugby, they’re looking at cricket, they’re looking at minor league baseball and, most bafflingly, they’re looking at Australian soccer.

Silver Lake lists the following sports investments on their website4: City Football Group (Manchester City, New York, Melbourne, Yokohama, etc); Madison Square Garden Sports Corp (NY Rangers and Knicks); Learfield, a consultancy for college sports rights negotiations; Endeavor, formerly IMG; TEG/Ticketek; Fanatics Trading Cards; and, I found on Google, Pro Football Focus.

Silver Lake identifies themselves as a technology investment firm and there are dozens of other investments listed, which include some well known brands like screaming medium Twitter, gentrification machine Airbnb, payments platform Stripe and destroyer of travel agencies, Expedia. They were previously involved with UFC and Zynga (Word with Friends). Their portfolio doesn’t state what stake or ownership or involvement they have with these companies, so it could be an incredibly small stake5. $88 billion goes a long way but not that far across that many operations.

Other than that, there’s not a lot to suggest that they’d be any different from any other similar company but these suits specifically are looking all over at sports, hunting for returns.

The archetypal private equity deal in sport was CVC's investment in F1. This landmark precedent saw Bernie Ecclestone become even richer6 and CVC took out a bunch of loans against F1, paid themselves handsomely in bonuses and let the profits of F1 pay off the debts. Little changed for the sport itself, except the grands prix seemed to go further afield to what we would dimplomtically call problematic regimes, like the United States. Once that was done, it was time to sell to Liberty Media, owners of the Atlanta Braves. CVC have since dipped their toe into English rugby, took a stake in La Liga, has a controlling stake in Sky Betting and now owns one of the new billion dollar IPL franchises.

Depending on what deals land for Silver Lake, it remains to be seen what they stand to gain. Money will go in and money is definitely expected to come out. The question will be what are the targetted sports giving up in exchange for the cash? Do they understand the value of what they’re selling?

A transaction only settles if both parties want what the other party has more than what they already have. Sports administrators love money. They love cash in the bank because it gives them options on how to spend it and thereby establish their legacy within that organisation. Money also represents power: the richer the organisatsion, the more prestige it has and the more that can be leveraged for its own ends.

While it’s critical administrators have a plan for spending their windfall, I’ll go ahead and assume they will treat it like you or I would treat winning the lotto. Most of the money will likely find it’s way to player salaries, because that seems to be what happens when an inflationary pulse comes through a sport. The rest could go to anything: marketing, lining pockets, stadiums, bribes, development pathways, cover-ups, expansion or even women.

Sports administrators also don’t really appreciate what they have. They certainly do not feel the same way about the sport and its history and traditions and associated paraphenalia, which they will sum up as “IP”, as the fans.

There’s also the unstated shift in power that results from the financial scales being tipped decidedly in one direction within the organisation.

This all adds up to risk. Silver Lake and their ilk understand their risk and its purely in financial terms because they are unlikely to care about anything else and if there is a technology angle, it is very unlikely to take the same priority as the dollars.

The fans also understand the risk that their sport will change and based on recent history, it will likely be that the experience of being a fan will get slowly but inexorably crappier while everyone else seems to make out like bandits. Tradition is often cast aside to optimise returns7.

It’s not clear if the administrators understand what they’re doing and if my experience with bureaucrats and capitalists is anything to go by, they probably don’t. They see the money, they don’t care about the IP, the transaction settles. But once that money is spent, it doesn’t come back and depending on the terms of the deal, the profit-making asset may be gone forever.

Worse still is that these deals require unusual investment vehicles. How do you buy a stake in a national rugby team? The answer is to transfer anything monetisable (the IP and attached rights for merchandising and/or broadcast) to an investment vehicle and allow the PE company and adminstration to share ownership and split whatever proceeds in a pre-determined fashion.

The more Byzantine these structures become, the less likely anyone in the admin is to understand the inherent risks. Being a naturally risk averse person myself, I don’t hold a lot of optimism that what we’re about to see is fun chaos but instead boring destruction8.

UK rugby league turned down Novalpina, for reasons that still aren’t entirely clear, but private equity investment is grossly at odds with the way that sport sees itself. It seems the All Blacks felt the same, after the players’ group axed a proposed stake by Silver Lake there, so maybe they’ll come to Australia instead.

There’s still a lot of questions about these deals that the administrators owe fans answers to but they will deflect the media’s inevitably lack lustre questioning and hide behind commercial-in-confidence so that no one can be held accountable when it blows up.

The grace, the beauty of sports

Mailbag

Reader Ibtihaj Kainan of Luwan, China, writes:

Who’s going to win the Grey Cup this year?

That’s a great question, Ibtihaj, if a little weird considering your location and a little too straightforward. It’s probably going to be Winnipeg. The Blue Bombers are three wins clear of anyone else, so it’s not exactly a brave call.

Mail in your questions with a stamped, self-addressed envelope to Sick, Sad World of Sports, Locked Bag 6969 in your capital city or scream at @scksadwos on Twitter.


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Thanks for reading.

1

Time was we’d have ourselves a war to destroy excess accumulated capital and then super-charge the economy after by rebuilding the broken infrastructure and allowing wages to rise because the pool of workers is now noticeably smaller. This is now considered “unethical” and I blame cancel culture.

2

I'm personally fairly neutral on it. Money makes the world go around and pro sport is set up to incentivise a financial arms race, so if you want to succeed, you’ll want a big swinging dick in your corner. We can argue about whether this is how it should be but this is how the game is played and I don’t think sport can change that.

3

This may not be the elitist, ivory tower, academic definition of ‘private equity’.

4

I find it interesting that these are listed under the “Content & Entertainment” industry vertical, rather than, you know, sport. For that matter, I find it interesting that they use the word “vertical” instead of “group” or “sector” or just “industry”, like normal human beings would.

5

Probably also worth remembering that a million bucks ploughed into, say, Twitter ten years ago carries a lot more weight than if you plough a million dollars into it today.

6

The only way possible in late capitalism: by getting hold of something intangible that no one else realised was valuable (e.g. the F1 brand) and rent seeking the shit out of it.

7

Sometimes, that’s actually a good thing. Sometimes, that money and power is integral to staying alive.

8

Contrast this to the Super League fiasco of earlier in the year, which was fun chaos and a veritable content gold mine.