Trailblazing #6 (09/01/2023)

What I recently found interesting:

Soaring valuations of soccer clubs worldwide

The most interesting stat to me is that even though MLS is only the 15th-ranked soccer league (by quality of the game) in the world, it boasts the most (18) teams in the list of top-50 most valued soccer franchises in the world; three things that, in my opinion, are causing this are:

• US is the biggest economy in the world and, consequently, its population has a lot of money to spend on merchandise, media, tickets, in-stadium purchases and sports-related goods; additionally, US is the heart of capitalism which emphasizes commercial goals above anything else (this is obviously not unique to the US, but having lived in both Europe & the US, my personal observation is that in the former driving revenue growth & profitability does not carry as much social importance),
• there are only 30 teams in the MLS, as compared to 96 in Europe’s top five leagues (England, Spain, Germany, Italy & France), making each MLS team an incredibly scarce asset, the fact which is further amplified by the combined GDP of those 5 European countries amounting to only 65% of the US GDP (i.e. acknowledging that I am completely disregarding the impact of competition from other US professional leagues, bigger demand represented by larger GDP and lower supply indicated by fewer soccer teams will always cause valuations of MLS teams to be higher),
• there is no promotion / relegation system in MLS making the revenues predictable and easy to forecast; in contrast, the promotion / relegation system has historically been an essential part of team sports in Europe, both creating many fairytale stories but also becoming the biggest risk in owning a Premier League team. When a team gets relegated (it happens to 15% of teams each year) its TV revenue drops from at least $120m (in 2021/22 season) to ~$10m overnight. To be thorough, the clubs receive the so-called “parachute payments” from Premier League to ease the transition over the three post-relegation seasons but those are still just a fraction (55%, 45% & 20% respectively) of what the Premier League payout is. For further context on those numbers, the TV revenue usually amounts to at least 60% of a bottom-half Premier League team’s top line and when combined with long-term player contracts (which on average constitute 71% of a Premier League team revenues ), it becomes obvious that a sudden relegation from Premier League immediately leads to financial problems & may cause a player fire sale.

Lastly, the quoted valuations have not yet taken into account the Messi’s effect on MLS revenues (e.g. Inter Miami’s top line is forecast to double this year) which, if we assumed constant multiples, could as much as double MLS teams’ valuations.

Multi-club ownership of soccer clubs in Europe (PMG example)

In Trailblazing #1 I discussed the growing trend of multi-club ownership of soccer clubs in Europe -> building on that, the article above is a deep-dive into the activities (aka playbook), successes & missteps of one of such groups, Pacific Media Group. Two general lessons for me are:

• There is a growing emphasis on using data to make decisions and, consequently, diminishing the importance of personal relationships and intuition / heuristics; to be clear, I like data but “past performance is no guarantee of future results” disclaimer (used by every investment firm) says it all about the risks of treating data as gospel. There is always a qualitative story, or a bigger picture context that hard data will never capture and the analyst’s / executive’s (and frankly, anyone’s) job is to figure out if and how it influences the narrative that the data paints.
• One should never underestimate tradition (especially when entering new industries / situations) as there is a tremendous value in taking time to learn the ropes of a new business, even if we came into it (invested) believing (having a thesis) that we can do things more efficiently & effectively than our predecessors. Needless to say, a sense of humility & courage to ask for help can drive change respectfully and ensure the buy-in from all types of stakeholders, providing the new ownership with time, leeway & support to deal with unexpected hiccups along the way to better future.

Miscellaneous

Personal

I spent all of August with my family, both sightseeing northern Italy and relaxing at Home, in Poland.

• Given that I have lived abroad for the last 11 years (and about to leave for another world adventure tomorrow ??) it reminded me just how precious the time together with those who care the most is.
• On a professional note, I started working with a stealth startup early this month, which has been very busy, but “good busy,” as I am really enjoying the work.

Song Recommendation

“Father and Son” by Cat Stevens -> I liked it mostly because it reminded me of life conversations with my dad, and how there is always a sense of calmness stemming from him (i.e. “take your time, you will figure it out” type of approach) vs. me impatiently stressing to find my highest personal & professional mountains …