00:00Bluestone Equity Partners, which I should point out, invest in sports, but not necessarily taking stakes in teams.
00:06We look at teams. We look at teams.
00:08Would you have bought into the Lakers if you had been given the opportunity?
00:11Well, that's the subject of the day.
00:12Okay.
00:13I think there are probably two stories going on here.
00:16One is the price, which is obviously an extraordinary valuation at $12.5 billion.
00:21And the other is this institutionalization of sport.
00:24The Lakers themselves are a special asset within that ecosystem.
00:29I had the good fortune of working very closely with them when they were the very first team, NBA team,
00:35to purchase an NBA development league team, minor league team.
00:38And they have long stopped being just a basketball team, long stopped being just a community asset.
00:46It is extraordinary, valuable, globally relevant IP.
00:50And for that, there's certainly a scarcity factor.
00:53But scarcity does not remove price discipline.
00:57And a great investment doesn't necessarily mean it's a great investment at any price.
01:03At the end of the day, the $12.5 billion being put to work here is going to have to
01:08return an appropriate risk-adjusted return.
01:11Well, when we talk about price discovery or maybe the lack thereof, how do you arrive?
01:17If there was no sort of traditional price discovery, how would you even arrive at $12 billion?
01:21It's basically just either whatever the Lakers' ownership decided, what Mark Walter decided it was worth, or what Joshua Kushner
01:29and Bob Iger decided that they thought it was worth.
01:31Yeah, I don't think you can answer that question without knowing the underwriting of the buyer.
01:35There have been two precedent transactions here within 10 months, 25% premium on the headline price.
01:42But without knowing the underwriting, without knowing the time horizon, it's hard to say.
01:47But ultimately, as I said, the invest—well, as you said, actually, from our prior conversation, there's price discovery going on
01:56here, right?
01:57And that's distinct from value creation, so I wouldn't necessarily impute a 25% premium on every NBA team.
02:04In fact, if anything, I think there might be more price dispersion with the truly elite, global IP-oriented teams
02:11commanding a premium where other teams still having to justify their economics.
02:15But I just want to link back, because you talk about the global IP and how this is more than
02:19just a community asset.
02:20And you can say that for, obviously, a lot of sports teams, not just in the NBA, but particularly in
02:25football as well as a few others.
02:27And it gets to this idea that with this institutionalization of this asset, of sports as an asset, isn't that
02:33kind of almost necessary if this has become more than just that local community asset?
02:40Yeah, I think—I mean, if you look at the multiple expansion amongst the sports teams that are being sold, the
02:47NBA and WNBA teams are actually nearly twice that of Major League Baseball.
02:51So Major League Baseball is still figuring out its fundamental economics as they're about to enter labor negotiations, or they've
02:59actually just begun that.
03:01That could be very disruptive, significant, all towards the end of creating an economic system that makes sense for it.
03:09I think the NBA has long figured that out.
03:12They've had labor peace, they've just a year ago concluded a $76 billion, 11-year media deal, which is that
03:20visibility to those kind of economics are part of that value driving in terms of the scale of these assets,
03:27increasing from where the buses bought them, or the Steinbrenners bought the New York Yankees, to where we are today.
03:32But ultimately, these teams trade on the fundamentals, apart from what I would offer to be the truly globally and
03:42culturally relevant IP like the Lakers, where there is a scarcity premium being put onto the pricing.
03:49And again, without knowing the motivation, without understanding the underwriting and time horizon of the buyer here—buyers here, I should
03:57say, and Mr. Iger, Mr. Kushner—it's hard for us to speculate.
04:01So nuances aside, I want to go back to Romain's point of the price tag, the $12.5 billion.
04:06What has to go right for this to look cheap maybe five or ten years from now, or maybe a
04:10good deal?
04:11Yeah, I think a 20-, 30-year hold, for instance, if that's the intention here, as an example, is something
04:17that might compute.
04:19There's tremendous optionality value.
04:22There's a tremendous growth potential over that kind of a horizon.
04:27So it really just depends on what the underwriting is for the buyer.
04:33So, you know, I started off talking about how you invest kind of in sports, but not necessarily in teams.
04:39Are you interested in actually—I mean, we're institutionalized now.
04:43You're an institution, more or less.
04:44Are you interested in doing something?
04:46Are you actively looking for something right now?
04:48So we've looked at roughly—this number keeps climbing.
04:51I think last time I was here, it was smaller, but I think we're roughly at 1,800 deals that
04:55we've looked at, 72% proprietary.
04:57We have tremendous high-quality, high-volume deal flow.
05:00We look at teams, but we underwrite the very specific returns.
05:04So as the asset class, as the industry of sports, media, and entertainment continues to grow and institutionalize and professionalize,
05:12the ecosystem around it continues to institutionalize and professionalize.
05:17So we don't compete for trophy assets.
05:19We don't bid up pricing.
05:21We're not part of the price discovery for our elite NBA teams.
05:25But what we do is look for businesses that are benefiting from the secular tailwinds.
05:30But then what are you looking for in terms of actual revenue metrics?
05:34Because, I mean, you used the word trophy assets, and I just want to push back.
05:37I feel like we're kind of moving away from that.
05:39It was like, you know, somebody made their money in another industry, and they wanted to, you know, live out
05:43their days in glory, and you bought a sports team.
05:45And now with all the institutions there, I mean, somebody's got to be sitting there with a spreadsheet or the
05:50equivalent of that doing, you know, discounted cash flow.
05:52I don't know if that works for a team like the Lakers, but I assume you're doing that, right?
05:56You're looking at what the revenue streams are.
05:57What's most important to you where it would present a good value opportunity?
06:01Well, back to the other question about what has to go right.
06:04So they are locked in for their primary revenue driver, meaning the media deal, for 10 more years, right?
06:10So that's baked in.
06:12And the $12.5 billion price would have had to have priced that in.
06:18International is a massive opportunity for basketball.
06:21I'm sure that's maybe part of the underwrite here.
06:23I'm sure maybe, but that's likely part of the underwrite.
06:26But MBA Europe, you're hearing a lot about, and the MBA is looking to expand and create value by creating
06:32assets there.
06:35We're living in an increasingly focused on live experiences world.
06:40And I think if you look at the buyers, it's almost as interesting as the purchase price.
06:45So in Bob Iger, in Josh Kushner, you have an incredible amount of experience in terms of globally relevant IP,
06:55entertainment, sports, media, distribution, technology.
07:02Full stop there, on Kushner, you've got an extraordinary investor, technology-focused, growth-oriented, long-term, durable capital.
07:13The two of them together pivoting from what was an MBA expansion opportunity they were looking at in Las Vegas
07:20to this and paying that scarcity premium, which, again, I offer, is attributed more to the Lakers having 17 world
07:27championships and being relevant on every continent on the planet in terms of its value creation opportunities.
07:33But their pivoting to this at that kind of a premium, a 25% headline premium, I think is indicative
07:39of where sports investors see sports as an asset class headed.
07:43Well, let's take out the 17-time champions for a second.
07:46I mean, are you finding potential opportunities maybe outside of just the gigantic mega sports and the mega teams?
07:52I mean, we had Karen Nortman on yesterday.
07:54She just kind of paid in, invested in an expansion NBA franchise at a record $200-plus million.
08:01She was also involved in a women's soccer league, National Women's Soccer League expansion franchise, which was also over $200
08:08million.
08:08Is that more sort of the secondary sports for, you know, forgive my phrasing, is that where the growth is
08:14really or maybe the value proposition?
08:15No, we at Bluestone tend to steer away from that in the sense that there's a lot of, apart from,
08:23like, the really durable, established sports properties, there's a lot of emerging properties.
08:28There are a lot of venture-oriented businesses in that economy as it institutionalizes and professionalizes.
08:35But where we have a hard time investing is where the valuations tend to get ahead of the cash flows.
08:42So, ultimately, we're not speculative investors.
08:45We focus on fundamentals like cash flows, like quantifiable, fully-diligensed growth.
08:50And we have made 10 investments in about 40 months, representing about $300 million of our $350 million fund one.
08:59All right.
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