Chad Hutchinson – Professional Athlete to Professional Investor in Sports (EP.351)

25:47And now that I've actually read The Power of Introverts, it's a great book I gave to my wife. She's like, wow, I actually now understand how you're thinking about things. When I've actually sat back and looked at how introverted I was, it was really hard for me to be in a position as a quarterback because I'm not a rah-rah. That feels very uncomfortable to me. I wish I had known that because then I could have channeled what was authentic to me. I was not being authentic to myself in all these positions. And I think there's a way to do things that's authentic to who you are, that once you have that awareness of who you are, you can manage those things appropriately.

26:24And so for me, how I dealt with that though, how I overcame it was I was so competitive and I had this vision. One of the things I've always thought of was I'm out here to help take care of my mom. That outweighed all the pressure. Everything was just this whole idea of I want to provide for my mom. When you talk about like purpose, purpose overcomes all of these things. You have this clear vision and purpose of where you want to go. If you have this clear vision of what your why is, it's bigger than these other things that come against you. So you go, you're playing pro baseball, you're playing pro football.

26:57How do you get from there to finance? I was a voracious reader. That's the introversion part of me is I would just bring books everywhere. In minor league baseball, I'd read books upon books upon books. I remember reading Michael Lewis, Liar's Poker and going, oh my gosh, this is what I want to do. I was playing minor league baseball. And I said, I love math. I love complex problems. I love the competitive aspect of the trading floor. And so I always would read books. I'd educate myself. When I was in Chicago playing for the Bears, my neighbor worked on the Merc, Mercantile Exchange. So I'd go down there with him.

27:34And then he started high-frequency trading, spread trading, orange juice futures. And so I'd sit there with him. I began to just read everything. I took classes. I was like, I'm going to be a hedge fund manager. And I didn't really know what that was. I always had this feeling that this was something in my soul that was percolating that I wanted to go do. Dallas Cowboys, two years, Chicago Bears, two years. I was still on the sidelines. I got a couple of calls. I just felt this calling. I'm 28. I know if I'm 32 going to be an analyst, that's too late. I feel like 28 is probably too late, but maybe I have a chance of getting an analyst job for one of these big private equity firms.

28:09And so when I left sports, I just interviewed my butt off, networked, and I ended up getting an analyst job. I was NFL quarterback one year, and then I was crunching spreadsheets, 100-hour work weeks, making coffee the next year, making no money. It's quite a transition, which I'm just thankful that when my wife met me, it was fun. I was Dallas Cowboy quarterback and things were fun. And then all of a sudden, making no money, she never sees me. I was like, is this what you signed up for? So I'm grateful she's stuck with me this long. We're going to take a quick break in the action to tell you about SRS Aquium.

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29:26Learn more at srsaquium.com. That's S-R-S-A-C-Q-U-I-O-M.com. And now, back to the show. What have you found have been the real benefits of having been a professional athlete? Do you want the honesty?

29:51The benefit is you get access to people and things that you may not have gotten given what you've done. But the flip side of that is the other things that are probably negative, and I hate to say this, far outweigh what you actually get positive. I was trying to break into finance. And the amount of comments from folks playing professional sports, you don't have what it takes. Or I talked about the selfishness. That's not a good quality when things revolve around you all the time. In professional sports, that's what it does. You're a rock star. When I think about my kids, I want them to be well-rounded, serve others.

30:34That's happiness. That's community. it breeds that rockstar mentality or you have a very finite shelf life. And once that ends, what are you gonna do with the next 40 years of your life? A lot of my friends struggle and they're struggling right now. How do you recreate yourself? There's a lot of things where you hope that they make enough money that they can just press the easy button. But even that, is that winning? I think some of the greatest tragedies I've seen in Silicon Valley is folks that peak when they're 35. So if you can just have this, I always call it the long obedience in the same direction.

31:06Peak when you're 80. That's where I envision myself is peaking when I'm 80, not when I'm 40 or 45. Because I've seen a lot of folks, it's just a slow journey down and sad. So what was that path in finance? I started as an analyst for a fund of funds. And one of the senior guys there was an old workout banker back in the oil bus in Oklahoma. And this was 2006, 2007. And I'm learning from him, staying late nights. He was super generous with his time. And it was late 2007. And he says, Chad, I've seen this once before in the 80s with this debt crisis. I was just a workout banker, so I didn't make real money.

31:46And I promised myself the next time I saw it coming, I was going to leave and go buy distressed assets and raise money around it. And he said, do you want to be my analyst? I have no idea what you're talking about, distressed assets. No idea what this is, but absolutely. And we left, we raised friends and family money. We started buying distressed assets, which is distressed debt out of these local banks. We ended up building a really nice business. We built a great team of young guys. We'd go fly down to Atlanta, Georgia. And when these banks were being taken over, we'd be right on the footsteps falling in behind them, going in and underwriting these loans, traveling around all these places.

32:23So we ended up buying 5 ,000 loans within a four-year time period and built a real nice business just underwriting distressed debt. I underwrote it. I managed it. I raised capital around it. So I got an amazing feedback loop on risk-reward. I probably did 2 ,000 models of underwriting hard assets. You just get phenomenal texture for what risk-reward is. But then the other part of it is I would go do the workouts on these loans. And I can viscerally remember we bought this loan. It was backed by this big knitting factory here in Williamsburg that had been renovated to apartments. And the guy that owned it had done it all without code.

33:04And he had this big loan that we had. And he came to me and he was like, I'll pay you off, but you got to say this. And I was like, no, we can't do that. We're your lender. The crazy part is I wake up a week later and this is our borrower. He had been killed. It was just a crazy feedback loop of all these stories of here's what you think finance is, but then you actually get down onto the real world of it, you're like, wow, it is so much more art than science. It was a phenomenal view of human behavior. How do you underwrite very complex assets? How do you underwrite the fact that when things go wrong, there's only so much protection that you can build into these type of instruments?

33:39Part of it is you just have to have good partners. So that to me was the most incredible feedback loop on investing. And through that entire process, I get to meet Alan Waxman. You hear about this guy, he lives a mile from me. And all I kept hearing about was Alan Waxman. He was just anomalous. And I remember meeting with him. I saw him at a friend's birthday party. And I had been competing against him on these distressed death deals. We had built a big enough business that was, I was competing against TPG 6th Street. This is pretty cool. And Alan comes to me and goes, Chad, what are you doing?

34:09Oh, I've got my own business. He's like, no, no. Come join the rocket ship that I'm building here at TPG 6th Street. I started talking to him in 2012, three years old. And the more I got to know him and just see his vision of where he was going, this is the guy I want to go work with. So I ended up leaving on what I had built and I joined TPG Sixth Street, but I needed that. I needed a blue chip credentializing business firm where I could say I went and competed at the highest level. So you go from sourcing all these thousands of small loans to Sixth Street. How'd you spend your time and your years there?

34:42So when I got there, the beauty of what Alan has built is he gives you a ton of freedom. Because their motto is, and Brian Darcy will appreciate this, They're an omnivorous vehicle that can price any risk. That's how they pitch it. And that's what they've built. They built a business that is mimicking the balance sheet of the special situations group at Goldman Sachs. Pricing any risk, up and down the capital structure. Now, obviously with a mindset, but we'll price through control equity. I was still working on some of these small balance loan deals, but that was starting to dry up. Spreads were compressing considerably.

35:14We chased some distressed credit down to Puerto Rico. We did some stuff in Italy. But I sat back and was like, oh boy, what am I going to do here? It's not like you're spoon fed. Oh, here's a good business unit. I'd like to say my time at Sixth Street was about just being commercial and realizing that there's a ton of white space out there and we had very flexible capital. And I just had to go create thematics that were interesting and price the risk accordingly. And so I was able to work on a lot of stuff. I worked on 2016 oil and gas cracks and we went and set up a Drilco JV with the legacy down in the Permian Basin.

35:48I didn't know anything, but I had connections at the family office there. We ended up building a business within Sixth Street. It was an agriculture business. So in 2013, when I joined, you're in the middle of a big drought in California, and I was sitting there going, this is a dislocation. Sixth Street is built for dislocations. How do we go take advantage of this dislocation? Sitting back, you say, water is the currency, how you monetize that. And you monetize it through the crops. Now, what's the playbook to do that? Well, ag is a hyper-local game. So how do you get hyper-local and make smart decisions?

36:21When I left there, we probably had 12 joint ventures with hyper-local folks that were capital constraint, but they understood agriculture. We would go form JVs and then we would go roll up assets. When I left, we were one of the largest avocado growers in the US. We had the largest contiguous organic farm in the United States, 35 ,000 acres, where we constructed a really interesting off-take agreement with General Mills. One-of-a-kind off-take agreement. General Mills had never done anything like this before, but they wanted to control their organic spring wheat for their Annie's pasta brand. And we were able to help them do that.

36:55And so we had all these joint ventures. And so we built this within Sixth Street, and then we ended up raising a dedicated ag fund. We brought in real institutional investors. A bulk of my time was spent there, but then I would also just be commercial when things would arise. Middle of COVID, week one into COVID, Airbnb, I know one of the board members there calls me and was like, hey, would you guys be interested in doing a Spotify type deal? And we had this interesting convertible facility with Spotify. Absolutely. When you have that broad of a remit, you say pricing risk is one thing, but how do you think about targeting risk reward and what makes for a great opportunity for where you want to deploy your capital?

37:31I'll start with Alan Waxman. When you think about what Alan's superpower is, there's a lot, but here's two that really stand out for me. Number one, his vision of where he wants to go is just incredible. He's just got a vision for things and he makes it happen. Second is he taught me the value of understanding the why in every circumstance. There has to be a why for capital to come in. There has to be a real catalyst for private equity capital to come into a deal, especially in a firm like Sixth Street. We attack dislocations. So we'll come into a dislocation. That dislocation may be for three months.

38:06It may be for two years, but we will attack the dislocation until the dislocation dries up. And then we move to the next dislocation. And so for Alan, I used to hear him sit in a meeting. He may have known nothing about this type of healthcare royalty, but within 10 minutes, he navigates the why of the situation, why we're relevant, why there's a need for our capital. And then he can also suss out with that counterparty, is this person telling me the truth? It showed me the power of, He would almost disarm through his humility. He would sit there in a meeting and be like, I know nothing about this.

38:39Tell me about it. And through his questioning within 10 minutes, someone had either dug their grave or made the case for it being an attractive investment. I just learned a ton just sitting there and watch him navigate that. When you can catalyze that idea of why this capital is relevant, why do they need you? Are they just looking for dumb money? We're done here. We're out. But hey, they have a death, divorce. There's a number of different situations there. That's when you identify that. Now, it takes bringing in this knowledge set of seeing so many transactions to be able to say, look, my downside case is I lose 20%.

39:15My upside case is a 1-4. Understanding that frame of, okay, this is worth it. That's just by seeing thousands of deals. And at Sixth Street, we underwrote the entire market. That's the cool part about that business. So after some period of time there, you make a move or a move comes to you. Why don't you describe your thinking in exiting 6th Street? somewhat professional and somewhat personal here. And middle of COVID, I had been commuting up to San Francisco and I have three kids and I take being a father very seriously. And I realized I was not present. I was working a lot and I'd have to drive three hours a day.

39:55And so COVID happens and I'm sitting there every day with my kids. I realized I needed to be a better dad. The first part was I wanted to be present with my kids and commuting every day and doing what I was doing. Just, I couldn't do it. When you pick your head up to that and be like, all right, then what's the solution? And it's amazing what life brings back to you when you start asking the questions. And so in the middle of that saying, all right, well, maybe I need to start looking at something else. You know, what is the next adventure? What's the next growth time period for me? There was a number of things came up in the midst of that.

40:28One of my good friends buys an NBA team and he asked me to come run their holding company because he's like, we want to build this into what Fenway Sports Group has done. We want to build this huge platform. We need you to come help us do that. I started putting together a business plan, started looking at who's in the ecosystem of sport right now. And this was right as institutional capital was being allowed into the major sports leagues. Well, I'm introduced to Ian Charles and Doc O 'Connor. And I would say the first thing was just talking to them on a personal level. I didn't even talk about sport.

41:03I just talked about what is their value system? What do they want to build? What learnings have they had? I mean, Ian's got such amazing learnings of dealing with GPs. He's like, I have 15 years of learnings of how to do this thing and build a firm that is, in Simon Sinek, infinite. This thing that perpetuates, I'm going to structure it this way. And so that to me, I love that. And then you meet Doc O 'Connor who's like, I've been an operator. I've sat in here. I've built businesses. He's not coming from an investor mindset. He's actually coming from a, I call it squishy. I appreciate it because it's very different than as an investor, how you think.

41:39And I think the marriage of that for me between Doc O 'Connor and Ian Charles was really special, powerful. And then you overlay the fact that it's sport. And oh, by the way, they're the one group that can go invest in four, the five, big leagues here in North America and sit across platforms and leagues and help these teams like the Utah Jazz build their version of this platform in Utah and the Rockies. And so at that point, I started talking to Ian and Ian is a persistent, I mean, he called me every day for four months. And I was like, there's no way I'm moving down to Dallas, Texas. I'm here in Menlo Park, California.

42:17I got three kids. I've got great friends. This is home. You take little steps forward, little step forward, little step forward. And all of a sudden, the door seems wide open. You're like, all right, this is it. When I knew it was it, within a month, we were moved down to Dallas, Texas and joined Arctos. And I tell you what, private equity, honestly, they're great investors, but it's not of the mindset oftentimes to build everlasting organizations and to be a part of a firm that is like that from day one, that has been part of the mindset. How do we pass this on? How do we pay it forward? How do we take care of our young folks?

42:49And not to say other private equity firms don't do that. But that is so critical to how we think here. It's just been amazing to be a part of. So you bring in this unique experience of the athlete in professional sports and then a couple of decades in the trenches in finance. How did you plug in to figure out what your role is going to be at Arctos? I learned at Sixth Street, you get in where you fit in. Sometimes you just create your own narrative. And so day one, I just said, And I had confidence in the foundation that I had built at Sixth Street to know that I can go build themes and invest really well around those themes and build a real business here.

43:28I had a network in the sports ecosystem. That was one of the benefits. I actually didn't have to go create a network like I did in agriculture. I knew no farmers. But in sports, I could walk into the DeWitts and St. Louis. I had this pretty robust network already, which was nice. And then I just said, okay, where is the white space? Where can we be helpful? What are the other things? And hearkening back to the Sixth Street, there's a growth equity platform. There's an ag platform. There's an infrastructure platform. There's a BDC. They've built businesses that are just on the adjacencies. Part of what my vision is here is we own the IP.

44:05The very first time institutions can own the IP of these teams. And there's so many adjacencies that we can go add value to and invest alongside. I'm spending a ton of time there. Last three deals we've done. It's category killer deals where we can bring our teams alongside us, invest in the business to help the flywheel of that business and these teams. It's a perpetuating flywheel here. So it's a business like SeatGeek, ticketing business. They're disrupting ticketing, really interesting IP around it. So I sit on the board of SeatGeek. There's a company called Elevate Sports Ventures, Al Guido, where they're coming in.

44:38They're super helpful to us as we go in and underwrite these sports teams. When you sit there and go, this stadium is under monetized. Your suites, their bottom quartile, and here's why. And here's the money you need to spend to bring those up to speed. And here's what your ticketing prices should reflect to actually have that flow to your bottom line. So that's the type of business we'll invest in. I'll sit on board there. We just invested in a company called GeoComply. They do all the backend geo compliance for the sports betting platforms. So every time you go on and want to make a bet on FanDuel, they are the geo tracker here.

45:09In every state, this is very, very valuable architecture that they're incredibly important to that ecosystem. But they also need access to California, Texas, and Florida, which are not legalized sports betting yet. Well, we have quite a few teams in those states that are part of our portfolio, so we can be very helpful to them. So those are the types of situations that we're going to come in and invest our fund dollars into, help these businesses, and then our teams come alongside us and co-invest in these businesses as well. You're starting with teams and there are these adjacencies that could become some type of vertical.

45:41Where's your mind today on building that out? My mind today is we have a right to win in these core North American sports teams, and we're going to continue to build on that. That is first and foremost, NBA, MLB, MLS, NHL, cross my fingers, NFL. We have a right to win. We have the right capital. We have 17 operating advisors. We built an operating platform. We have a playbook that we can roll out and diagnose the business of sport for these teams to say, here's where you're lacking or here's where you're spiking. Here's how you need to start to think about your digital. TJ Adashola, we have Theo Epstein, who's one of our operating partners.

46:19We've built the infrastructure to help these teams grow and build their businesses. So that's our right to win. I spend 80 % of my time there. As a firm, that's where we spend 80 % of our time. The other bucket, I do think that there's a growth equity business that we can roll off on the side of this. But, you know, it's going to take some time here. If we do three to four really solid category killer deals a year in this innovation sector, you wake up in three or four years and you've got a real portfolio there. Most of my time is realizing where you have that right to win and attacking it. I'd love to hear some about the crossover of your experiences.

46:54We touched on baseball and football, but in sports and diversified investing and how this diversified investing into sports investing. What lessons have you learned along the way where you've seen it's some degree of interdisciplinary learning across these different fields? 100%. There's so much. And I tell young folks now, you got to build your foundation. But once you build the foundation, you can then begin to implement some of these other learnings from your past lives to actually help you on the investing side. understanding human behavior that you learn in sport when there's pressure, when it comes down to crunch time.

47:32How are people going to behave when you're financially not doing very well? How are you going to view partnership? How are you going to view alignment? How are you going to view risk? How are you going to view probability of these things occurring? So I think there's so many different learnings that you can play because the easy part now and the challenge for, I think, young folks as they come up in finance is they learn all the rote skills. Everybody knows how to model. You learn all these rote skills, but now it's the textures, the art, it's the subjective. It's all the squishy stuff around the edges that is actually what makes great investors.

48:05I do think that when you bring in team sports and you bring in rigor and discipline of sport, that's the other piece is like, I know that I will, my wife gets on me, I will cycle every day. That's just part of what I do. It's a non-negotiable. And I think that in investing, there's a certain rigor and discipline. You got to show up every day and stick to the game plan because the minute you drift and have strategy drift and have discipline drift, that's when you get hurt. It's a mixture of those things where you can bring in the EQ from these past lives and also bring in the discipline, like the sports background.

48:40So as you look out over the next couple of years, what do you have in store? I am so fired up at what we're building here on the sports side. I'm confident we'll have another 20 teams in that portfolio. But the thing that I'm most proud of and most excited about is just, I am seeing the tangible efforts of the value that we're creating for our teams. That's just business. When you think about sports, sports is hope, sports is community, sports is all these other things that are meaningful to me. That's what sport is. So I can sit in my seat and go, if I can help this be an everlasting infinite enterprise that is really a thriving business.

49:16Ultimately, that impacts everybody in that community. It impacts all those people that are wanting to be professional athletes. Some of these organizations have 500 people. That impacts so many people. And so if I feel like I can make that impact, pay it forward, serve others, obviously great returns for our investors, that's where we're going to go. So I think what we built here is this amazing sports investment franchise. I'd love to turn to a little section called Lessons from Others and hear what are some of the things that you've learned from others, whether it be coaches, fellow athletes, investors along the way, two or three people that you learned something about investing from?

49:58I'm going to highlight three people and they're from three different parts of my life. The first one is the coach I mentioned, Ed Burke, who is one of the most influential people in my life. I would not be here today if it weren't for Ed. Ed shepherded me. And one of the things he always used to say, and it's actually a really cool speech that's on YouTube too. It's called Last Play. When I'm down, I go listen to his speech. It's in the locker room, Torrey Pines High School. And he would always tell me, he's like, Chad, if this is your last play, how do you want to be remembered? That's the crux of what he would always say.

50:29If this is your last day, your last play, how are you going to go out? I tell myself that daily, This little memento mori. If you're going to die tomorrow, how are you going to be remembered? Being cognizant of your own morality is a very important lesson that I've learned. And as I age here, it gets more and more important. So that's number one. Number two, there's a guy named Curtis Feeney, one of my best friends to this day. Very, very successful investor. He ran all of Stanford management companies, alternative assets, ran a successful venture fund for 20 years, sits on a bunch of boards now.

51:00He teaches me so much weekly. I remember I was in the midst of grinding it out at that company, buying distressed assets and things weren't going very well. We were having trouble raising money. He's like, he said, Chad, the problem with you is you've always had options. When baseball wasn't going well, you had football. When football wasn't going well, you had baseball. When both sports weren't going well, I'll go get a job. And he said, Chad, sometimes you just got to sit in the shit. To this day, I tell myself that when things aren't going well, to realize sometimes you just got to sit in it.

51:29People don't want to hear that. They want an exit. They want an escape clause. They want a quick fix. And I think it's just very valuable. Whoever said it, the darkest hour is minutes away from the sunrise. You never know on the next turn where things are going to turn in your favor. But if you don't sit in it, you're never going to have that option. I would just say Alan Waxman taught me a lot. It's the power of questions. The way he can unpack the why in investing through great questions. If you're an investor and you want to be an investor, it's like understand the why. Also understanding your own why.

52:01What is your duration? Is your duration matched with the expectation of that asset? Today's day and age, that's what gets called out more often than not. It's a duration mismatch. All right, Chad, I want to make sure I get a chance to ask you a couple closing questions. What is your favorite hobby or activity outside of work and family? Definitely cycling. This is part of the rigor and the physical side. Every year I set this goal in cycling of how many miles I want to ride, which often entails I have to ride every day to achieve that goal. And so for me, if it's not my family or my work, I'm on my bike.

52:32When did you start cycling? This is another Alan Waxman. He got me into this probably six years ago. It's one of those things that when you're on a bike, you're processing the day. For me, it's meditation on wheels. It's the closest thing I've had to this fulfillment of achievement on a physical side. That was the hardest part. What's the scoreboard in business? Because oftentimes it's very anomalous because I don't love putting money in my own bank account as a scoreboard. So what's the scoreboard in business? So it's hard to have a scoreboard in life sometimes. Whereas I know if I ride 30 miles, there's my scoreboard.

53:04What's one fact that most people don't know about you? Now they do have to listen to this podcast is when I tell people I'm a massive introvert, they just are blown away because I can play extrovert. When I get home on the weekends, I don't speak all weekend. I don't speak at all because I'm tapped. I have nothing left. And so I say like, that's a real surprise when folks hear that I'm a massive introvert. What's your biggest pet peeve? When someone's inauthentic to who they are, I tell my kids all the time, they are special just being who they are. When you're around people that try so hard to be something that they're not, and it's no fault to them, but you just want to grab them and just be like, just be you.

53:47And that's good enough. What's the best advice you ever received? Another good friend of mine, his name is Cy France, very successful entrepreneur in Menlo Park. Like he grabbed me one day, I was really struggling. He's like, Chad, you need to hold life loosely. I realized that oftentimes I strangle life just trying to control everything. This feeling of God grant me the serenity to accept the things I cannot change, the courage to change the things I can, the wisdom to know the difference. And I think the idea of having serenity just of acceptance was absolutely phenomenal advice. I mean, I think about that every day.

54:28Which two people have had the biggest impact on your professional life? My mom, by far. I mean, that's two people right there. She is such a powerhouse. To this day, she's 74. She still runs her own fitness training business. She just retired from the middle school. Her vision for where she wants to go still at this age and what she wants to impact is just amazing. Just her ability to endure and suffer well and to raise five kids the best she could with very little financial resources. And then I've mentioned Ed Burke and Curtis Feeney and Alan. I've just been blessed with phenomenal mentors that I've really reached out and sought those mentors.

55:07But I mean, I even, Doc O 'Connor and Ian Charles, just been incredibly blessed. All right, Chad, last one. What life lesson have you learned that you wish you knew a lot earlier in life? You don't have to be perfect. Every experience is a learning experience. And as long as you take the right mindset around that experience as growing from it, that's the win, not the outcome. It's not the outcome, it's the journey. Great, Chad, thanks so much for sharing your incredible story. Appreciate you, brother. Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more.

55:54Have a good one, and see you next time.