Buying Your Own Sports Team (with Stocks)

0:02Tyler Crowe:Buying sports teams on Motley Fool Hidden Gems Investing.

0:09Tyler Crowe:Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors Lou Whiteman and Matt Frankel. So it's been a big week in the world of sports. We had the New York Knicks win the NBA finals. We had the Carolina Hurricanes win the NHL finals. We have a very large football or soccer tournament that has global implications going on. But for trademark reasons, we can't say the name. But all of this just kind of has sports on our mind. So we're going to talk about owning sports teams through publicly traded companies. We're also going to hit the mailbag.

0:40Tyler Crowe:But first, we want to start with the news of the day. And what we saw was Robinhood announced that they are going to lay off about 10 % of their workforce. Now, Matt, when I first see this, we've seen a lot of layoffs lately. So my question is, was this a layoffs or a good reason, layoffs because they're in trouble, or perhaps just a nothing burger? Well, it depends whether you believe what Robinhood is going to tell you or not. So we've seen this with many companies so far, right? Robinhood is going to frame this as either a move toward efficiency, streamlining operations. The AI tools are making it more efficient to do more with fewer people, et cetera, et cetera.

1:20We've seen that time and time again. And to be fair, it's true to some degree. And plus, Robinhood CEO has been very vocal lately about the need to control costs and get margins up to where they should be. But on the other hand, it's worth noting that Robinhood, like many other companies, kind of overhired during the 2021-2022 period. Even after a couple of layoff rounds in 2022 and 2023, there are still many more people working for Robinhood than there were before the pandemic era. My general take, and this is just generalizing, is that a 10 % cut to a workforce rarely happens when everything is going as well as expected.

1:57Something is going slower than management expected it to be. We'll dive into what that might be in a little bit. But whether it's good or bad to reduce the workforce in response, it depends on what it is.

2:09Lou Whiteman:Yeah, Robyn basically said that this is just cutting fat. They said these are middle management positions. And Vlad talked about not being heavily layered as an organization, which to me is code for we had too much. I don't know if it's always means something's wrong. We could, I mean, it could be in this case, but I think you also see this at times when there is cover. And I think everybody else doing it and the AI bugaboo, I think that gives cover. So whether or not it means there's something wrong with the business or whether or not you just, you don't waste an opportunity, we'll see. I don't think, though, whatever we say about AI, that this is about AI.

2:47Lou Whiteman:I use a lot of AI tools. I do see the value. I am yet to see that AI can completely take over the functions of a human being. Maybe it's coming, but it's not here yet. This is bloat, and I guess good on them for getting rid of it. You know, we could see a turnaround, guys, if it is the business. Robinhood's U.S. downloads hit their highest total in at least six months on Friday, thanks to the SpaceX IPO. So to the moon.

3:09Tyler Crowe:Wow. It only took us half of a segment to get to a SpaceX position already. So I want to put on my cynical hat for a minute because with a lot of Robin Hood's kind of earnings and stuff like that, a lot of it is related to order flow for equities, but also they do tend to charge fees for things like Bitcoin. And that has been one of the more profitable segments for a while. One of the things I was thinking is, is this masking for the fact that Bitcoin has been down, trading in Bitcoin is down, and those fees associated with that have not been as good? Since this was, I wouldn't say like their bread and butter, but it was pretty close.

3:45Tyler Crowe:Is that like maybe to that duck and cover thing, is this maybe a sign that the Bitcoin cryptocurrency trading aspect of their business isn't doing so hot? Maybe. I mean, Bitcoin is way down, as you correctly point out. Crypto revenue for Robinhood has been volatile for a while. That's nothing new, whether it's been in the right direction or the wrong direction. And it can certainly move in the wrong direction, given where Bitcoin and other cryptocurrencies are at right now. But I have to believe that some of it, you know, there's a lot going on in the business. There's regulatory risk related to that pay-for-order flow model and options in particular, not IPOs like SpaceX.

4:18I said the magic word again. Options in particular have been the cash cow when it comes to pay-for-order flow. And the prediction markets, which you didn't even mention, you know, there's a lot of regulatory risks surrounding those, which remember, those aren't gambling. I know you guys are soccer fans and you could buy securities on soccer there, not gamble. And this could be factoring into their decision to downsize as well as just them seeing an elevated level of risk throughout the business, not just in crypto.

4:43Lou Whiteman:On the crypto thing, Coinbase just announced a 14 % cut, which I think gives some credence to the idea that, yes, it's crypto. But again, Coinbase was a bloated organization, too. So who knows? Look, trading volume is up big in stock so far, but on some crypto exchanges, volume is down as much as 40 percent, or at least it was in the first quarter. So, yeah, that's probably part of what's going on here. I'd push back on the idea that the pay for flow model is under heightened regulatory risk right now relative to how it's been. I don't I mean, this isn't political podcast, but I don't get the impression that the current regulatory state is intensified over a few years ago.

5:23Lou Whiteman:We'll see what happens down the line, but I I don't think it's a reason to lay off now. The prediction market is mostly done with partnerships right now. So, yes, there is risk there, but they haven't announced a lot of hiring there. I'd be surprised if they're throwing in the towel or if it's really related to predictions. I think if anything, they are looking to scale that up, at least for now.

5:43Tyler Crowe:Last question before you go. And both of you thinking about like these capital market companies, we've got the Robin Hoods, we've got the Coinbase. You can think of our own brokerage companies. Also got like ones that work more in foreign markets like eToro. Like you said, really kind of dependent on trading of crypto because it has been a very profitable endeavor. So when you're looking at these stocks as investments, how do you think about crypto trading specifically? Is that just kind of like a bonus and you need to underwrite the business without it? Or do you just be like, yeah, it's going to come and go.

6:17Tyler Crowe:And I don't know when, but it's going to be beneficial down the road. For me, it depends how much of the business it is. With Robinhood, for example, it's a lot more of the thesis than with a company like, say, SoFi, which is just starting crypto trading and it's just kind of getting off the ground. And to me, that's a very, very minor part of the thesis. But for a company like Robinhood, it is something to keep in mind. For a company like Block, to name another one in my portfolio, where Bitcoin revenue is the biggest line item on its income statement every quarter, you have to kind of consider that and understand that it will be volatile no matter what, you know, even if Bitcoin is doubling year over year, that, you know, it depends on investor interest and how much, you know, how much, how attractive Bitcoin is at any certain time and how much it's in the headlines and how many people want to, it's going to be a volatile revenue stream.

7:06And I have to factor that volatility in when I'm forming an investment thesis for sure.

7:12Lou Whiteman:Generally speaking, I don't like brokerages or exchanges in any form because it is just a volume weighted business and you just there's not really much more to it than that. That said, because for that reason, if I am going to lean in, I'm going to lean into diversification. Now, probably I want more diversification than just crypto and equities. But to me, the more the merrier. I think everybody needs to have table stakes here. Yes, it creates volatility, but you need to be there. But again, I think just the widest net you can cast here is probably the best companies because all of these things tend to have it flopped.

7:47Tyler Crowe:Coming up after the break, we're going to find some ways that we can actually buy a sports team ourselves.

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9:20Tyler Crowe:So one of the things that kind of bumps me out as a Boston Celtics fan is that I missed my chance to actually own this company because back in the late 80s, all the way up until 2002, it was actually publicly traded as a limited partnership. I wasn't quite around to buying stocks at that time, especially limited partnerships on the market. So, hey, maybe someday down the road, I'll get to own my own fair share of it. But one of the things that's kind of interesting here is there are actually more opportunities to buy individual sports teams in the market than we would have thought. I know there's like the history of like the Green Bay Packers and things like that.

9:59Tyler Crowe:But the chances are opening up. And it does give me to the question, why don't we see more of this? Like, why aren't people who own sports teams looking to, like, I don't know, raise some money by issuing stock or something like that? Yeah, I mean, we'll get to some of the ones that are actually publicly traded in a minute. But sports leagues generally prohibit this or at least make it very hard for them to be to take a team public. The NFL bans public ownership entirely. You mentioned the Green Bay Packers, which are grandfathered in because they're structured as a nonprofit. it. The NBA and MLB, for example, require that there is a single controlling owner with a 30 % plus stake.

10:36That's a pretty big hurdle for a lot of companies. Plus, most owners don't want to worry about things like earnings calls and activist investors trying to tell them what to do. And historically, most of the return from owning a sports team has come from the eventual sale of the team itself, not from the profits it's making on an annual basis. And that necessarily doesn't translate well to the public markets.

11:00Lou Whiteman:Yeah. So as Matt said, there's a lot more of this in Europe. And the issue is, and I think it probably, it doesn't one for one to the U.S., but it's a warning sign for the U.S. The issue is, is that sports teams are very expensive. It's hard to make money, real money, even in a closed league. As Matt says, the payoff is normally in a sale and fan-owned teams are less likely to sell because they are mostly owned by fans. If you buy in, you're just begging for capital calls and other expenses, not dividends. And also, just as a practical point, we always talk about trying to take the emotion out of investing, right?

11:35Lou Whiteman:Invest in your favorite sports teams. That's not going to reduce emotion. That is going to add emotion to the investing decision. Most sports fans, myself included, are irrational, maybe borderline delusional. That's a terrible mindset for making investment decisions. I actually, guys, I own a very, very small part of a small British soccer club. It is 100 % a trophy asset. I think of it as an expense. I paid for the certificate that came with it. It's almost like I just bought art off of eBay or something. There is zero expectations for return. I think that's it. That's how you got to limit yourself here.

12:12Tyler Crowe:That soccer club isn't like one of those buy the League Four team and hope to bring it to the Premier League, like, you know, Wrexham or Lake Como or Castiglione. No, but Elton John is my chairman.

12:22Lou Whiteman:So I got that going for me.

12:25Tyler Crowe:Well, Matt, you said something earlier and it kind of, I find a very interesting point about this is it's like, it seems like professional teams get sold. That's when all the money's made. Right. But at the same time, there's always like some snarky piece that says like, well, if they had just bought the S &P 500 instead, you know, trying to compare returns of like these monstrous numbers they get when they sell these teams. But let's face it to lose point. Let's Nobody buys a sports team to maximize their returns. So thinking about it, like there are options and places where you can invest in publicly traded sports teams.

12:59Tyler Crowe:So what are some of the ways that they can do that? And bonus, have any of them actually even done better than the S &P 500? Yeah, so I know this technically is not a team, but Formula One Group is publicly traded. Ticker symbol is F-W-O-N-K. That's been kind of a standout in recent years. Liberty Media acquired Formula One in 2017, and it's meaningly outperformed the S &P over the past five years or so. Liberty, they've done a great job of expanding that sports commercial success, especially in the United States. Think of the big Formula One event in Vegas that happened a few years ago, just to kind of increase its visibility and commercial viability here.

13:38Another one, Madison Square Garden Sports, ticker symbol is MSGS. They own the Knicks and the Rangers, and they've been a stellar performer lately. I mean, the Knicks just won the NBA finals. It's really, you know, your team's value goes up when you're good. But not so much prior to last fall, if you look at the chart. It was pretty much flat for the four years before that. Atlanta Braves have been public since 2023. I know that's Lou's home team. That's underperformed the market. Manchester United, for the soccer fans, has been a pretty poor investment since it went public in 2012. You know, there are some indirect ways that could be worth a look.

14:13Comcast, for example, owns the Philadelphia Flyers. There are some options that might be worth a look, but none of the direct ones.

14:20Lou Whiteman:Yeah, there's picks and shovels plays too, kind of. Look, if you like Formula One, you could buy Ferrari. The big media companies that broadcast games are out there. Sports data and gambling sites like sports traders or all of that. Look, there's even apparel brands if you really want to. But the bottom line is, you know, I'm a sports fan. I don't find any of those really attractive as investment opportunities. You know, most of these ideas that both Matt and I just gave are kind of uninspiring investments. My investing advice here is to separate your life into categories and don't let them overlap.

14:58Lou Whiteman:Invest in good companies and enjoy sports you enjoy.

15:02Tyler Crowe:Yeah, it's again, looking at some of the price charts for some of these companies that are publicly traded, you're like, yeah, maybe they're not as great of investments as originally thought.

15:10Lou Whiteman:So, Tyler, if you want to, I can put you in touch. There is actually a very small English soccer team that has been pinging me and probably the rest of the world on LinkedIn trying to find board members, which I believe involves also investment. So if you want in, it's there for you, baby.

15:26Tyler Crowe:If I can be on the board, that changes things entirely. Coming up after the break, we're going to dip into the mailbag.

15:37Tyler Crowe:This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18+. Hey, everyone. Just a quick reminder, if you want to get your questions in and have them read on air, email us at podcasts at fool.com.

16:10Tyler Crowe:That's podcasts with an S at fool.com. The only three requests I make when we try to answer these questions is one, keep it foolish. Two, keep it short enough I can read on air. And three, we can't give investing advice. So try direct investing advice for an individual. So try to keep it generic. Like, what do you think about a company? Or what do you think about baskets or something like that? Let's not get in trouble with the SEC here. So today's question comes from Mike Hoffman, and it's about Alexandria Real Estate, which is a real estate investment trust. It trades under the ticker A-R-E.

16:40Tyler Crowe:Here's this question. I've been a long-term shareholder, and I loved that it is a key supplier of office and lab space to the pharmaceutical and biotech industries. Unfortunately, it's been a terrible investment. Is there any hope here? We would love to know if the analysts consider it a buy, sell, or hold. And I should mention, I originally thought it was a recommendation on a foolish service based in real estate and dividend investment services. So Matt, I know that while you didn't have the final say, I think you were in the room when they were making some of the decisions on a company like Alexandria Real Estate.

17:13Tyler Crowe:So why don't you give us like the bull thesis, why you guys were really excited about it and maybe why things didn't quite work out here or what you're thinking about it today. So I was an analyst on the real estate services that are mentioned. And Alexandria was actually one of our original 10. I think I picked five and our other analysts picked five, and that was one of his. But at the time it was recommended, which was in 2019-ish, Alexandria was not only benefiting from a low-rate environment that was lifting all real estate investment trusts essentially at that point, but also a surge in demand for medical office and lab space.