81: The Business of Pro Sports w/ Paul Rabil

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0:47We've been keeping you warm for over 50 years. We'll see you at our coat event. Burlington. Deals. Brands. Wow. Visit burlington.com slash coats for details. Hey, everyone, and welcome back to the Rich Habits Podcast, where we talk about rich habits as they relate to business, finance, and mindset. In this episode of the show, we are joined by Paul Rabel. If you're into lacrosse, you might consider this guy the Michael Jordan of the sport. However, as we'll explore in this episode, he is much more than an athlete. He and his brother created the PLL, which is to lacrosse as the NFL is to football.

1:22We talk about their business journey from idea to private equity funding, as well as how entrepreneurs listening can take action no matter where they are in their own journeys. This episode is full of gems, and we hope you all love listening to it as much as we loved recording it. So let's jump into the episode. In today's episode of the Rich Habits podcast, we're diving into something we've never talked about before, the intersection of sports, entertainment, and business. And we're excited to welcome Paul Rabel, who is both a rising star in the business world and also widely considered the Michael Jordan of lacrosse.

1:57So Paul has won two national titles at John Hopkins, was an All-American every year in college, and then went on to have one of the most decorated careers of the sport from 2008 to 2021, and we're excited to have it. Toward the end of his playing career, Paul co-founded the Premier Lacrosse League or the PLL, which is now the primary professional league for the sport of lacrosse. He served as the chief strategy officer of the PLL while still being one of the best players in the league itself. You can think of the PLL to lacrosse as the NFL is to football. Now fast forward to 2024 and the PLL has a media rights partnership with ESPN.

2:38He made an ESPN documentary that's now on Hulu called The Fate of a Sport. He helped get lacrosse back into the Olympics, which is going to be something we're going to talk about. He wrote a book called The Way of the Champion, and he has a growing venture capital firm called Rabel Ventures. His firm actually was an early investor in public.com, which is a sponsor of the Rich Habits podcast. So that's kind of a cool loop around there. Paul, welcome to the Rich Habits podcast. I appreciate you guys. As they say, records are meant to be broken. And I anticipate, at least if we're doing our job at the PLL, many, many, many world-class players to come that are going to take the game to all new Heights.

3:12Thanks for having me. I'm excited to take a step back for a moment because I want our listeners to know why we're doing this episode. I want them to know that this is going to be sort of that look under the hood as it relates to sports, entertainment, and business. Our listeners know that Robert and I are always talking about venture capital, angel investing, and sort of diversifying our portfolios into asset classes that aren't as well known. We're not talking about the single stocks in this episode. We're talking about what is a business of a sport. So We want people to know like, that's what the episode's about here.

3:44And so I want to start the conversation off like this. How did you go about creating a professional sports league from scratch? If someone said, hey, Austin, I need you to go make the NFL 2.0, I wouldn't know what to do. So how did you go about creating the PLL completely from scratch? Talk about the fundraising process. Talk about the business plan. Talk about the length of time it took. I mean, give us the whole breakdown. Well, I love and am very humbled by the fact that I'm your first guest on the intersection of sports and business, sports and investing, sports media. It is a booming industry that was once reserved for the ultra-rich, many call it vanity play, now with private equity coming into the space and, frankly, the sophisticated operators and additional capital.

4:26It is far more data-based. There's tech integration. We could talk about sort of why sports have carried such huge enterprise valuations. But when I think about folks that I'm close with, try to learn from, in some cases, share a board with the likes of Joe Tai and Mark Cuban and Steve Ballmer and the Kraft family, Bob and Willow Iger just invested in the NWSL's Angel City FC. So it's just amazing people that have essentially taken an art form into more science. So quickly, what makes sports a good investment? Eye consumer demand. We often say the LTV, as some of your listeners might know, the lifetime value of a customer in sports is 30 to 60 years.

5:11It's a household investment because they're having conversations about the NFL and the NBA and the PLL at the dinner table. That's part one, sort of more psychological. But if you look at the revenue side of the business, you have media rights, you have corporate partnerships and ad business that's approaching across not only live programming, but the creator economy. $1 trillion for the first time in 2025. You have a merchandise business, you have a ticketing business, and then you're in the community in a lot of cases, these leagues and teams are building real estate. So it's massive, massive, massive opportunity.

5:43Later on, global reach, especially with the streamers. Netflix signed up the WWE and they signed up the NFL because they can turn on international viewership, which all of a sudden adds another multiple on your fan base. I mentioned tech integration, and then what I'll wrap with is what Warren Buffett calls sports were our monopolies. And you have an element of scarcity, which is a tracker to investors. Well, one of the cool things that I like to see, and that's why I'm excited about this interview in this episode is even 10 years ago, it was really the top 3 % of athletes, both active and retired, made all the money.

6:16You didn't have all the social media and the big followings. And now with the advent of NIL, it is just a wide open marketplace to be able to be, you know, high school level, college level, and be making millions of dollars because of the eyeballs you bring to the table, not just your athletic prowess. So it is a wide open market and a lot of things happening. It's a really exciting space and it finally is growing to this who knows maturation level because there's so much opportunity. I'll give you a little bit more evidence on the valuation front. In the 20 year period of 2001 to 2022, the NBA on average team valuations have gone up by 1000%.

6:58That's greater than any MLB or NHL average. And then my personal two favorite teams growing up now, the Washington Commanders that are owned by Josh Harris and David Blitzer, who's an investor in the PLL, but Chelsea Football Club, who Tom Boley is from my neighborhood, essentially grew up in Maryland, both of those teams traded for north of$6 billion. So it's an extraordinary time to be in pro sports. And when you think about the athletes who are investing, to your point that's unlocked is athletes have two things really going for them. So if you're on the board of a company looking to lead a fundraiser, if your founder is looking to raise capital, why athletes?

7:32Well, they have a passive income. Steph Curry and co with the new NBA rights deal, they're going to be signing 50 plus million dollar a year contracts just on the floor, not touching their sponsorship. So passive income to spend, they have great networks. Many of them are close friends with Andreessen Orwins as a fund. And that's why, you know, Kevin Durant went out to SF for a little bit and played for the Golden State Warriors. But number three, which I think is really important, is for the right industry, if you're looking to acquire customers, they have access to disproportionately sized audiences through their social media.

8:08And so then all of a sudden you can unlock a lower CAC because you're accessing investors who can reach on a tweak 20 million people. So those are reasons why you're seeing athletes get involved in more deals than perhaps in the past, which used to be t-shirt businesses, bars, restaurants, and hotels. So I often describe myself as an entrepreneur by necessity. I played professionally for 10 years before turning around and seeing the rise of Major League Soccer and the rise of the UFC and the rise of F1 all throughout the age of digital and social media and say, why not us? Why not lacrosse? And the reason why those three were able to take off is because new communication forums like social technology, call it the internet, and then enhanced programming, also kind of like wraparound programming offering like apps and sports betting and such.

8:55But there used to be one of the biggest moats in any industry surrounding the big four sports leagues in America. And that moat was primarily around a fixed level of inventory across broadcast, right? And if you weren't on broadcast, then you were going to build a business around attention and revenue. So now all of a sudden, cut to streaming, limitless inventory. New entrants can come in and access audiences at any point. And that was critical. So we start scratching our heads. We look at lacrosse. Look, it's not slam ball. It's not CrossFit. By the way, both leagues have worked to varying degrees.

9:29This is a sport that is the first team sport of North America. It's been around thousands of years. And as product market fit at the collegiate level, it was one of the first NCAA sports. It played pre-NCAA era. It was once in the Olympics in 1904 and 1908, which by the way, we're back in the Olympics, Austin, for your call out. And so why not at the pro level? And if you study the history of the NBA, which at one point in the 70s and 80s was really bleak. If you study the history of the NFL, which couldn't figure it out until they hired a 33-year-old marketing commissioner by the name of Pete Rozelle, and the age of television in the 60s.

10:02And by the way, the NFL is so big now, but we forget 30 years ago, Major League Baseball was bigger. You have to have operators. I find that the skill set that I developed in sports, going for it against all odds is one that I try to harness now as an operator. I'm not classically trained. I didn't go to business school. Neither did my brother, who's my co-founder. But we have a good grasp of math and art. And we have a great board. We have a compelling story. And we have the work ethic to try to go out there and stand the thing up. And I'm talking about 2018. So just to linger on that a little bit longer, did you with the PLL begin to think like, okay, here's how, to your point, the UFC, F1, all these other different sort of professional sports and leagues, here's how they make money.

10:49How do we directly translate that into what we're building? Did you sort of, you know, get inspiration from existing business models? Or did you kind of go about saying maybe there's something different with lacrosse, from a monetization theme. How did you begin to build out that business case that you can then go to investors and say, if we do ABC correctly, and then we pour on a couple hundred million dollars, we can now build this into a couple billion dollar company? It's no surprise you've done this before, Austin. So the short answer is yes to all. So I would encourage any entrepreneur or operator out there to be able to look at the entire spectrum of possibilities.

11:23It's something I do on small tasks and large tasks. And in this case, one of the ends of the spectrum is how big our total addressable market was. What's the TAM of lacrosse? All right. Now, where do we think it can go? How do we think we can get it there? And that was the exercise just around our audience. Part two is studying like hell the industry. And I recommend that to any newcomer into sports is be a subject matter expert. So read all of the trades, meet as many people as you can, study the history of professional sports, as I had alluded to. And those who understand history can better predict future, in my opinion.

12:01And then the last thing is don't be scared to innovate. So when we looked at lacrosse and, you know, sort of ate the humble pie of, wow, this audience, despite my sort of inside favors of lacrosse and how much I love it, this audience isn't as big as basketball, soccer, or baseball in America. It's not. We can't stand up in the short amount of time of 12 to 18 months, individual owners that own venues and do a classic home and away schedule as you look at team sports. But to your call out, what's the UFC, the WWE, the PGA Tour have in common? They're single entities. They're individual sports, but the wholly owned model allows what creates this sort of supply demand curve where the show is only coming into town once a summer in our case.

12:42And we believe that if we change, this is at the time, the team sports model into one that reflected more of the individual sports and went tour-based. We would be able to ramp up faster in our first five years of existence than otherwise. And we were right. And so while we still function as a touring league, we have done things like expand from six to eight teams, put our eight teams into home cities, tour those cities, and plan for the future where it's very likely with our audience growing and interests growing around the league that we will be in a traditional home and away model. And the data will support that in that when we launched the league, there were 15 million lacrosse fans.

13:20Now there are 46 million. And that's according to an MRI sentence report. All right. So Paul, our audience is really interested in owning businesses and investing in privately held businesses whenever possible. And it seems like the PLL has really attracted a lot of private equity investments. And so let's talk about that. Walk our listeners through where did you start with the private equity? How did you do it? And how did it all go down? Did you do a friends and family round at first and say, hey, I want to start this thing? Walk our listeners through it. And then on the tail end, where did Rabel Ventures fall into this picture?

13:57It's actually a really great question and an interesting one for those that are hearing me or hearing about professional lacrosse for the first time. And I scratched their heads and be like, wait, so you played professionally and then you started a league while you were playing professionally. What happened to the old one? So the first league that I played in was called major league lacrosse and calling back to my earlier notes, there were some problems. So my brother and I got together and he's a serial entrepreneur as well. And we had an operating experience on the fitness side and then with Sintech.

14:27And we said, why don't we approach those league owners and put together an OM to where we are essentially investing and running the league that evolved to outright buying them all out. So with that case, we were traditionally with private equity overhead capital. And we went down the path of putting an offer in front of them and they rejected it. But throughout that diligence process, we learned even more around what our original conviction had told us, which is pro lacrosse has real upside and it just hasn't been tapped yet. So that led us to going, okay, if not together, then we're going to do it separately.

15:03That shifted the profile to a venture investment. And we explored all different types of fundraising vehicles and it's high risk. I mean, starting a pro league, there have been 200 attempts at it, not lacrosse, in pro sports at launching leagues since 1990 with a 1 % success rate, which is determined by your ability to sustain beyond the three seasons. To answer your question, we actually did a pre-seed round, which was enough to continue to carry our research and investment into a fast turn of a new league ahead of the following summer. And the notes around that pre-seed round was that we secured a media rights deal, we courted sponsors, and we signed up the players.

15:46So players like myself and others that were playing in NLL, we were all under one-year deals. That was their Achilles heel. So we were able to sort of take the players, get the network deal, get sponsors all in stealth mode. And then we did a proper seed round, which pushed us through the first season. We then began raising our Series A toward the end of our first season. So this is now August, September of 2019. And we've done a few rounds since. The early term sheet was drawn up by Rain Ventures, who we still work with today. And Colin Neville sits on our board and Blair Ford, and they're a fantastic group.

16:20Our second round was led by Joe Tai, who's the vice chair of Alibaba and co-founder of Alibaba, a learner of the Brooklyn Nets, and grew up playing lacrosse. And he's also on our board. We then fast forward to the latest rounds of investing. We had Arctos, Leadaround, who's a major sports private equity co. And then the churning group. So Peter Churnin, Jesse Jacobs, and Mike Kearns. Depending on the stage, you structure different financing docs. So on the early side, and this is how we view our own IA. So we have an investment advisory fund called Rable Ventures you guys alluded to. If you're going to take on more risk and write a check in an early stage round, expect higher returns if it works.

17:00but most of the time it doesn't. And then if you come in later stages when the company has built a foundation and sustained itself and has recurring revenue, like churning group did, like Arctos did, then you can not only forecast a different shape of return, or a lot of later stage investors are looking for two and Apple three, three X and be great. And then what they'll try to do is take a prep or a really full of the capital on a waterfall of an exit. So it varies. I do feel humble and proud to say that each of our major investors take their pro rata with every subsequent round, which means they love their investment.

17:33They want to continue putting dollars toward it and they want to maintain their share of the company. But I think it's very important for our listeners to understand that you don't want to be go out there YOLOing your money to random businesses and random startup founders until you really understand some of the things we're talking about here today. And that is why Austin and I enjoy covering these topics. And Paul, you're doing a great job of really breaking it down. Yeah. You guys do a much better job of this than either of your professionals. But I would also add that the check size is usually larger in the later stage because it's no different than playing blackjack.

18:07If you're only going to get a three times return, then you got to put more money in to see a better return. And oftentimes, whether it's Tim Ferriss, a guy that I studied 10 years ago when I was building my sort of multimedia verse and investment strategy, there's this misconception that angel investors are writing$100 ,000 checks, he'll write$10 ,000 and$20 ,000 checks. So it's access to the rounds at an early stage and getting into the large core funds would consider great bets. And so I think that that's really critical to get right. And if you're drawing up docs, by the way, too, I'd recommend getting great outside counsel that can protect you, especially as you start getting in a later stage fundraising rounds where there's going to be more bells and whistles negotiated by private equity.

18:50But winged to private equity, which is an interesting one, is that now all All of the major leagues allow private equity to come in. The NFL was the latest to just announce a couple of weeks ago. Now they cap their ownership level, but that new money coming in can help subsidize a lot of big ideas like building new venues or rolling up youth sports. And it's added, I think, a lot of momentum to an already accelerating business in pro sports. And something I want to touch back on, Austin, and I know you have a great next question, but something I want to touch back on that I think is very important, Paul, that you mentioned is check size.

19:24When I first got started in this business, maybe 15 years ago, of venture investing and startup investing, I wrote too many large checks. And I've learned along the way, it's better to write 10$25 ,000 checks than it is to write, you know, two or three or four larger checks, because you're giving yourself more shots at success. And how I break it for people is you want to look at it that you're investing in a portfolio of companies that you believe have a chance of winning, but also having the understanding that it's not going to be liquid and a lot of them are going to go to zero. And you have to understand that when going into this type of investing.

20:04So I'm really glad you covered that. Go ahead, Austin. Do you have any regrets that you wish you didn't make along the way related to your personal finances and sort of building wealth as an individual? Now, before you answer that question, Paul, I want to remind our listeners that investing is more fun when you're doing it alongside like-minded people. From dividends to growth stocks, there's a community for everyone on Blossom. And remember, Blossom is not an online broker, but instead a social investing app built around transparency. Transparency is key when it comes to investing. You all know how important that is because you listen to the Rich Habits podcast.

20:38I've already connected my personal accounts to Blossom, and I enjoy seeing how everything is divided up and performing on a daily basis. Additionally, they offer duolingual style educational video content for those of you just learning. So if you've not yet joined Blossom, we really encourage you to do so. It's an easy way to find both your own community of like-minded investors, but also manage and analyze your portfolio in a really clean way, no matter what brokerage you use. They also have new features for custom stock charts and sharing daily performance with your friends. Click the link in the show notes below to sign up for Blossom or simply type in Blossom in the App Store.

21:13All right, Paul, back to you. I'm a believer that mistakes are meant to be made. I'm often asked the question now, especially from parents and young athletes, is what would you tell your 12-year-old self? And my thought, having done a lot of sports psychology and a lot of personal therapy and have been through a lot of major challenges and failures is absolutely nothing. I think the learned experience of having to put everything you have into it, that doesn't mean don't be informed. That doesn't mean don't do everything you can to protect your money, but we're going to make mistakes for humans.

21:45The most important thing is learning from the mistakes. And I would say I've had great mentors and great teachers. I've made investments that have gone to zero and I've made investments that have exited quite well. And so when I think about advice, it starts more with relationships. Who are you surrounding yourself with? Who are you choosing to be your partner? Who are you listening to from a podcast standpoint? What books are you reading? Are you taking a masterclass on your own personal finances? that type of interest that comes from within called the intrinsic fire. That's my eye test when I even compare business or finances to sports and athletes is there's a difference between kids who practice because they're told to practice by their parents and their coaches and kids who are going out there because they love it.

22:26And if you want to invest your money, I hope that there's a fire within you to learn and be as curious as possible and then go unlock podcasts like these and learn from others on the relationship side. I believe in network. Network has opened up our investment opportunities in a way that's indescribable. Most of our best investments came from great people who we've met over time in our respective fields, who we've bought a coffee for, who we've gone out of our way with to learn from. And then it comes around. I think that the support we try to do if we get to a place of reasonable success in our careers is we can try to change the system for our younger selves.

23:05So an example of that is all of our players in the PLL have equity, and we approached building the PLL in that wholly owned single entity model, as we said, and the way that we've looked at every startup that we've invested in is P &O and their ESOP pool, which is your employee stock option pool. And it's very common in Silicon Valley in the startup world, if you're going to take a lower on the scale paying wage job for a technology company that's in its series A or series B, you're going to take stock options. So how did we devise that? Well, we carved out a portion of our ESOP pool and we dedicated it to players.

23:40So every game that they play in, they get stock options and it's subject to dilution as we raise additional capital, just like every common shareholder and primary shareholder doesn't prorate. That to me is an example of being able to give back and support my younger self in cases of, hey, those NFL players of the 60s, they were badass. They weren't paid nearly what the guys are paid today and they don't see the upside. And I love that program for you and what you're doing for all the players. Earlier on in your career, when you started making money, you realized you were going to start to do bigger and bigger things.

24:11Who did you look to for guidance and who helped you along the way? I shoot my shot. And by that is you guys know what I've done as a player and know what I'm working on as a businessman. I've reached out to just about every talented individual in the field of finance and thought leadership. So I'll give you two of my mentors, one of which is sort of a writing partner and thought leading partner in Ryan Holiday. And then the other, which many of your listeners probably know now, is Scott Galloway, who just wrote The Algebra of Wealth and is a heralded podcaster, but a nine-time entrepreneur. My mindset, I will share with you another person who I've never met, but studied quite a bit in Nick Saban.