The WNBA's Expansion into Cleveland is Powered by Private Equity

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0:29Welcome back to The Deal. I'm Jason Kelly alongside Alex Rodriguez. Coming up, Karen Ortman. Alex, this is someone, she's a friend who I've really gotten to know through the context of all the work she's been doing in women's sports. She was one of the co-founders of Angel City. she created alongside her partner, Jasmine Robinson, who has been on this show already, Monarch Collective, which is the first dedicated fund to women's sports. And the big news is that they are getting into your business. Monarch is going to be an owner of the new expansion team in Cleveland. Indeed. And you talk about a great ownership group and management team.

1:06Cleveland is as good as it gets. So they just got better with Monarch. What I'm really interested to hear from her, this is someone who's probably done more work and more research on women's sports than anyone alive. Totally. And put more money to work. Exactly. Yeah. I'm interested to hear a little bit about her investment thesis. Where are we in the investment kind of tenure of the world of women's sports? And really excited to dig in into this Cleveland deal a little bit. Yeah, exactly. And what's interesting about this Cleveland deal is it comes on the heels of four deals that they've previously done in soccer.

1:39Three in the NWSL, Angel City, San Diego Wave, and Boston Legacy FC. That's one of the newer teams in the NWSL. They also went overseas and bought into a club called FC Victoria Berlin. They're in Germany. So, you know, basketball is new for the firm. It's not new to her. She's a longtime basketball player, and I know this was something they had been circling for a long time. So what was the catalyst? What got them there? And what are they excited about, to your point? So coming up, Kara Nortman.

2:20Welcome back to The Deal. I'm Jason Kelly alongside Alex Rodriguez. So excited to have with us Kara Nortman. And she is the co-managing partner, founder of Monarch Collective. And what a treat to have you here. We've been circling this one for quite some time. We had your partner on, but we had to talk to you because you have a new deal. We love talking about new deals on the deal. So welcome. Thanks for having me. Super excited to be here with you, too. All right. So let's talk about Cleveland. recently announced that Monarch Collective, the first institutional fund to become a shareholder, an owner in the WNBA, it caught a lot of people's attention, mine included.

3:02You and I have talked a lot about it offline. So let's talk about it online. How does this deal come about? Tell us about it. Yeah, I mean, everything at Monarch really does come about the same way. We are a thesis-driven firm. And truly what that means is anything we're working on, we're usually studying trends and markets and trying to build real authentic relationships over not months, but years. And so when we started Monarch, Jasmine Robinson and I launched it January 1st, 2023, we had a number of theses, but the two main ones that we were spending the most time on were U.S. soccer, European soccer or football over there and women's basketball.

3:44And I will say when we started, there was a ton of skepticism around women's basketball, though people were bought into soccer and we can come back to that. And so, you know, in a lot of ways, we just start like, well, we're looking at media trends. We're looking at fan base trends. We're looking at arena dynamics and stadium dynamics. And can you build an amazing fan experience and capitalize, as, you know, a practice experience in a way that lives up to the values of Monarch. And basketball was incredibly exciting and interesting to us. And so we spent a lot of time doing all those things I just said.

4:19And then in the middle of that, we had a woman named Caitlin Clark come on the scene. And it was sort of like, we were knee deep in trying to figure it out and do our thing. And then the world kind of, you know, woke up. So how do you go about choosing where you're going to go? How does Cleveland specifically come into the picture? Yeah, and by the way, when I say the world woke up, I want to pay homage to, you know, five million people watched Liberty play in the original season, I think it was in 1997, and David Stern, Adam Silver, Kathy, and all the people who've put decades of work into doing this, but you kind of like see these inflection moments and the data.

4:55It was a sea change. I don't think, yeah, that's a very defensible position. I mean, we look at like the same four or five things. We really have, we have five values at Monarch. We run everything through them. And the way I look at it is sort of like we're values-based and we're impact-oriented. And then we're also market, partner, league, team-oriented. And so both of those things have to happen. So what did we do? We spent time with a lot of different teams. I mean, we call Alex and the team over in Minnesota. And we spend time with different teams. And honestly, a lot of this is sort of like, OK, what is the arena dynamic?

5:36Is it a new team or an existing team? Is, are all the regulations and rules set up for us to come in in a thoughtful way and partner in a way that the league is looking for us to? But I'd say we look at market, partner, arena dynamic, practice dynamic. And then like, is there a spiritual alignment in terms of you want to build the best experience in the world, in this case for fans, for players and for front office? And then it's just and then who wants to work with us, you know, because there's it's I think many people would like to be a part of the WNBA. And we like to be in partnerships with people who also really want us there and value our perspective and like a little bit of friction.

6:19You know, we describe the WNBA as a hyper growth league specifically. And again, not to be specific about Cleveland, because I know you have restrictions, but just in generalities. Are you looking at multiples of revenue? And when you look at multiples of revenues, are you putting a higher premium, meaning you would pay a higher multiple for a primary market versus secondary or tertiary market? Walk us through that a little bit. Yeah, I'll walk you through it at like a monarch level, right? Because we now have, we're now involved in five teams and a rights-based business that we fully incubated just for women's sports.

6:54And so four of them are soccer teams, three in the U.S., one in Berlin and Germany. And all of the other teams are independent teams. and this is a team that's affiliated obviously strongly with an NBA team. So we definitely, I would say like one of our core values is creativity and one of our core values is patience and another one is discipline. And so I think they all come to play when these transactions actually work, which is, yeah, of course we look at revenue multiples. Of course we look at the market. And I'll tell you like where I think people kind of unpack those in ways that are universal, but also sometimes miss the nuance of how you might analyze a Cleveland versus another market, which obviously Cleveland isn't one of the top media markets in the world.

7:34But, you know, there's all this public data out there about Cleveland. They sort of overachieve in terms of ticketing revenue, local viewership revenue. In the case of the W, there's only 16 teams, right? And you have more region you can kind of capture and you're at a moment in time where you have 16 compared to 30. And how much of the Midwest? How does Manchester United become Manchester United? How does the Dallas Cowboys become the Dallas Cowboys? What is it about what you do that's local, that could be universal. And how does the team see that? So we definitely look at all the things that private equity investor would look at, but there's so many characteristics.

8:11And again, I'll talk about soccer because it's probably easier to, right? Like in Angel City, this is the team I co-founded with Julie Irman and Natalie Portman. The public valuations came out recently that put it at, I don't know,$335 million. Like, how do you get to that. Well, it's revenue, it's multiple, but in that case, you can look at season tickets, the market, et cetera, but also how much capital needs to go into these teams to build to the next phase, right? Because you're investing at a point in time and it's not the valuation then, it's who's going to kind of, who's going to capture sort of all the right things to command a premium valuation and have Mark Walters come in and break records and multiples for the Lakers five or 10 years from now.

8:55And so we're very disciplined in how we set up structure, how much capital something will consume, looking at everything from the income statement to CapEx that will go into arenas and outfitting them for teams or stadiums and outfitting for teams and building practice facilities. And then we really like look at how much a partner, like to the extent there's a control owner, which there is in four out of five of our teams and a founding group and the fifth one, how are they thinking about building a modern fan base, supporters groups, and like storytelling and relationships with sponsors? And it's pretty, it's like 80 % is best practice.

9:33And then 20 % is very unique to that environment. I love that. So help us understand if you take a 10 % stake into X team and is enterprise value of 200. You read a$20 million check with no debt. If that grows to be a billion dollars of enterprise over seven to 10 years, how does Monarch profit? And how do you guys make money as partners? Yeah, it's a good question. I mean, we're structured like an investment firm, but I think we operate more like a company. And I'm going to answer your question, but I'm going to give you a little bit of context first. When Monarch launched, We were the first and only dedicated fund investing in women's sports and really, really the only one.

10:19And we set out to raise$100 million. We ended up raising$150 million and then growing that to$250 million and stopping there. We've always wanted to raise enough capital to show up and be able to collaborate at$5 or$10 million type investments or with CoInvest and with the families that have supported us, 60 % of which are women and representative men, I would say, by number. We try to show up with like hundreds of millions to doing work, operational type work at very low checks. And so your fund size kind of becomes your strategy in that regard. But we're all ex-operators. We hire operators really primarily like and train people to structure.

10:59Jasmine and I have spent our whole career structuring. That's really important. I think we're really creative in how we structure to what the partner wants. But I would say without getting too much into the detail, because we are working on setting up our second pool of capital right now. We think about how to be really aligned with the people we're working with in terms of duration and hold periods, and then create ways over time for liquidity where we have this very, I would say, premium set of teams we work with, but we really show up as partners in a thoughtful way to understand, like, the value of these teams may grow as much in year 7, 8, 9, 10, even 15 as they do in year one.

11:37And we've learned a ton by being the first and being slow and deliberate, working with leagues, and then really understanding how to line things up with an LP base who really sees the value of what we're doing. That$150 to$250 was a little unconventional. We reopened our fund after a year because the market grew so much. And that capital primarily came from our existing investors because I think they were so impressed with the potential for value growth over long periods of time. and they were just really hard things to get done.

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12:50You are the first institutional capitalist, as we talked about, the first fund to take a stake in the W. Part of that is driven by what, part of the appetite on behalf of yourself and your LPs, clearly is driven by what we've seen happen with valuations. And you mentioned Angel City a minute ago. Liberty and Valkyries, this is public data, have been estimated, according to Forbes, over$400 million. These are fast-growing assets, to be sure. What is the role that institutional capital is playing and should play? Because that does change the dynamic when, and Alex knows this very well, what is the right role of institutional capital here?

13:31Yeah. Well, I mean, listen, like we started with the NWSL and that's where I started. I started focusing on women's soccer in 2015, coming out of a World Cup game where I just couldn't, you know, you know the story, couldn't buy a jersey, etc. And then just historical context, we raised less than a million dollars for Angel City, a$6 million valuation three weeks before COVID, into a C-Corp, where it was initially owned 100 % by me, Natalie and Julie, and then brought in great investors along the way, a number of great investors like 776 and others. But we paid$2 million for that franchise. The league was extremely risky at the time.

14:07I mean, the reason it was structured that way was because it was risky. Risky because, sorry to interrupt you, but just historical context. It was risky because two previous iterations of the league had failed. Like, I mean, people had lost money. It wasn't, you know, it wasn't like, well, it may not be as big as we think. It may just not work, right? I mean, yes. And I mean, I think this is where, like, these words that were always said that I really understood when I came into women's soccer is you could do first principles thinking. Like, why was it risky? at the time you had one team who would put butts in seats and that was the Portland Thorns.

14:41And we were fortunate to like be invited up and to study them and to go to games and to meet with their supporters group and to look at their model. But they didn't have a commercial arm. It was, it was entirely run by the men's team and they didn't really have a P &L, but they had fans. And for me, it was always really simple. If you could put butts in seats and create a great fan experience. And then the reason I initially got involved was because I was an advisor at the US Women's National Team Players Union, right? And that's how I got to know Natalie. And it was like, okay butts in seats great player experience what does that look like there was a lot of learnings for us around that lots of learnings around that in the early days but then if you can feel like to me it still starts with if you can have a product the fans love every other revenue stream comes from there and then where are you going to be the most innovative like i was listening to your savannah bananas episode which was great and that's a great story it's like women's sports in a way has more analogies to savannah bananas or like what heated rivalry has done to the nhl You know, these I look for like inspiration from what's going on in men's sports, but and then best practices from the best leagues in the world, like the NBA and the NFL and the MLS.

15:44It's had to be really innovative. So I guess where I was going to go with that, though, is it became de-risked in my mind for a couple of reasons. And I think this is what you're seeing happening in spades in the biggest leagues in the world. And we at Monarch just try to focus on things before the rest of the world is. And sometimes we're a couple of years early and sometimes we're a couple of months early. and sometimes Caitlin Clark shows up and we're sort of maybe just right on time. But as you guys know, right on time gets hard too because there's like access and then what do you do with that access and why would people want to work with you and how do you build that reputation?

16:18But to me, what de-risks these leagues are people wanting to show up and show up again and again and again and build real community and put their butts in seats. Then it is having excellent ownership groups. And, you know, that's something the NBA has in spades and, you know, Team Bo for decades and best practice sharing. But like, how do you actually create great player experience, great fan experience? And then it's like one of the key metrics we look at is media revenue. Right. And so we're primarily in sports where early signs of media revenue is going up and to the right and where you can build a P &L to break even or better.

16:57Right. And then you have to decide, do I want to be break even or do I want to make money? I think in women's sports, there's so much opportunity to innovate around the rights, around media and distribution, around storytelling, around how you partner with like sponsors and, you know, partners in that regard who've never advertised before in sports, period, that you probably want to run these businesses kind of break even-ish when they get there. And then you want to be in sports, I think, that people want to watch around the world, you know, and that have global audiences. And so to answer your question around that was risky, As things de-risk, I think there's more room for institutional capital.

17:33And then each league is different. And in the NWSL, we're in three teams there. So we have a lot of experience. And we're just not involved at all in the player side. I rolled off the board of Angel City. I fundamentally changed my founder role as soon as we invested in Boston. And we take it really seriously to show up in the way the league wants us to and our partner wants us to. We're really a minority investor that tries to be there at the service of the team and the league. So, Kyra, I want to go back to something you mentioned earlier, which I'm very intrigued. You targeted 100 and somehow you ended up at 250.

18:08I guess my question is, what is the theses about your story that landed very well for your LPs, your limited partners? And what was it about the story that you particularly told that you think had to stick, especially in a capital raising environment like today that's very challenging over the last three or four years? I just got the chills when you asked that question. I think it is around true partnership. And I was like built to partner. I love to lead. Jasmine loves to lead. But, and I mean, I'll back up for a second and say like this time, this week for the first time in a few days, I'm going to speak publicly for another network.

18:44so I won't mention it, but around how the Enneagram or how I've used or we've used unconventional tools, personality profile tools, team building tools to really understand people as we're hiring them and bringing them in. Julie, Natalie, and I use the Enneagram together. I mean, it's just a small example, but I think I've been thinking about it a lot. I spent the whole weekend writing a four-minute speech. Hard to say things briefly. And Jason has actually inspired a lot of my understanding of this in a way. It's like you do something, you don't know why. Like, why are you both the best at what you were doing and are doing at different stages?

19:17It's like, you love doing things a certain way. You work your butt off, right? Like there's nobody who works harder than me, Jasmine, our team. But I think it really is understanding how to build a partnership with intellectual curiosity, friction, and then also understanding that to be the one of the best investors in the world at whatever you do. And we're fortunate enough to have passion and care about a market that was growing before people really looked at it and to really know ourselves as the market was growing and not need to do everything, but do specific things in a specific way, the monarch way.

19:51But to be one of the best investors in the world of what you do, you have to dedicate your life to it. You have to have a real reason for what you say yes to, what you say no to, what you say maybe. Like one of our unofficial mottos is we waste time with the right people. Like we'll sit down and just do work for leagues or teams quietly behind the scenes as a favor, as friends. We've done that with leagues in Europe. Hasn't led to anything yet, but you know what it's led to? A lot of wonderful relationships with regulators and league officials. And people see that we have a passion for building in a certain way.

20:25So it's maybe a little bit of a, I mean, it's just basically, I think the way you build intellectual curiosity, you know who you are, you know who you're not. And I would say probably 80, 90 % of what we work on is like what I would consider proprietary or quasi proprietary. They're just not things that go to market. And we will work on things that go to market. We've done, I think one of our transactions is that, and then we really want to win when we want to win. But we really try to be in front of things and have people want to work with us because of who we are and the value we bring, not because we're the lowest cost of capital.

20:59To follow on Alex's question a little bit, Kara, I mean, I do think it's interesting when you think about your LP base, you know, we love referencing the, the deal cinematic universe, Billie Jean King, I know, and a lot of our investors, there are a number of notable people, Melinda French Gates, obviously, Sarah Harden from Hello Sunshine, Cindy Holland from who used to work at Netflix. I mean, these are, these are very powerful people who have bought into this story. You mentioned earlier, sort of the, the increased appetite on the part of limited partners, as they saw what was going on, setting Caitlin Clark aside, because obviously that was a really interesting moment for women's sports.

21:42But what were the other things that they saw that they told you were going on in the market that inspired them to say, you know what? I was in for 10, now I'm in for 20. Or I was in for, you know, one and now I'm in for four. Well, like whatever that may be. Yeah. Well, first of all, I'll say like, I have realized people try to scare you about fundraising, right? And I definitely was. Like I made a big career switch. I left the firm I was at. I had just been promoted to managing partner. I'm responsible for making money for my family. And to take my salary down to zero, to go launch a women's sports fund where really like there was one team P &L, maybe two or three were starting to emerge at the time to go do this.

22:21It was like, I couldn't not do it. You know, it's probably like, Alex, you would have probably stuck around on the minors for a long time to make it up. You didn't have to. And so. So, Alex, the minor leagues is this other thing that you do when you're trying to get to the major leagues. Like the G League, right? Yeah, exactly. Exactly. Exactly. Have you heard about it? We could tell the Lauren Betts story, right? And her Stanford freshman year. And I'm wondering, I mean, these stories are incredible. But anyway, I was going to say, so I do think like one of the things I've realized is I love relationship building with LPs.

22:56And I will probably put a lot more time into that than many people who view it transactionally. And then you do have to get transactional, right? Because everyone's interested in what we're doing. But like only to say that we work with some extraordinary families, like institutional families, who often will start with a small three, four, five million dollars,$10 million, and then grow with us. And we will go on that journey because we'd rather work with 20, 25 people that we can work with for the next 50 years as the market change. That's like alignment from your LP base to your strategy to the teams you work with is so important.

23:32And growing, I grew up investing. I worked at a number of funds, Morgan Stanley and their merchant banking funds straight out of college. I worked at Battery Ventures, for and after business school. I worked at Upfront Ventures. So I had, Jasmine worked at Causeway. She worked at the 49ers when they were launching kind of all of their other investment initiatives. So we've had a chance to like really work in private investing. I think honestly, in the beginning, it's what they saw in us. I think a lot of people took a bet on us. And then the people who ended up being our bigger LPs, you know, I'm just thinking about a few here.

24:05And they're not than any of the names you just mentioned. I mean, Cindy is one of them. Sarah is one of them. Actually, they're all one of them. I shouldn't say that. They're all one of them. But some of the other people who you wouldn't know, who are a managing partner of a private equity firm, I spent a year helping them think about how to buy a soccer team in their market, just because I wanted good people to own teams. Jasmine would do the same thing. It's like, she ran a skateboard league for someone when she was at Causeway. Like, both of us have been CEOs. And so I think it was us initially.

24:34And listen, like, I think Jasmine was a full partner at a young age at a very well-respected growth equity firm. She's a superstar. You guys know that. And And we're incredibly, like we have similar backgrounds, but actually incredible compliments in how we show up. And then I was old. You know, I was in my 40s and people had followed me for a while. Please don't call that old. Please don't call that old. Actually, I think I'm younger than both of you. Yes, you are. I'm younger than both of you. Barely, barely, Alex, though. I'm a bicentennial baby, too. So, yeah. So, anyway, I think it was like actually doing real work with people.