Bayonet the Wounded
Today is not Yesterday.
I personally know of no player, big or small, in this sector, not in the middle of quite significant “strategic revaluation” or “pivot”. Comcast looks to be trying to exit Germany, at any cost. Showtime is dropping sports.
Media conglomerates apparently aren’t that keen on our “special” sport content anymore.
All this is often through no fault of our industry. It’s just that the world has changed in many interconnected ways. Times are a lot lot tougher. Founders I have not spoken to in years asking what to do; people mid-career sensing the thin ice, and asking a view.
This is a moment when grey hairs matter.
Because anyone younger than 45, who hasn’t really seen a business cycle turn, hasn’t seen a proper cleansing recession, is now at a disadvantage. Conversely, some of those who have seen all these things, and have the tee-shirt, come across like General Patton, with their battle-hardened pragmatism:
Rog, it’s now a time to bayonet the wounded.
Now, I am as capitalist as they come. I absolutely believe in creative destruction for progression. I also have a penchant for a competitive rammy but, even for me, that phrase provoked a sharp intake of breath. Its imagery is so powerful.
The context of the comment was a positive one for sport, in explaining that capital is still out there, “for good businesses”. Opportunities galore for this industry of ours. Good companies will survive, just maybe not at that valuation.
The battlefield is always about least-bad choices for the greater good.
The comment from my fellow diner, like any good wartime veteran, is all about triage. Some businesses are just not built to survive a recession.
The Collins Dictionary defines “triage” as such…
…a system of assigning priorities of medical treatment based on urgency, chance for survival, etc. and used on battlefields and in hospital emergency wards.
…any system for prioritizing based on available resources, manpower, etc., as in an emergency.
In this industry of sport, we all now need to assess the emergency, consider available resources, and, crucially, assign priorities.
The weak will be put out of their misery. We can’t save them, so why prolong their agony? Buzzer comes to mind. Rights holders too. Broadcasters are doing exactly this with their bids for sports leagues. Ligue 1 in France went “no-bid”.
This is triage.
In the old days, we called it bayoneting the wounded. It is indeed a generational thing. Younger people won’t get this, and they will be horrified at the callousness, but this is how it used to be. How economies and business all worked.
The ones that don’t make it… don’t make it.
It’s the way it has to be. It is the life we have chosen.
Capitalism without failure is like religion without hell.
That is the bottom line.
PS. Every single person interested in business should just read a list of all Charlie Munger‘s quotes. You will come out the other end simply a different person. He is the Yoda of our world.
But why do I think younger people won’t get this?
Is that a reverse ageist comment?
The answer is, in short, because they haven’t seen a real recession yet.
For 25 years our governments and leaders have made every single effort to prevent them, and try to eliminate what is called the “business cycle.”
Here is how finance literature defines a “business cycle”
Business cycles are a type of fluctuation found in the aggregate economic activity of a nation — a cycle that consists of expansions occurring at about the same time in many economic activities, followed by similarly general contractions (recessions). This sequence of changes is recurrent but not periodic.Investopedia
The Murky World of Finance.
Finance loves to make it difficult for others to understand, doesn’t it? Knowledge is, after all, currency. You can’t have everyone understanding how the game works.
Here instead is a clipping from my own book, Sport’s Perfect Storm, which is in reality a modern finance textbook teaching old-school axioms, via current examples in sport and entertainment:
In bad times, no one has any money to buy things, to consume. Inflation is low as there is no demand. Low inflation means low interest rates, and cheap money incentivises capitalists to invest in new ideas, new projects and new businesses. This puts money in people’s pockets, they start to spend, the new businesses see demand rising, and make nice profits and returns. This encourages other capitalists to try and do the same; they invest also. This is known as boom times, called the bull market part of the cycle, where loads of optimistic capital, walls of money, push demand for goods and labour; wages go up, and so do prices. There is then over-investment, often malinvestment, causing overcapacity. Too many capitalists chasing the same return, profits go down at the same time as interest rates are going up to combat rising inflation. Companies start laying off workers, shutting down factories, people have less disposable income to spend if they are unemployed, inflation comes down. That is a recession.
All this is the “business cycle”. Where the bull is always followed by the bear, where boom is always followed by bust. Where the battlefield needs to be cleared, where the wounded need to be bayoneted.
It is now time for the business cycle to do its thing.
My lunch partner meant exactly this.
Recessions have always been seen by serious people as a necessary and inevitable cleansing reset. A positive, even. The business cycle is as natural as the moon and the tides, and used to work very well.
Recent decades however have seen dramatic changes to this “OK Boomer” reality. Politicians don’t get re-elected in the down phase of the cycle, so those folks looking to maintain power will try to prevent and delay it, being much more “interventionist”, in monetary policies, trying to game the system.
The phrase used for this is “kicking the can down the road”. Deliberately low interest rates, excess debt, and money printing, to keep the party going. It is the leitmotif of this millenium.
The bill however has now been presented.
The sports industry, the tech and media industries, the digital industries, for a generation have suffered from exactly this.
loads of optimistic capital, walls of money, push demand. There is over-investment, often malinvestment, causing overcapacity.
Sport has a glut of everything, especially when its revenue model, the PAY TV cable bundle is dying. Too many broadcasters, data companies, bookmakers, streaming platforms, agencies, engagement widget sellers, consultancies, podcasts, media companies, conferences.
This is the thought that stayed with me leaving my lunch. And prompted this Sunday Column.
Too much easy and cheap capital has allowed too many people to try and build their own spaceship. They have all been independently reaching for the stars, riding on a unicorn. Scale scale scale, build your own tech stack, your own dev team, your own sales force.
The one-page summary for our sector is this.
So how will that all correct itself now?
On reflection, the Silicon Valley Playbook was, and is, a very basic paint-by-numbers manual, only fit-for-purpose in a bull market. It’s pretty much useless when the business cycle turns, as now. No answers will be found on Sand Hill Road.
In the old Charlie Munger days, business instead was about working smarter, because there wasn’t all this cheap endless capital. It was expensive. So you needed to operate shrewder, partner up more, do deals with suppliers and clients, JVs.
You just couldn’t always throw more capital at your problem.
What I see in the sports industry today, every single day in 2023, is very much a return of the operator, the deal-maker, someone who can get to their objective without needing to spend their backside off.
People in sport are now calling up each other to do deals. Share risk. Because the capital to build their own rocket ship is gone. They need to share with others, who already have other parts of the value chain. You’ll see a lot more M&A.
Our industry pretty much started with Mark McCormick.
His book, “What They Don’t Teach You at Harvard Business School” is once again essential reading for this new world of finite and expensive capital. Doing deals, selling!
Similarly, this Column is very fond of the film Margin Call. So many great lessons.
Do you know why they pay me the big bucks?…To tell them what music will be playing tomorrow, and next month, next year.
They pay you to see the future before everyone else. Vision.
But they also pay you to bayonet the wounded.
Sell it all, …today.
So that we can survive…
Triage in action.
I am sorry if that seems unpalatable. Maybe triggers some people. I don’t care. This isn’t the nice, cosy, world of happy clappy Kumbaya that so many kids think it is. You may be prioritising diversity and inclusion, and rightly so. But I am afraid, in the world of triage, of the grizzly CFO, that’s going to be low, low down the priorities.
These are all bull-market luxuries. Look around you. It’s the bloody cold jungle out there. Life or death, often literally. Grow up time, folks. The £12 avocado on toast is off the menu.
Let’s end with one sports example that perhaps includes both the vision and the culling thing. I’ve always been a big fan of celebrity boxing. The record shows that I was confident it would work.
This week’s show in Manchester is now playing a new tune for me. Different music.
I think it’s about done.
At best, a clear zenith. The PPV numbers were great, but if this was a stock, I’d now be shorting it with enthusiasm. The Paul Brothers and their bombast have suddenly both become rather uninteresting.
KSI, who is the real star, can’t carry this circus on his own. And the Fury clan, led by dad John, have become boring in talking up what is the runt of the family; Tommy.
Here is the music changing.
My advice to DAZN and Nakisa, Eddie Hearn etc, would be:
Get yourself a wartime consigliere…
If I had a wartime consigliere, a Sicilian, I wouldn’t be in this shape.
… and bayonet the “celeb boxing” wounded!!!
This Column has a final positive message. Again from someone old with grey hairs.
This right here, right now, is the moment to move. In adjusting the assets you decide to hold. What to bayonet, what to acquire.
The time to buy is when there’s blood in the streets.
If sport is truly an asset class, anyone operating in this industry, needs to reflect on all this, before deploying capital. We are living in very turbulent times. One needs to look no further than the recent price action in bonds.
For many years now, the capital markets have existed in a parallel universe of manipulation and central bank intervention, around ultra low interest rates. This has put prices on all kinds of asset classes, including sport, very removed from their intrinsic values.
Anthony “Tony” Deden
Tony Deden is one of the greats in understanding long-term “value”, as opposed to price. I have come to know him well through his friendship with Grant Williams. His life story is truly rare, and the 3-hour video interview with Grant is the gold standard for elite financial media. In writing a book, on serious finance, I consulted Tony‘s wisdom regularly. These 40 rules are essential reading. They really are.
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