Finding the stop-loss in sport.

Many thought that the Wrexham FC celeb story would have legs.

It was, and is, the early poster child of Sportbiz 2.0, where audience, influence and followers can trump tradition and the natural hierarchy of things.

To be clear, in old money, proper footballing currency, Wrexham is a diddy team. But Bloomberg now reports that the Welsh club and its Hollywood owners are looking to raise money at a $475m valuation. Explained here.

Half a yard! 

Even in today’s distorted capital markets, that’s having a laugh. You could buy all the clubs in the Scottish Premier League for that amount, including the massive institutions of Celtic and Rangers.

In fact, watching all this, you can easily feel yourself going insane. The entire world, certainly the capital markets, all look to have lost their collective marbles.

A sense of perspective.

For many, “The Bird Cage“, a remake of “La Cage aux Folles“, is one of the greatest films Hollywood has ever made, included here today as a belated homage to the giant that was Gene Hackman. And of course Robin Williams, giving arguably his greatest ever performance.

One misses the balance and common sense of the 90s, a time when a team like Wrexham didn’t ever trouble the sporting and financial news cycles. When we were all Likely Lads, self-ironic and up for a laugh, but always very aware when someone was taking the piss irrationally exuberant.

Today we seem to have lost the skill of just calling out obvious bullshit nonsense.

🎶 Oh, what happened to us, whatever happened to me; what became of those people, we used to be.🎶

Time passes, but not everything changes. Today’s Sunday Column is a reminder of the old harsh realities that are still out there, and really never go away. They just get forgotten. 

 

Mr Market has no opinion, only arithmetic.

Any market (price) will always be a simple supply/demand meeting point between people who have different views on the value of an underlying asset. Economics 101.

There is no right or wrong, because, de facto, price reflects exactly the weight of buyers as opposed to sellers, and goes up and down based on the preponderance of people who are optimistic (bulls) or pessimistic (bears). You get upward moves in price action when more buyers come in, fewer sellers are around; and vice versa.

Assessing the future direction of sport valuations is no different, and that’s why it can screw with your head. On fundamentals, multiples of real profits and cash flow, Wrexham isn’t worth anything like half a yard. But if you think of how many more patsies buyers can still get sucked into the narrative, who knows? 

Value, like beauty, is always in the eye of the beholder. And subject to context. A bottle of water in the Sahara doesn’t have the same worth if located in the newsagent in Salford.

In recent weeks, our Column has lost itself romancing over these intangibles, and the huge underlying glory of traditional sport. Everyone who loves our games, who maybe even claims that they are more important than life or death, is similarly convinced that our industry is unique, and of infinite value. It is what they want to believe.

 

It is what I want to believe.

So, when we see really bullish reports on its present, and future, commercial value, we all naturally feel good, and not just because it’s the industry from which we earn our crust. Two Circles recently gave us one of those very reports: Global sports industry revenue reached record high in 2024: Report”

The London-based sport and data agency has taken in significant private equity investment, as a “pure play” vehicle on exactly this: the commercial growth of the sports sector. So, in capital markets lingo, some may call this type of report “talking up your own book”.

And so Two Circles should. To date they are moving very well with their build-and-buy strategy, and Gareth Balch is strutting around with more than a little panache. Chest out, a soupçon of arrogance. Confidence often is a self-fulfilling prophecy. 

I want to be believe that Gareth’s report is true. And very possibly it is. But I shall leave my conclusion to the end of today’s diary. 

 

You can make money in all markets. It’s just about spotting mispriced risk.

Seeing the “value bet”.

What we can say with absolute certainty is that there are today so many great situations from which to make a lot of return in sport, simply because the underlying product is indestructible and popular. When its business models and value chains are also changing so dramatically, that’s just perfect fertile terrain for investors. Where people are desperately divesting of assets because they need to pay down debt, even better again. Forced price-insensitive sellers are always the best prey, especially when VOL (volatility) is high. 

Regarding divestment specifically, isn’t it rather disconcerting that Sky Broadcasting Group and TNT, the financiers of sport in Europe for 30 years, have now been marginalised by their parents Comcast and WBD, as non-core content assets? The entire broadcast model that has financed us for decades is being thrown overboard, because seen as ex-growth. That’s not banal. Watching where Sky ends up in the Comcast/Versant spin-off will be educational. If with Comcast, its future is as a connectivity company. If with Versant, the vision is more around content and rights. Either way, we are in a new world for rights holders, where bids ain’t going north. 

Even in sleepy Como, we see good opportunities every single day. But, amongst all that, we also note what any serious corporate financier would label as the delusion and complacency of the bull. Or better, the sheep. The lazy paint-by-numbers accepted wisdoms, often with misguided core assumptions, that too many throw around as an “unmissable opportunity”. The stuff that never wants to consider both sides of Mr Market’s personality. 

 

In good investing, timing is everything. 

For sure, some people may very well make money in women’s sport, but nine out of ten will absolutely lose their pastel chemise. I can guarantee that. [£200m for Chelsea Women? That makes Ryan Reynolds‘s Wrexham “ask” look positively undervalued.]

It’s going to be very very hard, because the ladies have got very unlucky in timing. They, as a movement, are coming of age exactly in the eye of “Sport’s Perfect Storm“, with decaying media values, and a likely upcoming recession. Those are massive headwinds when you still have to prove product/market fit, and build audience. Ten years earlier would have been a completely different investment landscape for them. They got unlucky.

Oops… you don’t hear that very often, sorry!

In fact, being a good operator and investor is always exactly about forcing oneself to consider these places, where the heart and soul don’t really want to go. Actively resisting confirmation bias. Asking “yes, but” and “are we sure?” questions. And most of all never ever listening to the pack.

The pack doesn’t make money. If the pack likes something as an investment theme, get to the other side of the boat as quickly as you can. 

Wanna know why fund managers can’t beat the S&P 500? Because they’re sheep, and sheep get slaughtered.

– Gordon Gekko

CVC has got “slaughtered” in its sports investments: football leagues, volleyball, rugby. Its mark-to-market in all of those is likely a haircut of at least 70%. Were they sheep? Did they have the wrong advisors? Hubris after F1?

All of the above is the answer.

 

The uncomfortable bear case we need to factor in. 

So always find someone you can rely on to paint the worst-case version of a business deal. To spot the traps, and the swans that aren’t white. They don’t need to be right; they just need to be credible enough to make you hesitate for a moment, and consider both sides of Mr Market.

The 10th (wo)man. A quirky personality of immense value. You meet them rarely. I did recently.

I get around, but I don’t go to sportbiz conferences anymore. Luckily, I still receive a lot of DMs from the people who do.

Caveat Emptor!

We at Albachiara have always tried to articulate this bear case, fairly, authentically, and not just for effect. You always have do that, to look the bear in the eye, if you are writing cheques with your own money, whether in rugby, triathlon or the NCAA. Envisage in your own head the black scenario, assess the likelihood and cost of that risk, and then decide if the upside reward is more than worth it. That’s good investing in a nutshell, and it is a painful discipline. The path less trodden, and less popular, is always harder.

It definitely wasn’t popular to write a book called “Sport’s Perfect Storm“, and then double-down with so many Columns on the same theme. Telling people that media rights were in a bubble, ticket prices were overstretched, business models needed flipping, and capital markets were changing. It wasn’t easy emotionally, and for sure it was limiting in our market branding as an advisory company. No one ever likes the person taking away the punchbowl but, even there, it was a cold calculation of risk/reward.

Take a vocal but honest position, no matter how painful, and believe (in yourself) that the world will eventually catch-up. At which point, your brand will be rewarded accordingly.

Michael Burry ended up over $2.7bn. See you on the beach.

Assessing risk and reward like this is the core of every single decision you ever make in life, maybe save the person you happen to fall in love with. That one usually travels on its own track lines, without much driver input.

These are by far the most uplifting stories to tell, especially on a Sunday, and God only knows what we’d do without them. 

I believe he never really loved Kate Moss. I mean, I love Johnny like a son, but he never was the same. I believe, also know, he belongs with Winona. So many people try to tell him and Winona they should just talk. Winona kept him calm. Kept him cool. Not like out of control. I feel Johnny got arrested because Kate couldn’t stop him from being wild and free. Winona could. There was one night, and Johnny was really drunk, he was shouting ‘Winona! Winona! Winona! with Kate stood right there. They got into a terrible argument. You see, he was so desperately in love with Winona, he wouldn’t admit it was over for the longest time.

– Tim Burton

Glorious stuff.

 

In investing, as in life, it’s about how you react to adversity.

A previous Sunday Column labelled Redbird‘s 2022 purchase of AC Milan, at that $1.2bn valuation, as a “cardinal sin”. It followed none of the axioms of good value-investing, and over-paid the asset by, for me, $500m. 

Il Milan… a Cardinal(e) sin?

Gerry Cardinale handed Paul Singer that “half a yard” too much, (with which he could have today bought Wrexham)! Overpaid, and now not even popular with the fans. That’s a bad combo for football investing. 

Cardinale, devi vendere, vattene! Cardinale, sell, and get lost!

Ouch!

Gerry however is a fascinating character and a true star of our industry. He was a multiple AYNE podcast guest, and our sector is far more colourful for him being around.

I think that’s what you call a courtside seat. Good for him. You only live once.

Contact with Gerry since has kind of fallen off, and that’s normal. But the key point is that he is not alone in being a world-class operator who got just a wee bit exuberant a couple of years ago. Things like SPACs, A-listers dancing on your tables, always mark a top. Trying to buy a movie studio. Always a top! 

But, to be fair to him, when the music is playing loud in capital markets, you just fucking dance. You don’t get too intellectual and choosy about valuations; you make deals, earn fees, and leave all the navel-gazing to the nobodies like me on the sidelines. The Non-Playing Characters (NPCs) in life. 

And these columns have indeed offered a lot of opinions, regularly questioning many of the valuation numbers pole-dancing around sport, like Jenny (from the Block).

• CVC into rugby
• Broadcasters into French football and NBA rights
• Chelsea women’s team
• Ratcliffe into Manchester United 
• Textor‘s MCO valuations

Eccetera! Eccetera! Eccetera!

l’ll add Wrexham at $500m to that list today.

We don’t want a medal for this, and this isn’t “told you so” for hubris. It’s only to hopefully qualify with full credibility the next bit of today’s essay. To which one really should pay attention.

 

The intelligence of the stop-loss.

Great investors, and Gerry Cardinale is definitely one of those, know when to get out of a “losing trade”. The truly generational finance guys are the ones who can size positions correctly, and when needed exit a bad investment very quickly. That’s called “using a stop-loss”. 

The hardest thing in finance is to admit an error and reverse the positioning, because it crystallises losses and bruises the ego, especially in such a testosterone industry, and that goes to the very core of the Master of the Universe persona. It’s bloody hard to “book” loss, suck it up, and still waltz into Annabel’s like you own it. 

This however is exactly how you do it:

Bravo! E’ proprio così!

This honest, and perhaps personally cathartic, clip is the perfect synthesis of where we are. What is he telling us?:

1.
Every part of the sport value chain has been squeezed. No juice left.
—
Media rights
Ticket pricing

2.
There is a flight to quality, that some call Hollywood v Arthouse.
—
Causing a bubble
Killing the jeopardy of sport
Ripping apart the integrity of leagues

3.
People are now relying on the “next thing”
—
Betting is the main name in the frame here
Praying crypto and web3 come back soon
Creating content with AI, saving on “commodity” HR resource

4.
There needs to be “ a soft landing” for the sports industry.
—
Anyone from a macro finance background will now be wearing a tired smirk, as they know how hard it is to pull off a soft landing

5.
There is an asset inflation bubble in sports …
—
… but it is still a great place to invest if you understand new models and new forms of monetisation, in a flywheel around the IP ownership

 

This is a tight and correct analysis of the industry vertical called sport, which finishes with a positive. 

 

But what about the “macro”?

Sport, or any other business sector, doesn’t live in a vacuum. It’s part of the wider macro-economy and its health, and being on the wrong side of that can be terminal. 

It’s the economy, stupid!

– Bill Clinton‘s campaign, 1990s

All good investors need to always be watching the Yellow Brick Road of the general economy, and let me tell you now that the sport industry is not paying nearly enough attention. They drink too much of their own KoolAid, and they don’t see the shifting plates beneath them.  And by God they are shifting!

We cannot ignore this when producing these glossy reports about growth in our sector.

Trillions with a “t” has now entered the macro lexicon. And that’s very bad news.

The levels of debt, increasing today exponentially, can’t be dismissed flippantly. The big bill is coming through the letter box, and maybe already has, with 90-days delinquencies on credit card, auto, and student debt all ticking upwards at pace. And it’s not just in the US, even though they alone, as the global reserve currency, would easily pull everyone else down if they blew up. People and governments are just maxed out. 

It’s also clear from the Musk failure in the “Big Beautiful Bill” that Uncle Sam absolutely cannot make serious cuts in its major expenditure lines, and the recent rise in interest rates (the 10Y) shows that the “bond vigilantes” know this very well. Yield is going up everywhere, and one should keep the closest eye on the Japanese bond market, via Grant Williams. 

For those interested, the scenario is simple. So much of Japanese savings over these decades has ended up invested overseas, because their domestic debt gave so little return in interest. Now that the “yield” in Japan is there (3%), smart folks are wondering if Japanese capital will now flow back home. If it does, a lot of asset classes will have fewer buyers on the bid, and we know what happens to price when the volume of buyers decreases.

 

Look, let’s cut the crap.

The big names in finance are actually telling us openly what is coming, and it doesn’t get much clearer than what Jamie Dimon is saying below. He is the most powerful banker in the world.

Tariffs, related supply shocks, and continued money printing are also all gonna put serious upward pressure on inflation, and governments don’t have much ammo left to fight it, without serious pain. They are boxed in, and these are the phrases they now use: “let it run hot”; “ inflate the debt away”.

Inflation is coming, so assess now what that means for your own business and investment portfolio.

Consumer confidence numbers are also trending incredibly low. Corporates all expect to be cutting capex, and 83% of CEOs expect a recession within 18 months. Employment is gonna come down, as seen clearly from corporate hiring plans and announced layoffs. And that’s before Mr Goldman Sachs‘s opinion on the inevitable AI massacre.

To quote my buddy Grant Williams, commenting in his latest TTMYGH:

It’s the end of the financial world as we knew it.

Paul Singer, the guy who screwed negotiated Gerry so well on AC Milan, is another with a clear opinion, He warned last month of “capital flight” from the dollar that could lead to “enormous” damage.

 

Apply your own thinking.

For some, all of this has been blindingly clear for 5 years, but it is still only one side of Mr Market. Other brands, other opinions, are available, and this is absolutely not investment advice. In fact one can find many people very bullish on everything.

Remember a market and its pricing is the arithmetical meeting place of bulls and bears. So if markets are efficient, prices today must be all fair and correct. Even Wrexham, even Chelsea Women, even Tesla. Everyone will just have to apply their own thinking, ask if markets are indeed efficient, and get off that stupid fence. This is a moment to have a clear opinion on where we are, because there is a lot at stake for you and your company.

As promised at the top of the article, an opinion from me is overdue and, for what it’s worth, I personally think there is significant risk of the Two Circles report not being correct. At best, the total industry may deliver that growth, but its constituent make-up could be very different from the accepted wisdom. Media rights values could deteriorate much quicker than expected. A recession would kill disposable income and sponsorships budgets. But, on the other side, the expansion of the definition of sport content into “general entertainment”, via the platforms, may allow us to gain market share of other fan expenditures. Digital props, virtual goods, micro-transactions.

But what do I know?

 

Michael Burry made a fortune in a bear market. 

Don’t be sad. Opportunities lie everywhere in sport if you have got talent and vision. It’s just not going to be as it was in the last 30 years. That skillset, and its practitioners, are obsolete.

Again, don’t shoot the messenger. Sorry!

Papa’s got a brand new bag.

There are bullish trends.

Global tourism, especially from Asian and Arab middle-classes, will prove a huge boost to sport. We see it in Como, where it is truly booming. The new American PE owner of Verona FC told us recently of his similar vision, and we see this theme in all of the sport business models that now include city hosting fees. Sport generates economic activity, often in the travelling festival model, so prevalent now, from LIV, to PTO to SailGP, to F1, across iconic destinations. People and brands will pay to be around celebs and Hollywood, and maybe there are more than enough of these wealthy customers in the world now, even if Norm Peterson wouldn’t like it. 

Albachiara is also generally bullish on any authentic live match-day experience at affordable ticket prices, that offers a human, coming-together moment of shared emotion. Likely tribal. The apparent rise in lower-level football in Europe. Never mind the quality, feel the width, is a valid investment thesis. 

It’s just the middle, between this Hollywood and Arthouse polarisation, that is fucked squeezed!

 

Who will build the new Perform for YouTube?

The other significant opportunity we see for investors in sport is around the platforms, principally YouTube. Albachiara took a very bullish position on all this about a year ago, because it’s similar to another moment in time in our industry. The rise of Perform. 

Perform exploded as a major agency because the incumbent, IMG, didn’t see and understand the new market dynamics in digital and data. We are now in a similar time, a moment of denial, where rights holders are eventually going to realise that their cozy world is over, and that they need help.

To date in our industry, with the old media rights MG model, sport outsourced its whole value chain to the broadcaster. Marketing to fans, live production, and storytelling. If now the Skys and the TNTs aren’t going to be around for most rights holders, who does all this stuff going forward?

It will not be YouTube. They are not content creators. They are a distribution and discovery platform.

A new agency will rise, around storytelling, longform and short form production, live, non-live, official feeds, creator content. They will be channel curators and programming experts. They will likely also be excellent in understanding the secrets of smart digital distribution on social media platforms, that will then offer so many new revenue opportunities, cutting out middlemen. They will know the tactics to monetise Youtube functionality and reach, not least the new Google e-commerce announcements. News broken here. 

We can already see these service providers appearing. Cooler sexier sports production, like Omaha or Box-to-Box. Truly tuned-in modern creator services around the live game, like Little Dot Studios. To name just a few that we’ve seen across recent projects. The growth opportunities are endless for this type of agency, especially if it offers a one-stop shop that can hold out a hand to all those rights holders who are cast adrift by old broadcasters.

Maybe the agency will be called TwoCircles. Maybe it will be All3Media (a Redbird Gerry Cardinale company btw). Maybe it will be 54, who are quietly assembling a portfolio, in a strategy akin to WPP. 

The game is on, the opportunity is huge, because rights holders will go through the 5 stages of grief around the old model they all loved, and then they will panic. Whoever looks like a lifeline will pick up a lot of business.

The five stages of grief are, Denial, Bargaining, Anger, Depression, Acceptance. It is an interesting parlour game to ask ourselves where every rights holder in the world currently sits on that journey.

 

Sport will always be with us. 

Even if the next few years might be a bit bumpy, they are ultimately all good vibrations. If our world does go rather dark, sport will still not die. In fact, it will be the last thing to go.

It’s like Mother Nature. You can abuse it for decades, nuke it, and still every Spring it will be back, with a daffodil or a tulip. Sport’s role, in whatever society we have when we come through what is coming, is going to be central.

Like the text from my conference attender reads, it will be “a shrunken (but healthier) industry”.

Less scale, less vanity metrics, maybe even some positive cash flow. Athlete remuneration will be the shock absorber. 

Feel free to disagree. In sport, it’s all about opinions. 

You may like the Wrexham play, convince yourself that they can go up again and be worth a billion or more. You may also truly believe that there are so many sports funds looking for homes to deploy their capital that there will always be a bigger “bid” for the Welsh Club. You may even feel that all these assets are unique and scarce, and the numbers of billionaires in the world needing the ultimate trophy asset are increasing. 

All fair, but I personally don’t think like that.

I sit on the balcony and wonder if DAZN is going to buy the cable/Pay TV assets spun-out from both Comcast and WBD, and become the absolutely dominant player in the old market for sports rights. And they then could buy All3Media from Gerry, who needs to sell to pay back Paul Singer. That could be the best way for Saudi to control sport leading up to 2030.

Time for my stop-loss to kick-in, I think, before I get into more trouble.

Caveat Emptor.

​