Matt Lindholm serves as Managing Director, Investment Strategies at CAZ Investments. He is responsible for the portfolio management of both traditional and alternative investments and facilitates the ability of outside investors to co-invest with the firm and our principals & shareholders. He also serves on the firm’s Executive and Investment Committees. Matt has over 10 years of investment management experience, including significant experience in derivatives, options, futures, commodities, swaps, and hedge funds.
Russ Alan Prince: Can you tell me a little bit about how CAZ Investments looks at investing in professional sports as an asset class, and why investors should care? Can you explain why you don't have to be a billionaire like Jerry Jones or Steve Cohen to get this exclusivity?
Matt Lindholm: We are very thematic in our approach to investing, looking for major themes that we believe will prevail in the investable markets for the next 3, 5, or even 10 years. One of our major themes over the last several years has been The Changing Consumer, and more specifically, the phenomenon known as cord-cutting.
For many years, professional sports had what was referred to as the two-legged rule, which meant only human beings could invest in professional sports franchises—no pooled funds were allowed. But in 2019, the rules changed. Since then, all major North American sports leagues—except the NFL—have allowed institutional investment capital, under very specific guidelines & restrictions. This enormous change gave us the opportunity to participate in the cord-cutting theme in a much more direct way.
In 2005, just 14 of the top 100 most viewed programs were live sports content. By 2019, that number was 92 of the top 100, and in 2021, it was 95 of the top 100. Sports content is becoming remarkably more valuable as advertisers continue to search for eyeballs, which you can see in the TV contract step-ups across all the major leagues. That translates to higher valuations for the content producers, which are the leagues, franchises, and players.
In addition to fitting in one of our favorite investment themes, sports have several attractive characteristics. Professional sports are an asset class that has generated outsized performance historically, with less volatility, but perhaps even more notable is the non-correlated nature of sports vs. other asset classes. That’s a valuable tool, and it offers the rare ability to become both a return enhancer and a risk reducer for a diversified portfolio. That’s what all investors would like to achieve, and this is a unique way to accomplish it.
Prince: Why are professional sports attractive in today's economic environment specifically and does it matter what type of professional sport you invest in?
Lindholm: Sports are tailor-made for the current economic environment. We are experiencing one of the most challenging investment environments of the last several decades, for the vast majority of asset classes. Stocks are in a bear market and bonds are absolutely getting killed, leaving traditional investors with few places to hide. Traditional 60/40 portfolios have had their worst performance in over 50 years. We also have stubborn inflation issues, forcing central banks to downshift global economies and reduce growth. With that as the landscape, professional sports stand out as an attractive asset class based on both predictable, recurring revenues and attractive inflation protection characteristics.
Sports league revenue growth has historically remained positive through difficult economic periods, based largely on the long-term contracts in place for national & local media rights, ticketing & premium seating, and sponsorship agreements.
Many professional sports franchises own substantial high-value real estate, which has historically acted as a strong inflation hedge. Even more important in our view is pricing power. While we often see prices drop over time in certain sectors due to technological gains, one area that is not experiencing drops is prices at the stadium, ballpark, or arena. The cost to attend a sporting event is typically higher each year than it was the year prior, as most of us can attest!
There is also a great degree of scarcity and strong barriers to entry, leading to high moats for franchise owners. Only four new sports franchises have been created in the Big 4 North American sports leagues since 2000. This is very intentional at the league level, as it is in their best interest to restrict the number of teams.
Prince: Is there a difference in where you invest whether it be between soccer, baseball, or even hockey?
Lindholm: The short answer is that yes, each asset must be evaluated differently. Each league has specific strengths, but it really comes down to the local franchise, as there are excellent investment opportunities across all the major leagues.
There are several different dynamics to consider with each sport and in each major city, so we are not overly focused on the choice of sport. The key is finding the right franchise with the right management team and creating a structure that encourages alignment and good incentives among parties. There is no question that the NFL is the 800-pound gorilla in terms of revenue, but it is the only remaining sports league that has not yet approved institutional capital. We believe that may change in the near future and look forward to being involved if it does.
Prince: Traditionally, sports team ownership has had a high barrier to entry. How can normal investors get involved in this asset class?
Lindholm: Historically, it has been quite difficult, but now there are several different ways. Retail investors can access a short list of publicly traded sports entities. Qualified investors may invest in private equity vehicles that offer exposure directly to sports franchises, which we believe offer the highest return opportunity and the least volatility.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.
