Transcript of When Private Equity Comes for Your Favorite Team

From The New York Times, I'm Natalie Kitroeff. This is The Daily. Last week, the owner of the Los Angeles Lakers agreed to sell the basketball team for $12.5 billion, the highest price ever paid for a professional sports team. The deal has shocked the sports world and drawn new attention to a growing trend. Big groups of investors have been buying stakes in professional sports teams around the country, In the process, changing the way those teams are run. Today, Pablo Torre, the host of the show Pablo Torre Finds Out, explains this mega deal and talks about how big money is transforming the sports that we love. It's Friday, August 21st. Pablo.

Hello.

Welcome.

Thank you for having me.

I debated saying go Birds immediately upon your arrival.

Philadelphia love language. It's been a good run for you guys. It's been a good run.

Thank you. Thank you so much. Better this season.

Yes.

That's actually what we have you here to talk about. No, I'm just kidding.

I was going to say, this is like the Catch a Predator, but for Eagles fans.

Yeah, yeah, yeah. Just to set the stage for what we are doing here.

Please.

You are the host of Pablo Torre Finds Out, a show that is distributed by The Athletic, a sports publication owned by the Times Company, a show that I love in which you do these very deep investigations into the opaque corners of the sports world with a specific focus on the financial transactions and the money flowing through these leagues.

You make it sound so fun.

It is fun.

It is fun.

I love a document.

Honestly, it is an amazing show. And we We have you here because this huge deal just happened where the owner of the Los Angeles Lakers agreed to sell the team for $12.5 billion, a record price.

Mm-hmm.

And part of the reason it's causing so much noise is that it is part of this pattern where big investors have been pouring money into professional sports. We wanna understand what is going on here. We want Pablo Torre to help us find out.

There's a lot. There's a lot. And sports is one of those things that is both romantic and also forensic in this economic sense.

Mm-hmm.

Sports is valuable in a way that has never been more true. And the economics of what sports are as embodied in what are these valuations of these teams, how much is a team like the Lakers worth?

Right.

Well, $12.5 billion is far and away the most we've ever seen. There is a dynamic unfolding in sports right now where people sense— they can smell it— there's more money here. There's more money underneath the ground we are standing on. We're getting to a point where these are assets that demand a management and a strategy in terms of how they are operated and sold, which is to say you're running these things because of the money that's there for you to harvest. As opposed to, "We wanna win the championship as hard as we can," even though those things might sometimes seem like they are exactly the same. And so prepare, I guess, to have some of your notions of what sports are even anymore to be shattered. Okay.

And I wanna get to all of those questions. It sounds like what you're saying is really that this Lakers sale is kind of a signal event in this broader situation. So talk to me about the deal. How did it come together? My sense is very quickly and kind of out of the blue.

In a way that no one had seen before. So the owner of the Lakers was a guy named Mark Walter, and Mark Walter had bought the team less than a year ago. He was previously the record-setting purchaser of Los Angeles Dodgers.

Right. Big sports guy, just like us.

Loves the game.

Few more billions, maybe, but—

You know, not so different. And so the Lakers, he was approved 9 months ago, formally introduced into the country club of the 30 NBA owners.

Yep.

A very exclusive, fantastically appointed country club, for the record. Mm-hmm. But no one, for that reason, gets out 9 months later. No one flips this thing, this team, like it's a house.

Mm-hmm.

So that behavior alone was new and a bit jarring for people to process. And then when you get to why it happened and how quickly the deal came together, this was a deal, according to the reporting, that took place allegedly over 72 hours.

Just so fast, by the way.

It's, it's unreal. But 72 hours for a guy who happens to be under federal investigation, but selling that team to a new ownership group headed by Josh Kushner, brother of Jared, and Bob Iger, the former head of Disney.

Okay. Talk to me about the federal investigation that Mark Walter is under, because that seems to be a big part of this and potentially part of the motivation for the sale in the first place.

So Mark Walter has always been, to people who follow the NBA and professional sports, mysterious.

Okay.

He runs a company called Guggenheim Partners, and nobody really had a clear sense in the financial press or the sports media of how they make all their money.

Uh-huh.

And so when there is the news reported in the financial press that there is a federal investigation as a result of a whistleblower about alleged self-dealing that Mark Walter was doing with his insurance companies, whom he was borrowing from to fund his other business enterprises.

Hmm.

It's Mark Walter over here and also Mark Walter over there. And so according to the last available filings, the total tonnage of money that these alleged undisclosed transactions touches is about $20 billion.

And we should say the investigation is ongoing. It hasn't been concluded. This becomes public in July, right, of this year, and it kind of blows up.

Yes.

And we now know that he's been trying to figure out how can I make up $20 billion when $20 billion reportedly is at stake because of these ongoing DOJ and SEC investigations. And so what he's doing is testing the waters for the sale of his sports franchises.

So you're basically describing someone who has his back very much to the wall, and I imagine feels some pressure to kind of try to make these problems go away, to try to raise money to pay off these loans. And that may be, for him, the real motivator for selling the Lakers, turning it around this fast, finding these buyers.

Yeah. And because sports is in a place where the valuations of these teams They are just going up year after year after year. The idea that you could perhaps make an extra $2.5 billion after 9 months if you just flip the team to interested buyers. And it indicates something that I didn't grow up seeing, which is that this is in fact an asset that can be liquidated because the demand on the buy side among fantastically wealthy people seemingly is endless.

I mean, it's on its face kind of bananas when you think about it. What you've described is a guy who is under a ton of pressure. You'd think he wouldn't have much leverage, and yet he turns around and after owning this team for not very long, makes a $2.5 billion profit on it, which is not bad for a fire sale.

Yes.

And so talk to me about what these buyers, Kushner and Iger, in this case, Kushner's the CEO of Thrive Capital, this venture capital firm known for investing in tech. Bob Iger is of course the famous former CEO of Disney. Why do they see this as such a rich asset? Why do investors like them see professional sports in this way?

I think they see scarcity first and foremost. There are only 30 NBA teams for now. There might be expansion coming, but there are only so many of these assets you can buy. And so historically that's been akin to owning like the coolest piece of fine art imaginable in which you can actually invite your friends to watch you watch your piece of art on TV as you sit courtside. It's really cool to own an NBA team.

Yeah.

But the value of it in the present tense, it's really interesting that Josh Kushner has started an offshoot of Thrive Capital called Thrive Eternal. And Thrive Eternal is premised on this thesis that as AI, artificial intelligence, eats everything else in the American economy. What it cannot touch is sports, the most live, spontaneous, human, anti-synthetic good that people will pay lots and lots of money for. You know, there are human risks and human stakes. And so as artificial intelligence booms and takes over everything, what can it not disrupt? The investing thesis here from Thrive Eternal is Sports.

Right. As AI goes into everything, everywhere, all at once, the idea of in-person interaction just becomes that much more valuable.

Yes.

And just to say, you have to assume that Bob Iger more than anyone understands the value of sports. He made Disney a juggernaut in part by buying up Marvel. He understands the value of IP.

Yes. And nothing has IP like sports. Endless waves, new draft classes full of characters who are fitting into storylines that you don't even need to script.

The best reality TV, honestly.

Genuinely soap operas for men.

Yep. And women, by the way.

For men, unapologetic, at least.

Yes.

Finally, we can just be messy. We can just be messy about what these young men are up to.

Yep. And so talk to me about the money there.

Sports seems arcane and complicated, but really the business of it is quite simple. Fox Sports welcomes you to the following presentation. Of the National Football League. The reason that there are these valuations ostensibly are because of media rights deals. Welcome everyone to NBA Saturday Primetime on ABC. Welcome to Sunday Night Baseball on NBC. And something to know about sports in the world of linear network television is that nothing is more important It's like the beating heart of network TV is a live event that you also can't fast forward. Like, you watch sports live, which means that you must watch the commercials live. And so a medium like television that needs people to tune in.

Yeah.

Nothing provides what sports provides, as evidenced by the ratings every year. You're seeing media companies fight for the rights to sports teams, sports leagues.

The NFL announcing new 11-year media distribution deals with all of its media partners. Sources tell me that this collective deal is worth more than $100 billion.

And so networks are willing to pay more for sports than they are for anything else. And it's not even close. Welcome to Friday Night Baseball on Apple TV+. And now, simultaneously, because streaming services, Silicon Valley, they're also trying to be networks— of the National Football League on Prime Video. They are now feeding at the same trough, bidding up the value of these media rights deals to the point where the NBA just tripled its media rights deal in the last negotiations.

And the reason that matters to these owners and all the potential owners out there is that they are the ones cutting the deals with these networks. They are the ones who see the return on that incredibly rich set of licensing deals.

Yes. The country club, I should be clear about this, is also the people who are profiting off of the things that they own, which are these teams and the deals that a league strikes so that we Americans can watch them on television or Netflix or whatever your streamer of choice might be.

My question is, how— Does that understanding of the surging value of these teams change the question of team ownership?

Mm.

I don't know if people realize how much money $1 billion is, let alone $12.5 billion. But the idea of who can afford that as an individual is a vanishingly small list. And in fact, if you look at the number of people who exist on this planet who can just casually pay $12.5 billion for anything, What you're really talking about is institutional investors, meaning private equity, hedge funds, venture capital, these entities that are not one person but an array of human beings who operate under profit motive. They can afford this stuff, but individuals can't.

Just talk about how common this actually is at this point. My sense is this has been happening more and more And that we are kind of at the beginning of it, at the bleeding edge.

Yes.

It's really important to note that private equity, for instance, was not allowed to own a stake in a pro sports team in America among the major sports until 2019. Major League Baseball—

Okay, so really recently—

opened the seal. They created in Major League Baseball the ability by rule for private equity firms to buy shares of a given major league ballclub. They can take from any individual PE firm no more than 15% as an ownership stake in your team and 30% in total across any PE institutional investors that might be interested.

Got it.

Sovereign wealth funds, the other possible purchaser, they weren't allowed to buy teams among the major American pro sports until 2022, when the NBA lifted the seal on that. For the sovereign wealth funds in the NBA, it's a 20% cap. You're capping for now, how much these institutional investors can own. But in the meantime, what you're really wondering is, are they sharing their best practices with the rest of the ownership group? Do you invite Bain Capital in because you like their money, or do you invite them in because you might also want to learn how they optimize businesses? And so just the very basic notion of— look, I grew up a Yankee fan. I remain as much.

We'll forgive you.

27 rings is what I cry myself to sleep saying.

Yeah, sure.

Given how long it's been since we won a World Series. But I grew up in the era of George Steinbrenner, who was tyrannical and an insane person.

Famous owner of the Yankees.

But he was more than anything desperate to win. And so the question of, is your team owned by an unhinged wealthy superfan who is problematic in lots of ways, but really individually is like you, the fan?

Mm-hmm.

We're entering a phase of sports where that person can't afford the teams that are for sale anymore.

Mm-hmm.

Yeah.

The Yankees just recently took investment from Apollo Global Management, a private equity firm.

A giant.

A giant that is, I dare say, going to teach the Yankees and the heirs to George Steinbrenner how to optimize and how to not act like the evil empire that I fell in love with, but instead something resembling a spendthrift that's here because they need to show that the green arrow's going up again. And so who buys these teams? Institutional investors that see them as an asset to be financialized because it can make them money. But you are welcoming the physics of this kind of money to reorient how your sport works.

We'll be right back.

Okay.

I wanna now turn to the thing that I think matters most to the fans, which is how do these new ownership structures change the sports that we love, the games that we love, the leagues that we follow? Pablo, how are you thinking about the potential ramifications of everything you've described?

I'm thinking about what the unintended consequences are when you optimize. Meaning if you're a quantitatively minded organization, and we're familiar with Moneyball, the idea that maybe math can help you spend your money more efficiently.

Yeah.

What if you extended that to every aspect of your organization? Meaning where we broadcast our games, meaning ticket pricing.

Hmm.

I mean, the notion of dynamic pricing, which is a tool that is beloved by private equity, because in so many words it means we price people according to their desperation.

Okay. And just to say what dynamic pricing is for people who don't buy sports tickets, it's when you go online, you search for a flight, and then the next day that same flight is more expensive. That is dynamic pricing. That also happens when you say go to buy Knicks tickets in the NBA Finals and your ticket costs $6,000 and you're in the very last row.

Yes. I mean, what we're really talking about is how Do you extract more from the same customer base that was used to fandom being priced one way and now being sold to them in ways that are increasingly uncomfortable?

It sounds like what you're saying broadly here is that the way you're thinking about this is these leagues importing a kind of culture of business ownership from these institutional firms, right? A kind of understanding of how to run this business like they might think of, you know, owning an asset.

Yeah.

And I think optimization is sort of the euphemism. Like, how can we make things more efficient? How can we make sure that we are getting the most bang for our buck? The fans might be in favor of, yes, we want to be the smartest and most quantitatively advanced.

And maybe we— we want to have the most money.

And maybe, in fact, we want our ownership group to have the most money to spend. On our team. The problem, of course, is when you realize that profit and growth are goals that can exist irrespective of whether you win the championship.

Hmm.

So we mentioned that 2019 is when Major League Baseball opens the doors to private equity in the first place, and the Boston Red Sox are an early adopter. Part of my role is to make sure that we continue to maintain access to capital, keep our cost of capital as low as it can be, fortify the balance sheet so that we can go and— Right. And seek out— And so when they take money from private equity, they perhaps not coincidentally begin to do things that seem cost-effective, but broadly unpopular among fans.

Mm-hmm.

First and second for Alex Bregman in his first Fenway at-bat. as a member of the Red Sox. The Boston Red Sox, for instance, last season had a veteran player named Alex Bregman who was on a short-term deal, and it was going well. High fly ball, right field. He really tore into this one, and she's gone. And Alex Bregman delivers at Fenway again. He was an All-Star that season. He was wildly popular among the fans. They kind of anointed this guy the unofficial captain of the Boston Red Sox, right? Younger players regarded him as a coach in the clubhouse, and he wanted to stay. He wanted a long-term contract, and he wanted a no-trade clause so that he could veto a trade to any other team. And historically, this is a portrait of loyalty, but the Red Sox did not want to do it. The Cubs made one of the biggest signings they could possibly make Alex Bregman for a 5-year deal. To their private equity-ified mindset, this all read as a financial and actuarial risk. He was 31 years old, the equivalent of middle age in professional sports, and the Red Sox instead started the season with a bunch of lesser-known players and with no Alex Bregman.

Right.

Do you guys have thoughts on Alex Bregman?

It was just announced that he's— you're a worse team than you were last year. Fix it!

You suck! And that, along with everything else that a modern ballclub is incentivized to do, all of the pricing differences, it has created something of a revolt among Red Sox fans.

Mm-hmm.

Bregman didn't stick around. All this money you're bragging about saving, are ticket prices going down? And we've seen it, I mean, in campaign ads. Private equity has destroyed our favorite baseball team, stripping them for parts.

Private equity. Grant Platner featured this in one very famous campaign ad, like, they're ruining our Red Sox.

I'm Grant Platner, and I approve this message because I miss Mookie Betts. And there is this populist sensation that I think people are currently feeling that we don't think this is better than it was before.

Mm-hmm.

In fact, we think it's worse, and we feel like we're being heard less.

Okay, I completely understand that fans have this emotional connection to the players on their team. But just to push for a second on the outrage that you're describing, things didn't actually turn out so badly for the Red Sox, right? I mean, they didn't sign Alex Bregman for this season. They took a gamble on this roster of cheaper, younger players, but they're actually doing pretty well this year, the Red Sox. And yeah, maybe they now have the financial flexibility to add more players in the years to come. Even from a pure baseball fan's perspective, in some ways that might be a good outcome, right?

It is a fair point to say that the Red Sox are on a heater right now. They went from the worst team that anybody who I know who's a Red Sox fan has, has said that they've ever seen to right there in the hunt for a wildcard spot.

Yeah.

I think the question though is whether when it comes to the postseason, when they're gonna face Mark Walters Dodgers, who are single-handedly outspending the entire league, whether that's gonna be enough. You've sort of opted out of being one of the heavyweights to be a scrappy, look at what these, you know, adorable, relatively anonymous Red Sox can do.

Wow. It's a, it's a catching strays with the adorable, by the way. But I mean, there is a world, Pablo, where this drive for returns does actually align with what fans want, right? I mean, winning makes the team more valuable. People want to go to the games more. More people watch them on TV. Everybody's happy. So wouldn't the new owners actually, in some senses, have the same goals, objectives as the fans?

I think there are two levels to evaluate that incentive structure. The first one is what you just said, which is, are we more successful now?

Uh-huh.

Can these finance bros, these private equity guys come in and actually make us better operationally such that we're better on the field? And I would say early returns are mixed. But the other level that we should be evaluating this on is I think it's a question of priorities and what are your goals? And so historically, to quote a cliché, that's also a quote from Vince Lombardi, the former football coach. Winning isn't everything, Natalie. It's the only thing.

Yeah.

And the whole notion there is that's what we're here to do. We fetishize a championship. Mm-hmm. And if you're an organization that is now prioritizing and caring about efficiencies and your bottom line and return on investment, you have the capacity to turn what used to be like a, at times, joyfully reckless big market team into a small market one because now you're You're watching your budget. You're clipping the equivalent of coupons.

Basically, you run the risk of winning not being the only thing anymore.

Yes. You run the risk of angering the ghost of Vince Lombardi. And it's funny to look back on the language that the commissioner of the NBA, Adam Silver, used when he was introducing Mark Walter the first time as the owner of the Los Angeles Lakers, because he called him a committed steward. You know, an owner used to be, on some level, a steward of not only the players and the championship goals for a given season, but the multi-generational emotional dependency—

Yes.

—that we have as Americans. Yes. These are lifelong heirlooms that we inherit.

Essentially what you're raising is the possibility that fans begin to doubt that these new kinds of owners actually have their best best interests at heart. Whether or not the motives actually may align, the fans are questioning these decisions because they see that what is driving them is not the same kind of civic engagement that they've come to expect from the owners that used to be there. The kind of single individuals that were part of cities. My mom is from Montreal. The Molson family owns the Montreal Canadiens, the beloved hockey team of that city. There have been ups and downs, but people generally view them as part of the civic life of that place. That's being kind of tested. Yeah.

Look, I'm not saying that the old way of sports was a utopia at all. It is rife with corruption. But what's different is that I think fans are right to ask for evidence that institutional investors, private equity in particular, if they've ever made a decision that is not in favor of the bottom line.

Hmm. And from your perspective, is there a limit to how much value these owners can wring out of these teams?

They're testing the tolerance of what fans will regard as fine. Hmm. This idea that fans will pay anything because that's how much they love this team. Everything we're describing in this conversation is pressure testing whether that's actually true or whether that itself is a mythology born by a romantic conception of what sports is. And I think about what happens when you can only mutate the surrounding aspects of the business so much before you get to tinkering with the actual games themselves. Hmm. We saw a version of this in the World Cup. They expanded the field. More teams, more games, more TV shows. Right. And every playoff, the college football playoff, the NCAA tournament, we're seeing tournament expansion because the playoffs are the most valuable television shows. They charge the highest rates. And so what if we just get more of them? Hmm. And at a certain point, it's kind of like, I heard you like cigarettes. Here are 100 cigarettes. And you're like, I feel sick now. Yeah. This was too many playoff games. Right. Are we so far away from a world in which someone in the NFL office realizes The Super Bowl could be best of 3.

No. You say no now, but wait until I show you this spreadsheet, Natalie. You know, I'm seeing something akin to fracking. I'm seeing people drill into the surface, and they are extracting oil, and they're getting some, and there is more money there. But what they are not considering is the possibility that that very action is jeopardizing the entire environment that allows sports to be this valuable at all. Because if you don't have a fan base that can plausibly believe that you want the same things that they do, hmm, you are daring them to stop caring and to stop crying and to stop celebrating. And you're turning this into just another product. The question I think the Lakers transaction raises, and that this entire conversation is driving to, is, is sports therefore, as currently evaluated, a bubble? Interesting. Have we overpriced this? Can you possibly grow and get more returns on investment when you're already at $12.5 billion?

Yeah. Is this unsustainable?

Is it unsustainable?

Is this gonna pop? Mm-hmm.

And in the process, are you wrecking the thing that was astride American culture, the last remaining monoculture?

Okay, well, Pablo, we're gonna keep on following this, and we're gonna keep on following you. Thank you so much for coming on the show.

Thank you. The pleasure was mine. We are cursed with interesting times in sports.

We really are. We'll be right back. Here's what else you need to know today. After 9 months at sea, the USS Abraham the USS Abraham Lincoln is finally on its way home to the United States. The Lincoln, with its crew of about 5,000 sailors, departed San Diego in November of last year and had been in the Middle East supporting American operations in Iran. In recent weeks, family members of the crew aboard the aircraft carrier began publicly complaining about the poor living conditions on the ship. Ship and about the mental health toll of the long deployment. Another aircraft carrier based in Japan, the USS George Washington, has taken the ship's place in the Middle East. And— Ong! Hello! Hi! Are you home?

Yeah, I'm home now. I'm safe.

I'm so happy. Back in May, we talked to a seafarer named Ong Tu Khaent, who was working on a cargo ship delivering cars in the Persian Gulf when the war in Iran broke out and the Strait of Hormuz essentially shut down. Ong, along with about 20,000 other seafarers, was trapped in the Gulf, where he remained stuck for more than 4 months. But now he's finally made it back to his family in Myanmar. What's the best part about being home?

My best part is the— I saw my mom and my dad. My mom is so happy. She said, "Oh, what do you want to eat? Where do you want to go? What do you want to eat?

Where do you want to go?" She's like— What was the first thing you ate?

I put down my luggage, and then I Eat our traditional curry, you know, it's called Ngapi Ye, together mixed with vegetable and eat with rice. So I am so stuffed. You know, the food from home is the, the goodest one.

Many other seafarers have made it out of the Persian Gulf, but many remain stuck. The UN's National Maritime Organization reported that hundreds of ships and around 6,000 crew members are still stranded. Would you ever go back out there on the ship?

Inside the Bajanggaf? Yeah. Again? No. No, no, no. I already speak to the company. I don't want to go if you guys are sent to me in the Bajanggaf. I will try the next Kampagne.

You're not going back there. No, no, no, never, never, never.

Well, it is so good to see you safe and sound and back on dry land. Thank you. Thank you, Ong. Bye-bye. Today's episode was produced by Ricky Nowetzki and Carlos Prieto, with help from Shannon Lin and Caitlin O'Keefe. It was edited by Rob Zipko and Michael Benoit, with help from Annie Minoff, and contains music by Pat McCusker, Dan Powell, Marian Lozano, Leah Shaw Dameron, and Elisheba Ittoop. Our theme music is by Wonderly. This episode was engineered by Alyssa Moxley. Today's video was produced by Christina Avalos, Mustafa Mirza, and Devin Greenleaf. It was edited by David Herr, with cinematography by Lauren Pruitt and Jack Bellisle, and production assistance from Thomas Trudeau. Sound was recorded by Samantha Winter and engineered by Chris Wood. That's it for The Daily. I'm Natalie Kitroeff. See you tomorrow.