The Hunt family, who own the Super Bowl champion Kansas City Chiefs, is just the latest prominent example of a sports team owned by a family — a tradition that continues even as the business model of professional sports has become more complex and expensive. In this issue, Steven Weiss reports on the enduring appeal of team sports for wealthy families.
Speaking of sports, we also talked with Adam Lipton, a senior wealth adviser at Truepoint Wealth Counsel who advises professional athletes, some of whom have formed their own family offices. He discusses the biggest misconceptions about an NFL player’s net worth, his three-bucket investment approach, and how he vets investment opportunities from the athletes’ friends and family.
As we come closer to the end of winter, if you have any insights into what family offices can expect in the months ahead, please pass them along. We’d love to use them to guide our reporting and are open to running op-eds or commentaries submitted by readers.
Crain Currency is always looking to invite new members into our exclusive network of family-office professionals and family members being served by them. If you know someone who would benefit from being part of our network, please take a moment to invite him or her into the fold by clicking here.
And as always, we’d appreciate any comments, ideas and insights that would make this newsletter more useful. Please forward these to Executive Editor Frederick Gabriel at [email protected] or me at [email protected].
Sports now big business, but families remain fans of ownership
By STEVEN I. WEISS
When Kansas City Chiefs kicker Harrison Butker sent a field goal through the uprights in the waning seconds of Super Bowl LVII last month, it was a victory not just for the players, team and city but also for the Hunt family, who have owned the team since its inception.
The Hunts first bought into the now-defunct American Football League in 1959 for $25,000, when the family wealth was primarily from the oil business. Forbes estimates the team is now worth $3.7 billion, and the Hunt family’s diversified portfolio is estimated at $15.5 billion.
In 2006, the team transitioned to a second generation of ownership, passing from founder Lamar Hunt to his son, Clark. That type of transition hasn’t always been a given, as evidenced by the number of family-owned teams in the major U.S. sports leagues that were sold in recent years rather than transferred from one generation to the next.
THE HIGHLIGHTS:
- Families are well-positioned to continue buying into teams.
- Private equity and other competition has driven prices higher.
- The changing media landscape means there’s more money to be made.
- Tax breaks offer a strong incentive for purchasing a team.
- As with any family business, intergenerational handoffs can be a challenge.
And yet, wealthy individuals and families continue to be the vast majority of buyers, as they have been for many decades — attracted by the potential for huge profits and the enduring appeal of competitive sports. In the past, such ownership carried far lower stakes and involved far less complexity. These days, teams regularly sell for billions of dollars, involve management or ownership of multiple large facilities and many other operational concerns, and generate a very prominent public profile. As families continue to pursue team ownership, the changing landscape for sports has altered what it means for a family to go down that route.
CIVIC PRIDE … AND PROFIT
“As these brand values soar, it changes the calculus,” said Jon Wertheim, executive editor and a senior writer at Sports Illustrated. “It used to be a civic obligation to own a team, and now it’s a rapidly appreciating asset.”
The soaring values have produced a total return in the past 15 years that exceeds that of the S&P 500, according to an analysis from the boutique investment bank Inner Circle Sports.
The market for sports content has meant that more individuals and family offices are investing in sports, said Inner Circle CEO Rob Tilliss. “People in the last decade have woken up to the fact that live sports is the most valuable content in the world in an extremely fragmented content world,” he said.
High prices have meant that fewer buyers can assemble the capital to make a purchase. At the same time, price growth has increased the opportunities to buy in, as majority purchasers increasingly look to sell minority stakes.
“With most of the North American leagues now permitting private equity, we have seen a more efficient and liquid market for minority team interests,” said Brian Kantarian, co-leader of J.P. Morgan’s private-bank sports finance group.
Of course, it takes more than just a large check to buy a team. Purchasing one can be “a multiyear process," said Bill Mulvihill, head of sports finance at U.S. Bank. “The leagues are very focused on having a strong ownership group,” he said, and that means “a lot of due diligence.” For some, paving the path to majority ownership could mean that “maybe they come in as a limited partner on another team — to get to know the league and so that the league gets to know them,” Mulvihill said.
Sports teams are atypical in a few ways from what families tend to buy. Among an investor group that tends to prefer keeping a low public profile, buying a team does the exact opposite.
“Sports ownership has never been more front-facing,” Wertheim said. “People know who they are, people have opinions — there are a lot of wealthy people who want nothing to do with that.”
And where succession issues are a concern in any family business, the prominence and perceived high stakes of transferring a sports team to a new generation can bring additional drama.
Wertheim produced probably the most detailed report on intergenerational challenges in the NFL, with episodes that included a physical confrontation between a daughter and her stepmother in the owner’s box during a game, a feud between sons that prompted a father to put a team up for sale rather than bequeath it, and one family so uninterested in running the Chicago Bears in its third generation that the lone candidate left the top job after 12 years to focus on photography.
FUN FOR FANS, AND FINANCES
But families, knowing all that, continue to invest in teams, in part because “it’s fun, people enjoy it,” said Inner Circle’s Tilliss, adding that “there are psychic and economic benefits to it.”
Families are also able to apply tax advantages when buying a team, writing off the full purchase price over 15 years. While families have that same opportunity with any other business they might purchase, the scarcity of sports teams means that the team retains its value amid that depreciation better than typical businesses a family might invest in, such as a group of McDonald’s franchises.
Combining debt with that depreciation can make for a particularly advantageous deal, Tilliss said. “You can typically borrow some of the upfront equity at the same time as you’re getting that tax benefit,” he said. That means a family is “getting kind of a leveraged return” that has similarities to some private equity deals. And while the leagues cap the amount of team equity that can be put up as collateral, Tilliss said, “Banks have gotten pretty sophisticated at underwriting unsecured loans for team owners.”
The disparate advantages of team ownership can mean that owners pursue one approach over another. “You see different owners — some are very clearly doing this because they’re a fan, and some are doing it for economic reasons, and you can see the difference in how they’re managed,” said Mulvihill of U.S. Bank.
And, of course, sports teams have a special advantage that is similar to another major venue for family investment — real estate — in that only so many iconic sports teams will ever be available to own.
As Wertheim puts it, “Anyone can buy a mansion or have a yacht, but not anyone can buy the Denver Broncos.”
PEER-TO-PEER INSIGHTS: Adam Lipton
Adam Lipton is a senior wealth adviser and shareholder at Truepoint Wealth Counsel, a Cincinnati-based wealth management firm. Lipton advises families and professional athletes, strategizing, structuring and managing portfolios with a minimum value of $3 million.
Who are your main clients?
Our clients include multigenerational families with portfolios north of $100 million. I also work with NFL athletes at different stages of their careers.
How do these players come to work with you?
We’ve developed a relationship with a sports agent over time, and he’s now one of our clients. He refers some of his clients to us. I’m the same generation as most of them, which creates a relatable connection. I also have a lot of knowledge about the demands and expectations placed on these athletes.
What’s the biggest misconception about an NFL player’s net worth?
It’s a myth that players earn enough to support themselves for the rest of their lives after even a few years in the NFL. On any given game day, a team is dressing 53 players, of which the people earning massive contracts may be 10.
The average NFL player is going to have a career of three to four years, maybe a bit more depending on the position they play and their skill level. The income they can make in that period can be significant, but the window is small.
What about sponsorship deals and roles as on-air commentators?
Consumer recognition is a key factor that drives sponsorship deals. Positions like quarterback, running back, wide receiver and maybe ends and linebackers have the most visible impact on the field. The higher a player’s profile, the more attractive they are to sponsors. An offensive or defensive lineman in the trenches doesn’t attract the same fan appreciation.
What are your priorities when advising pro athletes?
The majority of these players will need to go on to some other career. That’s something we talk about early on to help them think about life planning. A lot of players earn an average salary of less than $2 million. Consider that they may earn that for three years, of which a significant portion is taxed. They may retire with $3 [million] to $6 million at the age of 25 to 30 — which is not as significant as it might sound, unless they seek alternative income sources after their playing careers. Responsible budgeting and portfolio management, rather than a glamorized lifestyle, become paramount.
What’s your investment approach with these clients?
We take a three-bucket approach: an operating account, a reserve account and a long-term account. We allocate one year of spending needs in their operating account and two to three years of spending needs in the reserve account. Anything beyond that, we think about as long-term, investable funds with a more aggressive profile.
The operating account is holding cash— money markets, something with no risk profile and interest rate earnings. The reserve bucket is more stable, short-term investments, typically bond investing. The long-term investment is heavily, if not entirely, a stock-based portfolio with an eye on the long term.
The underlying investment philosophy is a passive-mutual-fund and exchange-traded-funds strategy that is much more fact- and evidence-based than discretionary. We are not using stock picking or market timing.
The risk of their careers ending abruptly is significant. We want to ensure they’ve got access to capital that is not highly volatile, that they can use to bridge the gap between professional sports and the next phase.
What’s the most common investment mistake pro athletes make?
One of the biggest risks is they get approached by family members and friends with investment opportunities that might not be brought to the average investor. These guys are viewed as uniquely positioned to invest in projects that do not have a risk profile that makes sense for them. Many of them come from lower means, if not poverty, and they have a desire to help elevate their communities out of those environments. Investing in friends and family members makes them feel good. We have to help them understand the risk to their financial well-being, especially if they haven’t established a solid base, a portfolio and net worth that is conducive to their long-term success.
Do your clients seek your guidance in vetting family and friend investments?
I wish they always did. Unfortunately, we often learn about decisions after the fact. It happened recently where a client chose to make a significant investment with a family member, which forced us to scramble to make it as viable as possible. We had to free up capital, which has implications on the diversified nature of the portfolio. We also had to create legal entities — in this case a couple of different LLCs to ensure any liability associated with the investment has limited impact on him and his portfolio.
Interview conducted by Amy Guttman
LOOSE CHANGE
Oaktree Capital raising $10 billion for PE: The Howard Marks-led credit investment manager is launching a fund that will lend $500 million and higher for leveraged buyouts. With Wall Street cutting back on loans to private equity, the move fills a gap, the Financial Times reports. It is meant to compete with such firms as Apollo Global Management, Sixth Street Partners, HPS Investment Partners and Blackstone.
Crowdsourced investing win for Paul Tudor Jones: Numerai LLC generated 20% returns last year through “the stock-picking skills of amateur quants," Bloomberg reports. The fund has now received $100 million in new investment after earlier backing from Paul Tudor Jones and former Renaissance Technologies executive Howard Morgan, among others.
Americana Partners raids Morgan Stanley team: A team of eight overseeing $715 million jumped to Americana Partners “to expand its focus on oil and gas family wealth,” Bloomberg reports. The team is leaving Morgan Stanley to launch a new Permian Basin office for Americana.
HELP US WITH A STORY
Built to last. We’re working on a story about how to build a family office that lasts — one with a shared mission and a succession plan to endure for generations. If you have any ideas or comments on the topic, feel free to reach out to us at our email addresses above.