As tech stocks sink, cryptocurrencies tank and the overall economy begins to struggle, Gerry Cardinale believes he has found an asset class that is “incredibly resilient” and could be considered “the ultimate shock absorber”.
That asset – sport – spans from soccer clubs in Italy, England and France, Indian cricket teams and ice hockey, baseball and American football clubs and leagues in the US.
It also has provided Cardinale and his investment firm some big returns.
As founder and managing partner of New York-based RedBird Capital Partners, Cardinale oversees $US7.5bn ($11.1bn) of assets under management that also includes stakes in insurance, financial services, energy, data and media and entertainment companies.
Cardinale admits with a laugh though, that it is the sport that he gets most attention for – and as an asset class it is one that has delivered financially as well.
“We take the same approach with every one of those verticals we are in, either providing capital solutions or building companies. But we’re known for our sports investing, because sports today gets all the profile,” he tells The Australian.
“We look to make a minimum of a double on our investments and we underwrite two and a half to three times our money over a reasonable period of time.”
Cardinale will appear at the annual Sohn Hearts & Minds Investment Leaders Conference, where fund managers give their favourite stock tips to raise money for medical research charities.
He has travelled straight to Tasmania from Milan, where RedBird in August clinched a $US1.3bn deal to buy the famous soccer club AC Milan. The “rossoneri” are the defending Serie A champions and form a big part of RedBird’s soccer assets that also include Toulouse in France and England’s Liverpool, the latter held via its stake in Fenway Sports Group.
Cardinale says interest the world over in various leagues and sports are what makes it such a compelling asset.
“Sports have a tremendous resiliency to it [and] what’s great about it is it is a real shock absorber that can withstand technological disintermediation. So even though the way fans and consumers consume this content is evolving and changing … that content is even valuable and is as omnipresent as it’s ever been.”
That resilience shone through during Covid, a time that also provided RedBird with some compelling investment opportunities. In June 2020, the firm bought Toulouse, a struggling second division club from the country’s fourth biggest city that has since been promoted back to France’s top division, and then bought into Fenway Sports, which also owns the Boston Red Sox and Pittsburgh Penguins, in March last year, among other deals.
“The assets weren’t necessarily distressed but we got the benefits in pricing … given they were adjusting to exogenous events. But the content (sport) was doing just fine. It had a blip, but the only blip was the monetising the live event,” Cardinale says.
One of RedBird’s best deals during Covid was with ASX-listed Ardent Leisure. It bought a 25 per cent stake in Ardent’s US entertainment centre business Main Event for $US80m in June 2020. In April this year, Ardent’s chairman Gary Weiss – who has convinced Cardinale to attend the Sohn conference – clinched a deal to sell Main Event for $US835m.
Cardinale says he has also discussed with Weiss, a National Rugby League director, the merits of investing in Australian sport. “I wouldn’t hesitate to look at some things in Australia … I’d love to have an opportunity to learn more and do more here.”
One asset RedBird won’t be buying is Liverpool, which Fenway Sports has recently put up for sale or is at least searching for new capital. Cardinale says his firm’s ownership of AC Milan means it won’t bid for Liverpool even if it is a “phenomenal asset”.
Soccer and its passionate fanbase makes it a unique investment for RedBird. Cardinale compares it to a “private public partnership” given team owners are buying teams that are often more than 100 years old and embedded in their community.
It is also different to the US, where teams will be bought and sold for billions of dollars and where property around team-owned stadiums are a big part of the deal.
“You’re kind of overpaying and then you have to find a way to work your way into the money. In the US it is real estate. That’s not as prevalent in Europe where the infrastructure is much older.”
RedBird had considered entering the public markets via a Special Purpose Acquisition Company (SPAC) last year, and Cardinale expects sports to loosen up ownership restrictions in the future.
“Our oligarchs in America are the Silicon Valley crowd. You know, they don‘t for the most part, they don’t really have an interest in owning sports teams.
“So I think ownership rules in the US has to evolve to allow more sophisticated scaled institutional capital to come into sports team ownership. And if that doesn‘t evolve, you’re going to see a plateauing of the linear progression in asset valuations.”
The Sohn Hearts & Minds Investment Leaders Conference is an annual one-day event which brings the investment community together in support of Australian medical research.
It was held on Friday 18 November with support from the Tasmanian government.
For more information see https://www.sohnheartsandminds.com.au/
This article was originally posted by The Australian here.
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