When Private Equity Comes for Your Favorite Team

The Daily - The New York Times

This episode of The Daily explores the record-breaking $12.5 billion sale of the Los Angeles Lakers, examining how private equity and billionaire

Key takeaways

• The Lakers' $12.5 billion sale is a signal of how professional sports franchises are increasingly treated as liquid financial assets rather than cultural institutions.
• Mark Walter's quick sale, just nine months after acquisition, was likely driven by pressure from an ongoing federal investigation involving alleged self-dealing and $20 billion in undisclosed transactions.

Main topics

• Private equity in professional sports
• Valuation trends in sports franchises

Notable quotes

"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... $12.5 billion is far and away the most we've ever seen."

Conclusion

The Lakers' record sale exemplifies a broader shift: professional sports teams are no longer just about winning

Transcript preview

Speaker 1 (0:00) Hi, I'm Neeraj from Madison, Wisconsin. I would like to share my subscription for NYTimes with my family members. I should be able to share recipes from NYT Cooking, Wirecutter articles, or athletic articles. We are a family of four. I would like them to have access to the subscription too. Thank you. Neeraj, we heard you. It's why we created the New York Times Family Subscription. One subscription, up to four separate logins for anyone in your life. Find out more at nytimes.com slash family. Speaker 2 (0:33) From the New York Times, I'm Natalie Kittroff. This is The Daily. Speaker 2 (0:40) 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 and in the process, changing the way those teams are run. Speaker 2 (1:09) 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. Speaker 7 (1:32) Pablo. Hello. Welcome. Speaker 4 (1:35) Thank you for having me. Speaker 7 (1:36) I debated saying go birds immediately upon your arrival. Speaker 4 (1:39) Philadelphia love language. Speaker 7 (1:41) It's Speaker 4 (1:42) been Speaker 7 (1:42) a good run for you guys. It's been a good run. Thank you. Thank you so much. Better this season. Speaker 4 (1:47) Yes. Speaker 7 (1:47) That's actually what we have you here to talk about. No, I'm just kidding. We don't have you here to Speaker 4 (1:51) talk about that. This is like the catcher predator, but for Eagles fans. Speaker 7 (1:54) Yeah, yeah, yeah. Just to set the stage for what we are doing Speaker 4 (1:58) here. Please. Speaker 7 (1:59) You are the host of Palo 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. Speaker 3 (2:22) You make it sound so fun. It Speaker 7 (2:23) is fun. I love a document. Honestly, it is an amazing show. And we have you here because this Speaker 2 (2:30) huge deal just happened where the owner of the Los Angeles Lakers agreed to sell the team for $12.5 billion, Speaker 7 (2:37) a record price. 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 want to understand what is going on here. We want Pablo Torre to help us find out. Speaker 3 (2:53) 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. Speaker 6 (3:03) 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? 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. Speaker 3 (3:30) There's more money underneath the ground we are standing on. Speaker 3 (3:36) We're getting to a point where these are assets that demand a management and a Speaker 6 (3:42) 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 want to win the championship as hard as we can, even though those things might sometimes seem like they are exactly the same. Speaker 6 (4:00) And so prepare, I guess, to have some of your notions of what sports are even anymore to be shattered. Speaker 7 (4:12) Okay, and I want to 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. Speaker 4 (4:29) In a way that no one had seen before. So the owner of the Lakers was a guy named Mark Walter, and Mark Walter Speaker 6 (4:35) had bought the team less than a year ago. He Speaker 3 (4:37) was previously the record-setting purchaser of Los Angeles Dodgers. Right. Big sports guy, just like us. Loves the game. Few more billions, maybe. You know, not so different. And so the Lakers, he was Speaker 6 (4:49) approved nine months ago, formally introduced into the country club of the 30 Speaker 4 (4:54) NBA owners. A very exclusive, fantastically appointed country club for Speaker 6 (4:59) the record. Speaker 3 (5:00) But Speaker 6 (5:01) no Speaker 3 (5:01) one, for that reason, gets out nine months later. No one flips this thing. this team like it's a house. So that behavior alone Speaker 6 (5:09) 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 Speaker 7 (5:23) fast, by the way. Speaker 6 (5:24) 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 Speaker 4 (5:35) by... Josh Kushner, brother of Jared, and Bob Iger, the former head of Disney. Speaker 7 (5:40) 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. Speaker 6 (5:50) 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. Speaker 7 (6:06) And Speaker 6 (6:06) 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 Speaker 3 (6:15) that Mark Walter was doing with his insurance companies, whom he was borrowing from to fund his Speaker 6 (6:22) other business enterprises. It's Mark Walter over here and also Mark Walter over there. And so according to the last available Speaker 3 (6:29) filings, the total tonnage of money that these alleged undisclosed transactions touches is about $20 billion. And we Speaker 7 (6:39) 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. Speaker 6 (6:47) 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. Speaker 7 (7:08) 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. Speaker 6 (7:30) 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 two and a half billion dollars after nine months if you just flip the team Speaker 3 (7:44) 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 Speaker 7 (8:01) 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. Speaker 3 (8:21) Yes.