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Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

In this episode of Global Infusions, Tom and Tom look into the business of sport. Who is making all the money, and how? They explore why football clubs are often bad businesses, why TV rights are worth so much even as viewership falls, and how endorsements have grown into an industry of their own. They also discuss a hotdog that has defied inflation for almost 40 years, chips designed by AI, military preparedness, and extreme weather in Europe wreaking havoc on food production. Finally, they reflect on press articles from the 19th century showing that some things never change. 

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TR – Hello, I’m Tom Record and I’m here with Tom Morris. Welcome to Global Infusions, an investment podcast from the Liontrust Global Fundamental team that takes a long term view of today's stories.


Last episode we chatted about the watchmen of today’s companies – regulators who have a habit of getting things wrong. This episode we’re chatting about sport… and looking at how energy on the field relates to pounds in someone’s pocket. If your taste buds are tickled or you have any questions for our next episode, please do send them in via your client contact or through the contact us link on the Liontrust website.


So sit back, grab a cup of tea and remember that when we talk about individual companies we are not making a recommendation to buy or sell shares and that some of these companies may not be held across Liontrust’s global fund range.


TR – Tom, I’ve never had you down as a huge sports fan, but this is a fascinating subject…

TM – Yes it’s fair to say that I’m not a sports person, or a sports fan, or really someone who knows much about how to play sports at all. But I do think the business of sport is really interesting. Where does the money come from, and where does it go?

TR – Well a big part of the answer to your first question is TV rights, whether broadcasting, cable or streaming services.

TM – Yes that’s a good place to start

TR – If we look at Manchester United, which happens to be a listed company and so discloses lots of interesting info, then in 2019 it made just under 40% of its revenues from TV rights, just over 40% from commercial partnerships – so sponsorships and merchandise, and then a little under 20% from matchday tickets and food and drink.

TM – Fascinating. And those TV rights deals are normally negotiated by the leagues, on behalf of the clubs. So the Premier League in England, or Uefa for the European Champions League. In the US, The NBA and the NFL do similar things.

TR – It’s worth noting that despite all the change we’ve seen in the media landscape over the last decade, with the rise of streaming, the decline of cable subscriptions, and general decline in TV viewing, the value of those sports rights has increased massively.

TM – Yes I saw that the Premier League UK broadcast rights went up in price from about £350m per season between 2002-2007, to a record of £1.7bn per season in 2017. They’re currently about £1.6bn, so a little bit lower, but still an enormous amount.

TR – It is and it reflects the rise of alternative distribution channels and so there are more bidders for this sport content. And of course sport stands out as something that is immediate, live and powerful in inciting emotion and so grabs viewers.

TM – Exactly – as general TV viewership has declined, the relative value of content that can bring in big live audiences has increased. Watching live, people can’t fast forward through the ads, which makes those slots extremely valuable to media companies.

TR – And fans have shown a willingness to pay a lot for sports content, and even move to different pay-TV or streaming services in order to access it. That makes it a very valuable customer acquisition and retention tool.

TM – OK so returning to those revenue splits at Manchester United – the second one was commercial partnerships – so things like sponsorship deals for stadiums and kits, brands paying to become the ‘official airline partner’ or whatever.

TR – Yes and don’t forget the money that EA will be paying them for the use of their name and stadium in the FIFA video games.

TM – Soon to be rebranded as EA Sports FC, after EA reportedly declined to pay the $1bn that FIFA was requesting for the next 4yr licensing deal.

TR – Yes and that was just for use of the word FIFA and the World Cup branding. It didn’t cover any of the clubs or players, which are all licensed separately by EA. So it does feel like a bit of overreach there by FIFA who really only had their name to offer.

TM – Agreed. OK so we’ve covered how teams make their money – the last bit is tickets for matches – but where does it go?

TR – Well it really comes down to the bargaining power of the players vs the team owners. In European football, it’s generally the players that have the power, and so the lion’s share of the club’s income ends up being paid to them as wages.

TM – Yes it’s an intensely competitive market for players, with lots of transferring between clubs, and so the athletes are the ones with the power to extract the biggest share of the pie. That’s why it’s fairly common to see good footballers paid over $20m/year by their club, with the very best on $50m+. Last year at Manchester United, 65% of revenues were spent on wages.

TR – and that also helps to explain why most football clubs are just not very good businesses. They tend to break-even, or are perhaps marginally profitable. People own them for the status and glamour rather than to make money.

TM – In some cases they are explicitly held just as trophy asset toys by super rich owners, who don’t care at all about even trying to be profitable. Competing with these teams then basically forces all the others to spend more as well, destroying their profitability too.

TR – It’s not an economic game really. But some sports are. Notably, the NBA and the NFL in the US both have wage caps, which help to tip the balance of power back towards the clubs a bit, and allows them in some cases to be much better businesses. For the 2022/23 season, no NBA team can pay more than $124m in total without facing penalties from the league, or searching for a loophole. The  NFL has a $208m cap for teams this year.

TM – And the other benefit for US team owners is that they are generally competing in closed leagues that lack the threat of relegation. European football teams can face ruin if they lose their place in the top divisions, where the TV rights are the most valuable, and many also need to qualify for the Champions’ league, so they keep spending in part to secure their places. In the US, clubs don’t need to worry about that – so they have much greater certainty on future revenues, and can rest a bit easier at night.

TR – It’s interesting that when a similar static league was proposed in football – the so called Super League – it was met with very intense resistance, and the idea was dropped within days.

TM – Yes fans seem to love the drama of relegations and promotions, even if team owners don’t.

TR – OK let’s move on to individual sports – how about tennis?

TM – The only major sport where the women’s competition has achieved close to parity with the men’s in terms of cultural significance, and financial rewards for top players.

TR – Yes it’s interesting that the only two women in the Forbes list of the 100 highest paid athletes are both tennis players – Naomi Osaka at 19 and Serena Williams at 31.

TM – That’s both a pretty damning stat about society’s ongoing bias towards men, and also a huge cause for celebration for the efforts of Billie Jean King, without whom there wouldn’t even be a Women’s Tennis Association.

TR – She’s a proper hero really.

TM – Yes absolutely. She founded the WTA in 1973 in order to give women equal opportunities to play the game, and get noticed. She persuaded the US Open to offer equal prize money to men and women, and drummed up massive interest with her famous ‘battle of the sexes’ match against Bobby Riggs.

TR – I think I read that the only sponsors willing to get on board with the tour at first were tobacco companies!

TM – Yes! A pretty questionable industry, but at least they did one good thing.

TR – On the topic of the obstacles women have faced in sport, and in the context of the recent success of the English national women’s team at the Euros, I discovered this week that the English Football Association had effectively banned professional women’s football for about 50yrs, from the 1920s to the 1970s, by stopping teams from playing any matches in stadiums owned by men’s clubs.

TM – Yes that was shocking. Apparently it was driven by a fear that the women’s game could capitalize on the popularity it had gained during WW1 and grow to pose a challenge to people’s interest in the men’s game. It was awful. There was actually an FT column recently arguing that the FA ought to pay reparations to the women’s league to compensate for the damage done by that clearly anticompetitive ban, which I think is a pretty good idea.

TR – There’s definitely a case to be made. So returning to tennis, we should note that players don’t earn wages. They’re not part of teams, so they have to go out and make all their money through winning prizes at tournaments, and getting sponsored.

TM – Yes the men’s and women’s tours provide a bit of help to grassroots players, and the grand slams also try to support amateur and semi-pro players, but for the pros it’s really all about winning prizes and getting big brand endorsements. It means that tennis is even more imbalanced than football, with only the very top players making big money, and most other people very little. It’s pretty difficult to get by if you’re outside the global top 200.

TR – OK… Let’s examine endorsements a bit more. They are often 50% or more of top athletes’ overall earnings. And in the field of endorsements, one surely stands above all the others.

TM – We have to talk about Michael Jordan.

TR – Yep.

TM – I remember when I was doing some research on Nike a few years ago, and I came across the history of the Air Jordans partnership.

TR – The autobiography of the founder of Nike, Phil Knight, also covers it in quite a bit of detail and is an excellent read.

TM – The headline is that Jordan gets paid a royalty on every sale of Air Jordan trainers and other products, which is likely well over $100m pa. So he earns more now, just from those name rights, than he ever earned playing basketball!

TR – It is amazing. Of course lots of other famous sportspeople have also managed to build strong personal brands.  So Ronaldo has his CR7 clothing line, Venus Williams has her EleVen activewear brand, and Tony Hawk has built a skateboarding empire on his brand that includes action sports games to events to film and digital media.  So Tom, a question or you – which sports star founded Teremana Tequila?

TM – hmm, as you might remember from our episode about fame, celebrity endorsed drinks are an interest of mine, and so I can tell you confidently that Teremana is the tequila from The Rock!

TR – Very good! Once George Clooney had his huge payday selling his Casamigos tequila to Diageo, it does feel like everybody with a social media profile jumped on the spirits bandwagon.

TM – it’s proven to be one of the best ways of monetising fame – in fact I was just reading a few weeks ago that Kylie Minogue’s range of Rose wines are some of the fastest growing in the UK at the moment.

TR – Ha! We’ll have to try some! So Let’s finish up our sports discussion with a quick mention of the controversy surrounding the new Saudi-backed golf tour, LIV Golf.

TM – So this is the new competition that has been offering huge fees and prizes for golfers who agree to play.

TR – Yes it’s designed to compete with the PGA Tour, and it is both flush with cash from Saudi Arabia’s sovereign wealth fund, but also tainted in the eyes of many people for being associated with a controversial regime.

TM – The deal offered to one player really stood out – according to the CEO of LIV, he offered Tiger Woods between $700-800m to play, which Woods turned down!

TR – That is proper star power, and a staggering amount of money. Right - let’s move onto this episode’s news – Tom what would you like to start with today?

TM – Well the first story that caught my eye was one about inflation, or in this case, an incredible lack of inflation.

TR – How incredible are we talking here? Mildly unbelievable or mind blowing?

TM – Well this is a very sticky price – it turns out that Costco has been selling a hotdog + fizzy drink deal in its US stores that has stayed at the same price of $1.50 since 1985!

TR – OK that really is amazing. How have they managed that?

TM – Through a combination of a laser focus on costs, and I think also a choice to use it as a loss leader to attract customers to visit their shops. Costco sells about 130m hotdogs each year, and that scale made it economical for it to open its own hotdog factory, which helped it to control costs.

TR – Yes it must basically be a marketing expense.

TM – I think it is, and it’s one that has totemic significance within the company. The Wall Street Journal included a quote from the CEO, who said that he once raised the issue of the hotdog price with Costco’s founder, Jim Sinegal, saying that ‘we are losing our rear ends’ selling it for $1.50. Apparently Mr Sinegal replied ‘If you raise the effing hotdog, I will kill you. Figure it out’.

TR – Ha! That’s a pretty clear strategy! So the first story I wanted to mention today is about AI – specifically the use of AI to design computer chips.

TM – Oh yes – machines designing machines.

TR – Pretty much. In this case, NVIDIA announced that its new H100 GPUs have nearly 13,000 AI designed circuits.

TM – Fascinating.

TR – And they said in a blog post that the AI-designed circuits take up 25% less area that ones designed by humans using traditional tools, while delivering the same speed and functionality.

TM – And given that area correlates with both cost and power consumption, that’s a very useful improvement.

TR – Exactly – lending credence to the views that we’re accelerating our approach to the singularity.

TM – So my next piece of news is less positive I’m afraid, and it concerns ammunition production. I saw some analysis in the FT that put the West’s lack of preparedness for a major traditional ground war into context. For instance, the expert they quoted reckoned that total annual US production of 155mm artillery shells would last less than two weeks of combat in Ukraine.

TR – That is pretty shocking.

TM – Yes I thought so, and there’s more. In a simulated war game last year, the UK’s ammunition ran out after 8 days!

TR – Oh my! And they published this?!?

TM – Yes! It illustrates how military spending in recent years has been directed into other areas, as politicians and top commanders judged that large ground wars were things of the past. In some cases, the ability to scale up manufacturing in the short term just isn’t there, as factories have been decommissioned and components are no longer available.

TR – Yes I read that’s a particular problem for the Stinger missiles made by Raytheon. All rather grim really, but it does show the importance of planning for black-swan events – things that may seem unlikely, but can be very high impact when they happen.

TM – Agreed.

TR – So the next thing from me is a bit of a call back to our previous discussions about food and weather.

TM – We’ve certainly had some pretty extreme weather in the UK recently – 40C!

TR – Indeed – temperatures the UK is not set up for… and it hasn’t just been the UK. There are similar stories across the world, but the one that caught my eye was Northern Italy, which is suffering from one of its worst droughts in decades. The FT actually quoted some Italian officials who reckon that river water flows are the worst in 70yrs.

TM – Gosh.

TR – It’s causing big issues for food production – the Italian farmers confederation have said that milk production is down about 30% as heat stresses the cows, and cereals like maize are down about 30-40%.

TM – I saw pictures of parts of the Po valley that have completely dried up – it’s terrible.

TR – yes and it’s not just farming that is impacted, it’s electricity generation too, with hydropower going offline just at a time when Europe could really do with help moving away from Russian gas.

TM – Not good. And Germany is having problems too, I saw that the water level in the Rhine is getting so low in places that it becomes difficult for larger boats to navigate. And that’s a big deal because the Rhine is used to move a lot of goods, from chemicals to coal.

TR – And coal is likely to be a primary replacement for gas this winter in Germany – so it’s a bit of a nightmare really. The intersection of climate change, food supply, energy, and geopolitics.

TM – Indeed. So the last thing from me today is another change at the revered start-up accelerator, Y Combinator.

TR – Didn’t we just talk about them a few months ago, increasing the size of their standard investment to $500k?

TM – Yes they announced that in January, which seemed to us to be another signal that the start-up space was overheating a bit, with too much capital sloshing around.

TR – So what are they doing now?

TM – Well a lot has changed in 7 months, and Y Combinator just announced that it’s reducing the number of companies it will fund in its summer batch (it normally funds 2 batches a year) by about 40%, due to ‘the economic downturn’ and tougher ‘venture funding environment’.

TR – That’s quite a reversal.

TM – Yes it is, and it shows that even the most prestigious parts of the seed tech investment market are not immune from what we’ve been seeing across financial markets.

TR – Recessions can be good times to start and grow businesses if you do have access to funding. Competition generally thins out, and the strongest can take market share much more easily than in booms.

TM – Agreed. Start-up land is about to get much more Darwinian.

TR – The final thing I wanted to talk about this episode is a brilliant twitter thread that we spotted a couple of weeks ago from Paul Fairie at the University of Calgary, lampooning the idea that ‘nobody wants to work anymore’.

TM – Ah yes I thought this was excellent. There’s loads of talk at the moment about the super tight labour market, and how many people seemingly don’t want to work anymore in a post-pandemic, post-stimulus world.

TR – And what this thread illustrates beautifully is that that sentiment is not new. Fairie has collected a bunch of newspaper clippings going back over the last 130 years, showing that people have been saying things along the lines of ‘nobody wants to work anymore’ for a very, very long time.

TM – The earliest one he found was from the Rooks County Register in April 1894, saying ‘with all the mines of the country shut down by strikers what will the poor editor do for coal next winter. It is becoming apparent that nobody wants to work these hard times’.

TR – Yes indeed! A few really stuck out for being very close to what people are saying today, including an extract from the Binghampton Press in 1916, bemoaning the high price of the typical components of a thanksgiving meal that year, saying ‘the reason for good scarcity is that nobody wants to work as hard as they used to’.

TM – That could be straight out of a UK newspaper today. My favourite was a quote from the governor of Wisconsin in 1940 declaring that ‘the trouble is everybody is on relief or a pension – nobody wants to work anymore’!

TR – Replace the word ‘relief’ with ‘entitlements’ and you could have lifted that straight out of a political leaflet in 2022. It’s also worth noting that back in 1940 very few people would actually have been receiving a pension compared to today, but it didn’t stop people complaining.

TM – Yes it’s a reminder that while it always feels like we’re living through unique circumstances, the truth is that a lot hasn’t changed. We also tend to look back on the past with rose tinted spectacles, remembering it as a period of greater wealth, potency and enjoyment than it actually was – misplaced nostalgia has a lot to answer for, from Brexit to Trump.

TR – I think we’re both optimists at heart, which is much more fun than nostalgia.

TM – Agreed.

TRThank you for listening to Global infusions - a podcast that believes that the best discussions are had over tea and cake. We hope you've enjoyed your cuppa and our thoughts on sports. Please do subscribe through Apple or Spotify and with that we wish you goodbye!

TM – Goodbye!

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