(Roughly) Daily

Just 14 months after agreeing to buy the controlling interest in the L.A. Lakers at a valuation of $10 billion, Mark Walter found himself in a spot of trouble and needed to sell. Joshua Kushner (who recently tried to buy a big stake in the World Cup) and Bob Iger stepped right up, and agreed to buy his share at a valuation of @$12.5 billion. Kushner is a bona fide billionaire; Iger is an almost-billionaire; together, their net worth is something like $6 billion. Under the NBA’s rules, Mr, Kushner’s investment vehicle, Thrive Eternal, cannot invest more than 20 percent in the Lakers; so, unless they get a waiver, it’s likely that Kushner and Iger will finance the balance of their purchase personally (and/or with funds from rich friends).

As Eben Novy-Williams observes, this transaction is just the latest in a long line of folks with relatively fresh fortunes buying into the big leagues…

Sports team sales tend to reflect what’s happening in the broader economy. During the dot-com boom, many of those newly-minted millionaires found their way to sports (Ted Leonsis, Mark Cuban, Paul Allen, Henry Samueli and John Moores). That gave way to the real estate boom, and those buyers followed (Stephen Ross, Stan Kroenke, Jimmy Haslam, the Lerners, the Wilfs). More recently, it’s been the finance, private equity and hedge fund titans (Josh Harris, Wes Edens, Marc Lasry, Tony Ressler, David Tepper, Tom Gores, the list goes on and on)… – source

And as the title quote (from Carlyle co-founder and Baltimore Orioles co-owner David Rubenstein) suggests, this make a very straightforward kind of mercenary sense– major professional sports franchises have historically outperformed traditional indexes like the S&P 500 over the long term. And it stands to reason: scarcity value, legal local monopolies, and lucrative media rights make for a heady brew.

In a recent Substack post, Derek Thompson takes stock of the situation. After his own review of the Lakers deal, he puts it into context…

… In an age of surging wealth inequality, where stock market valuations routinely outpace median income growth by surreal factors, there is a live debate over whether billionaires should exist at all. The strongest argument for their rightfulness is that some people amass ten-figure wealth by building companies; by working within free markets to invent new technologies that millions or billions of people choose to use; and by managing complex enterprises that create billions or trillions of dollars in consumer welfare and investor value. But even this steelman case for billionaires presents as a kind of taunting insult to what often passes for sports ownership today. Professional-sports ownership offers the already-impossibly-rich a unique opportunity to become vastly richer, not necessarily by working, building, inventing, or doing anything positive at all, but rather by merely sitting on top of an asset that American law has conspired to make absurdly scarce and luridly profitable.

A thought experiment. Imagine if a diabolical oligarchic elite wanted to build an efficient and low-risk machine for turning their already-elevated wealth into exospherically extreme wealth. What might such a devious group of self-serving plutocrats want?

• Unleash the forces of capitalism! you might think. But no, absolutely not. Capitalism is markets, and markets are ruthless. What you should want is legal permission to create a monopoly that builds a moat deep enough to keep all competition out. That way, you’ve got something much better than capitalism: artificial scarcity and pricing power without the risk of unwanted rivals.
• Get the government off your back! you might say. Wrong again. You know what’s nicer than getting the government off your back? Getting the government on your side. You should crave dependable government subsidies to pad your profits.

So say, for example, that you wanted to set up this money machine in American professional sports. Your devious plan: shield leagues from antitrust law so owners can enjoy monopoly profits; use that market power to extract money from local governments; and rewrite the tax code to hand sports owners special advantages.

Lo and behold, all of this exists…

[Thompson unpacks the particulars: sports leagues are basically legal oligopolies; labor law makes sports ownership even sweeter; sports stadiums have become legal ransom; and team-owner tax benefits put the cherry on top. He concludes…]

… People sometimes compare buying sports franchises to buying works of fine art—say, a Monet, a Calder, or a Rodin. In both cases, the simplest answer to the common question “Why is that thing worth so much?” is always “Because someone rich was willing to pay it.”

But there is an important difference between the factors that push up the value of Monet paintings and those of sports franchises. Think about why a Monet painting is so valuable. Setting aside the irresolvable debate about the ineffable nature of beauty and quality and artistic pleasure, the underlying fact is that a Monet painting is valuable because it was painted by Claude Monet, a famous individual who once lived, and is now dead. The finality and scarcity of the Impressionist oeuvre—the fact that one can buy a painting from Monet’s Rouen Cathedral series and not worry that he will paint 100 more tomorrow—is a function of his mortality. There is no scientific or technological means by which anyone can exhume and reanimate Monet’s skeleton, sit the zombie upright in a chair, hand him a paintbrush, an easel, and a cup of tea, and say, “Now that you’re all settled, I’d like 500 additions to the Rouen Cathedral series.”

But the scarcity of sports franchises emerges from the laws of mankind, not the laws of nature. It benefits from a set of rules, laws, and customs that we made up and that can be redrawn in a way that Rouen’s facade never will be.

I am not a fan of conspiracies, and I am not a socialist. But nothing makes me feel more socialist than the public, out-in-the-open conspiracy to buttress the value of sports assets, whose lush beneficiaries tend to be impossibly rich already. Solutions here are hard. Many fans like the weird, market-warping rules of professional sports, which often promote parity and competition and keep favorite players on long contracts; plus, I don’t think doubling the number of NBA or NFL teams is particularly desirable among most fans. But ameliorations are possible. Tax law could further restrict the ability to team owners to amortize. And honestly, I don’t know why some local governments shouldn’t own stakes in the professional sports teams that they often directly finance. I’m not sure exactly how this would work, and I’m sure that there would be some negative side effects of literally socializing the already-kinda-socialist dynamic of professional sports. But the status quo is vile enough to justify some experiments. What we have today is a handful of lucky, franchise-owning billionaires who get to sit at a poker table where every card they turn over has a face or an ace. I wouldn’t call it cheating. I wouldn’t call the legal structure of American sports cheating or corrupt. I would call it … the law. But the law is bad.

An out-in-the-open conspiracy to help a lucky few billionaires get much, much richer: “The American Sports Plutocracy Is Bullshit,” from @dkthomp.bsky.social.

For a peek at an Lakers ownership sideshow, see Giri Nathan‘s “The Buss Children Are Squabbling Over Their Remaining Lakers Stake.”

And for a different kind of context, see the source of the pull quote in the intro, “The Lakers Are a Massive Bet on AI Disruption,” in which Novy-Williams suggests that Kushner is “buying the Lakers because sports are relatively insulated from the economic havoc looming from the rest of his portfolio. That’s not a hedge against AI, it’s a doubling down.”

* David Rubenstein

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As we play ball, we might recall that it was on this date in 1920 that the owners of the Canton Bulldogs, Akron Pros, Cleveland Indians, and Dayton Triangles met in Canton, Ohio, and formed the American Professional Football Association– which proceeded to add teams and, in 1922, renamed itself the National Football League– the NFL.

At the outset, the APFA/NFL was very different from the behemoth it would become:

This new organization did not resemble a league as we would know it today, but was more like a professional association whose sole functions were membership and articulation of some general principles. Perhaps the best modern-day analogy would be a weak form of the NCAA. As can be imagined, the league office had no influence on anybody. It set no schedules, leaving each team to arrange its own slate. – Pro Football: The Early Years: An Encyclopedic History, 1895–1959

Still, there were hints even then of what was to come. The owners who created the “league” agreed to introduce a salary cap for the teams, to refrain from signing players under contract with another team, and to hold a league championship competition.