Acquiring the Chicago Cubs, The Polymath Playbook #49

Suthen's newsletter on the future of work, building businesses and financial independence

Happy Monday!

I hope you enjoyed my features on Softbank, ARK and Social Capital.

This week I’ll be going into the story of how the Ricketts family acquired the Chicago Cubs.


⚾️ Buying the Chicago Cubs

As a sports fan and a business nerd, this story is as good as it gets when it comes to understanding the politics and valuation dynamics behind a sports team. 

It goes into how the Ricketts Family, with wealth stemming from the creation of TD Ameritrade, purchased the Chicago Cubs for ~$900M. It's a fantastic read for those of you interested in learning the business side of sports. 

Here are a few things that stood out to me. 

The Value of Owning A Sports Franchise 

Taking a look at the slides below, it's clear that: 

  1. Sports teams are largely agnostic to the economical environment. No matter how you slice things (team's performance, popularity of the sport and etc), sports attendance has consistently gone up. 

  2. Financials only tell a part of the story. Businesses with the financial profile of a sports team wouldn't go for the types of valuations we see today. The valuation of the team is largely determined by its brand value (e.g. long-standing, historic team in one of the largest cities in the U.S.) and the opportunity to add a legacy asset. Owning a sports team can really satisfy one's ego. 

The Power of Leverage 

Back in 2008, the limit of leverage proposed by the MLB was 10x EBITDA. Meaning that you can only borrow up to 10 times the amount of earnings (+/- a few adjustments) that the team generated. The interesting part is how common it was to go around these limitations. 

The next few slides start with how debt is provided for sports teams, what kind of leverage someone might be able to get on a sports team (a lot more than the 'rule' stipulated by the MLB) and the complicated nature of the entities involved. 

As you might imagine, this is how a lot of transactions (with astronomical values) get done. 

The net impact of this complicated debt structure eventually gets passed down to the fans. This debt structure allows the Ricketts Family to put a bid that's close to $1B with only ~$300M even the Cubs had poor team performance and the sport itself was losing mindshare to other supports.

In order to support the leverage put against these teams, sports executives need to find effective ways to get more $$$ out of the fans. 

Let's take a look at some of the ideas that the team had proposed to boost overall revenues. Hint: It's not 'win a championship' or 'invest in players.' 

They largely focus on increasing seat capacity and creating exclusivity within new sections.

The idea of raising prices and/or finding other revenue accretive streams comes with a more expensive experience for the fan. As fans, we just look at the high-level problem that sports teams raise ticket prices because they can.

The reality is that sports teams also raise prices because they have to justify the price they paid for the team and pay back their debt, which really comes down to owners buying teams with money they don't have. 

The Dynamics of a Wealthy Family

It was interesting to see what interactions look like in an ultra-rich family with generational wealth. As someone who worked for a large family-run business, I always had an idea of the type of political strife that comes with ultra-rich family-run businesses. This is especially true when you consider the transition to the family's second generation. 

As the bid for the Chicago Cubs started to progress, the biggest issue that was raised was the level of media attention that the eldest brother (Tom) was receiving relative to all the other siblings. 

Moreover, the formal nature of how this issue was raised was extremely telling. 

Hi, Dad and all.


I have scheduled 2 hours for our call this Friday. Also, as I do not have a background in finance, it would be helpful for me to visit with Tom afterward to be sure I fully understand.

Regarding the media coverage, judging from the articles I have seen in the WSJ and Tribune, their reports may mostly be based on who actually signed the bid letters, as opposed to Tom’s request to the Tribune business editor. So, we may still have to watch how we are portrayed in the Tribune at least. Also, their reports now make it seem like it is Tom bidding as an individual as opposed to the family, which is still inaccurate. But, at least for now, we seem to have gotten rid of the Omaha designation.


This is relevant to the issue I raised during our private family conference call on Friday. Now that this process is underway and receiving more media coverage, obviously we are going to have to pay more attention to how we manage the media. We should all be informed and have input on how the media is being managed. The media coverage is also part of the broader issue of the impact the acquisition of the Cubs would have on our lives, particularly those of us living here in Chicago, which we have not yet discussed to date.


Best,
Laura

The reality is that once a family oversees $3B+ in wealth, ego and perception need to be carefully managed (e.g. having a family PR firm). The result is that you operate less like a family and more like a corporation. 

It's an interesting evolution that I don't know enough about. E.g. at what point do you start feeling less like a family and more like a business?  


👩‍💻 The Polymath Playbook

For the past couple of decades, we collectively (as a society) have built a system that favors specialization. The underlying assumption fueling this model is the stability of 'the corporation.' 

The past few years have been anything but stable. It's been difficult to promise prolonged employment in exchange for lifelong specialization. 

In order to keep up with the world of 2050, you will need not merely to invent new ideas and products – you will above all need to reinvent yourself again and again.

—Yuval Noah Harari 

This post by Salman goes into why Polymaths, people who engage in extended learning across disparate fields, and apply their learnings to connect ideas and solve problems in unique ways, will increasingly become the norm. 

When you work in a particular field for a while, you start to develop mental models based on its structures and dynamics. These are widely known within the industry, but not as much outside of it.

There’s where the opportunity comes in. If you find yourself working in a new area later in your life, you can combine mental models from different areas in ways that few others can.

For example, I am exploring the intersection between growing a startup and the way we do corporate development/M&A. This is especially relevant during a time when typical techniques (e.g. traveling the world and meeting owners/advisors in person) is no longer an option. 

I am not necessarily creating something new but rather apply the work I had done at the startup level to the world of corporate development/M&A. 

The part about Salman's post that stood out to me is the downside of being or trying to be a polymath. 

I'm specifically referring to the idea of fitting into social groups. As a polymath, it is difficult to relate to a group of specialists as you did not take the same path as a 'typical member.' Sometimes this leads to others not treating you like a peer. In other instances, this could limit your ability to receive opportunities/responsibilities that you're capable of doing. Historically, people have tried to bridge the gap by creating graduate degrees, certifications or designations. 

Think of these credentials as artificially created barriers to entry. 

As we go through this societal transition of specialists to polymaths, we should expect industries/fields to react differently. 

In terms of becoming a polymath, Salman points to the concept of Ikigai, a Japanese term for the reason of being (aka purpose). 

I'll offer a more prescriptive approach. 

Getting on the path of being a polymath is straightforward: strive to learn new things in a wide range of areas (diverse knowledge) and seek to find the wisdom in everything you learn. In other words, learning how to think along with learning how to learn quickly and efficiently. These then serve as the building blocks to think creatively around problems and find new solutions.

In this context, failure doesn't come from making mistakes but rather comes from quitting. 

This quote from Albert Einstein sums it up well: 

Success comes from CURIOSITY, CONCENTRATION, PERSEVERANCE and SELF CRITICISM.

The final piece I'll add to becoming a modern polymath is to embrace and pursue a diverse body of subjects. Since the polymath pulls from a wide body of knowledge to find innovative solutions, it is important to learn many things throughout life that will expand your horizons.

In summary, to become a modern polymath you must:

  1. Be curious about a wide range of topics

  2. Have a clear question they want to answer or goal they want to reach

  3. Have the patience and skill to sort through the noise to find good information

  4. Persevere through the difficult times, embracing a willingness to fail as an opportunity to grow, moving one step closer to the goal

  5. Monitor and measure progress, developing a feedback loop to continually update knowledge to move towards or retain mastery


Thanks again for reading this week’s newsletter. If you can just comment on what you think is interesting, what you find confusing, and what you think is boring or irrelevant, that would be really helpful.

Until next week,

Suthen

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