Chit Chat Stocks - Investing in Sports Teams - Massimo Marinelli

Episode Date: July 20, 2021

We are joined by Massimo Marinelli, an executive board member for Aser Ventures. Aser Ventures' portfolio includes interests in many different sports teams, including ownership of an English soccer team. Listen in to hear exactly what teams Massimo has invested in and stick around for the second half to hear Brett and Ryan's favorite stories from the week. Let's go! 7investing is empowering members to invest in their future. Use our code “CCM” to get $10 off your first month or annual subscription, or use this link: https://7investing.com/subscribe/ Want more of Massimo Marinelli? Follow him on LinkedIn: https://www.linkedin.com/in/massimo-marinelli-803274/?originalSubdomain=uk Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Contact us: [e-mail] Timestamps Interview | (3:34) Interview Continued | (17:29) Show Notes | (39:55) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today is Tuesday, July 20th. Today we have an interview with Massimo Maranelli. Kind of a unique interview for what we traditionally do, so it's less about public market equities. Massimo is an executive board member for Acer Ventures, which is, I believe, well, it's an investment firm in London. I think they're headquartered there. And they own Leeds United. So if you're interested in soccer, that might interest you. I think they're also a part owner of the 49ers, so we talk about that. What were your favorite parts about the interview? I was trying to prime for information about Formula 1 because I know that investing in that, people get excited about that as well. Because he did, I believe – well, was it –

It was prior, in a prior life. Yeah, in his investment banking. I think he talks about this. He did some transactions or helped in some transactions for them. Yeah, I mean, I was just interested on how they formulate the deals with the soccer clubs and how that works in relationship to the owners and the general managers and stuff like that. Well, they are the owners, but like say there's a controlling shareholder or something, how they have to negotiate with them. It's all a bit complicated and it is a bit of a black box. He can't share everything.

Right. But I know people are interested in that. So learned, you know, learned a lot about the sports investing landscape, which is a really unique industry. yep and then we have our show notes on the back and some acquisitions some mergers some deals to talk about so we'll get into those but before we get to that well we don't want to give a teaser a little teaser okay what are you talking about uh umg deal was squashed universal music you got people yeah so universal music groups got spackman or whatever they're trying to say got spacked yeah i know but spacked people got yeah but it's bill ackman so they're like

the deal got whatever uh but then uh square is also apparently trying to get into a bitcoin defi network we're going to talk about that crypto exciting as always what about you i've got zoom they acquired five nine it's kind of a it's a bigger business than i thought it was uh and it's a bit of a premium so we'll talk about that and then i also have a story from the wall street journal uh talking about our favorite person adam newman with the work the cult of we looks good i'm gonna have to download it yeah and before we get to that we got to talk about our friends seven investing i tweet yeah i tweeted this weekend i loved matt and dan's new write-ups i learned a ton about two specific companies can't give them away can't give them away obviously but

i took the time to read their past write-ups they i mean those those two companies specifically are kind of in our wheelhouse a bit or something we can understand but there's a lot of stuff else on there as well dan's is interesting dan's pics are always right under your nose like you yeah you know, you know, you just don't think about it. And usually that leads to good returns. So yeah, feel free to sign up. It's code CCM. Go over there. Look at their recs. Get $10 off. That's right. Without further ado, here's your interview. Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview

industry experts and riff on the world of investing. As a quick reminder, Chitchat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chitchat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. All right, today we are welcomed by Massimo Maranelli.

I believe I'm saying that right, pronouncing it right. uh he's an executive board member for acer ventures this is a conversation where we're going to talk about sports sports investing sports investing which is a conversation we really haven't had but before we get into that kind of background for you massimo how did you what interest you interested you in the world of finance kind of give us some of the highlights of your career and then what led you to acer sure thank you for having me and it's a pleasure to be here um i've been in uh in finance since i left college basically i started first as an intern with ubs in a few years ago over over 20 years ago now and i spent 15 16 years in

investment banking i was an m&a banker focused on media sports and digital media i did that between london and new york and uh from there you know after so many times i did a lot of transactions in the sports i did work i read transactions for the likes of formula one moto gp um vicom sky you know so lots of lots of big corporates but i also sold the the previous business of the founders of ace adventures and that's how i got involved with ventures which is obviously an investor in sports investing as you just mentioned and uh i guess for anyone that's unfamiliar what's sort of the acer ventures strategy who are you guys and then are you guys focused on a certain asset class or is anything fair game

look i mean we are a sports media and entertainment focused business okay we definitely you know like those sectors and that's what we focus on we are you know we look we consider ourselves an investment platform that wants to you know bring together you know management expertise and capital you know we have some capital is a capital of the entrepreneur which we invest but we're also looking to diversify that with third-party capital and that's why in some of the investments that we have we have minority investors in it or in some cases you We invest in other people's businesses. We're pretty stage agnostic.

We're not a venture capital or a private equity firm from that perspective. We don't necessarily have the criteria that a VC might have or that a PE might have. But we tend to focus very much on these sectors. Now, is there any difficulty with, I know sports, sometimes there's certain people have ownership and they might not want to give up any rights. Is there any difficulty with getting these outside stakes? Because a lot of times these are kind of precious assets, at least with sports teams. Is it a lot different than, say, just taking a stake in a traditional business? Dan, you know, it's a bit different, let's say, in Europe.

In the U.S., obviously, there are a lot of restrictions and sometimes, you know, you're not necessarily able to acquire easily a minority stake in a football club. year i wouldn't say that it's easy but you know they tend to be more privately held company without you know sort of restrictions from the nfr mlb or criteria set by third party there are there are you know some criteria that's particularly for the big labs you need to respect you know you have a director's test that you have to go through uh in terms of you know being uh and obviously somebody that brings good capital in you know for example things like that but uh you know if you if you had the capital to acquire a football club and you are you know a credible party you will be able to do so in europe i think it's a bit it's a bit easier

from that perspective the question is you know finding the right opportunity and uh having the capabilities to do it perhaps that's that's not as easy to come by right okay we'll get into what makes it good you know uh steward i guess uh of a sports club yeah and so i guess that leads into our next kind of segment which is you guys have an investment in leeds united so i guess what led you guys to that um and so what was sort of the thinking behind that deal yeah look i mean andrea has always been in on and around football so obviously it's a space that we knew a lot his past you know he was a sports media rights executive he built a very successful sport sports media rights agency and by definition you know being football you know outside of the u.s obviously

the biggest sport you know was very focused on on football and when the business was sold you know you know it definitely started to look at a potentially you know buying a football club initially he looked in other countries in europe like italy france spain and uh and then you know he had a uh you know what he i think he defined a chance encounter with kenny kenny darglish who his very own personality in football in England, obviously. And, you know, Kenny mentioned how Leeds United was a sleeping giant and a great opportunity, something that could come back to, you know, the former glory and it was really an underutilized property.

And I think that's what instigated the interest. And Andrea had her first meeting and first visit in, you know, the training ground in Thorpe Arch and really fell in love with the club. uh the club happened to be to be owned by another italian soccer investor football investor and i guess the rest is history and uh i i guess have you always had sort of a fat like an interest in soccer or is that football as i'm sure you can hear i'm italian so you know so it's been a good week it's a good week yeah yeah yeah besides being a good week you know definitely definitely you know it's um it's you know the the home sport so i think it's very difficult to find an italian

boy that doesn't like italian not that i'm a boy anymore but when i was a boy i used to play football and you know follow football a lot so yeah what what uh so from uh from the financial side what do you guys contribute to the football club um you know what i guess andreas and the team what are they doing and then maybe if you could how how do the how does this business work i think a lot of listeners understand what sports teams are i mean those are pretty easy to understand everyone's fans have won but you know how do they how do they actually make money yeah look i mean at the end of the day you're you're hitting the nail in the head right because at the end of the day you're looking at a property that is a bit different from some of the other

investments you might make a sports club you know what a football or other sports really has two very distinct areas one is the sports side you know you have the team how it performs how you manage that team how you make sure it's successful on the pitch and on the other side you have the business side which is more you know how you can make sure you got the wherewithal the means to support that sporting side um so from that perspective you know i definitely have a more familiarity and understanding of the business side in the football side you know there is a you know awful lot of things that uh you know even even as a as a fun you know you don't really understand or well you might think you do but you know it's really you know different different you

know i said i certainly you know wouldn't be able to have a proper discussion with victor the director of football of Leeds United he probably you know immediately understand you know the difference between somebody who speaks business sports versus somebody that speaks you know football sports I'd say that um you know on our side you know as Acer itself you know we definitely you know trying to support them very much on the business side so you know how you grow the commercial revenues how you make sure that uh you know the numbers are under control focus on the investments etc i think you mentioned you know how other than this other the revenue side works and ultimately you know as a i may have mentioned before you know

i was very much focused on media when i was an investment banker and in media you know we also used to cover sports the reason for it is that one of the main reasons of revenues for sports properties are media rights and so it was very much aligned to it um so when you look at the revenue base of a football club you know it's media rights that typically you might exploit through league deals um you then have uh events revenues you know ticketing the fact obviously you you know pre-covid at least were able to but from next season you know fingers crossed we be able to again uh you know have basically people in in the stadium and then you have other commercial type revenues sponsorship and and the likes those are you know the main three you know

revenue streams of a football club as far as the like actual investment process is is it just one ownership group or is it is the ownership of the team divided into a bunch of different different investment i guess or just people yeah different people or does it kind of vary by club yeah it's it's different by club i mean for sure in our case you know we we close the acquisitions as azer so azer initially was a hundred percent investor in rich united but then we signed a partnership with the 49ers the 49ers enterprises you know obviously an entity associated with the family that controls the NFL team and they now are minority shareholders in the club they they own 37 percent of the club and we did that across two transactions yeah we're uh we're we're in

Seattle so we're kind of the the rivals of the 49ers but do we want to talk about that a bit at all Ryan yeah let's do that on the I guess after the break but I I guess on the back end of that investment I'm trying to think like how does someone that's investing in a sports team recoup their investment is there a cash payout like do you get paid cash during the year or is it only once you've sold that position yeah i mean i think it tends to be more the latter i mean these tend to be assets that uh build a lot of equity value and wherever you monetize over time uh the you know i would say historically you haven't seen a lot of cash flow generation in in club or cash re-yielding in europe but i think as part of the professionalization that

you are seeing through the space that that will improve it also you know it's down to this the stage the club is at right whether it's a club that is investing to get promoted like we were two seasons ago or whether it's a club that you know is obviously already the benefits and is you know continuously winning but generally speaking you know we we definitely focus on building asset value rather than cash flow generation at this stage okay does acer treat i guess the leads investment like a passive investment or is there more of a hands-on approach i know you said andrea is involved uh so i guess how do you balance that well i mean acer is very much an active investor we are we are not just you know passengers on any of the investments that we make

in fact we don't make investments unless we got something to to add really and uh you know i think that's a key key point in terms of our investment strategies about the fact that we are not just provider of capital and we're not just a you know an investor manager you know with some expertise in a subsector but as it is comprised by people that go here expertise in the sector starting from Andrea and his past, as I mentioned, successful entrepreneur in sports media rights and now obviously in broadcasting and football, but also other members of the management team like Mark Watson, they used to run BT Sports and launch the BT television services, BT is the AT&T of Italy, sorry, United Kingdom rather, to be clear, or Grant Wallace, used

to be chief financial officer on man city and before that uh you know long experience in viacom just to name a few so we really are a management team that brings capabilities to the investments that you make okay and then one more uh from from the business side what's a mistake someone can make in you know that you don't have to give any examples or anything like that but if someone's investing in a sports club you know i guess winning a winning team solves everything but From the business side, what's a mistake that some investor can make when underwriting an investment in a sports team and what could go wrong? I think it's always easy to overestimate the commercial potential

of a franchise in the short term. I think you need to be mindful that if you have something that you're just getting out of a bad moment or bad management or whatever, is not going to be able to suddenly, you know, multiply revenues like that. You know, it's possible over time, but it takes some time. So I guess it's how to manage that bridge between, you know, being unsuccessful and being successful.

Okay, I think we're going to hit a quick break, but on the second half, we'll talk more about your guys' sports media assets. vacation. Good thing you're staying at La Quinta by Wyndham. They have free high-speed Wi-Fi to stream all your favorite movies. And in the morning, get fresh waffles with their free bright side breakfast or squeeze in a workout at their fitness center. Either way, you're ready to conquer the day. Tonight, La Quinta. Tomorrow, you triumph. Book your stay at LQ.com. This episode is brought to you by KPMG. As a business leader, how can you innovate,

build trust, and move forward in a digital era. KPMG can help by bringing together the right talent and technologies, generating insights that spark opportunities. To explore their thinking, visit reed.kpmg.us slash opportunities. Okay, welcome back in. We want to hit on, because you guys have a few more assets and some of it's in sports and media. So I guess before we get into the specific properties that you guys have, How has the sports media landscape changed in your view amidst COVID and then how a viewership habit's been changing in general? Yeah, definitely. There are a lot of changes in the sports media landscape that we had to really address and live with. uh the impact of covid i think has been uh evident to everybody in terms of uh you know

sometimes the inability just of having uh having games going on which was you know pretty pretty massive impact but i think what it has done has accelerated some trends in terms of making people more comfortable with uh uh you know the the ability to just rely on mobile phones and perhaps you know more video calls and things like that and i think that has also had an impact on how people will want to consume consume media and utilize technology for that so for example that's that's the reason why we we launched last year live now which is a pay-per-view business focused on live events you know which were clearly not available to enjoy you know live in uh you know if it was a concert in an arena or whatever, but, you know,

we could use concerts and make them available online. And also, you know, we think it's a, it's a good innovative solution in terms of allowing people to just buy events on the spot, on the go, perhaps from, you know, in the future social media, rather than subscribing to these or that, you know, cable or cell phone provider. What, uh, what happened to viewership? Did it boost during COVID? did it like increase with everyone locked in or was it kind of flat no no the audiences were good

obviously you know we had the issue of not having games at times so we had to navigate through that but i we were lucky enough if i'm not mistaken with 11 sports to be one of the first uh the first broadcaster to have some live events we had some baseball in taiwan that came that came back i I think it was the first, you know, let's say, really major sports event that came back. And we started getting calls from every broadcaster in the world, basically, to, you know, get access to that content because everybody was craving some sort of live sports.

Interesting. All right. And then what, I guess, you know, if my notes are right here, you guys either own or have a stake in the Broadcaster 11 sports. That's, at least in the United States, I assume it's like that in Europe and other places around the world as well. there's a ton of i wouldn't call it uncertainty but there's a lot of things up in the air of where a lot of the broadcasting rights are going to land we've seen in the united states at least

and i guess in europe as well you know amazon and other you know platforms like that buying up rights we had that for the nfl here how do you guys look at that and what are what's your strategy for the uh you know eventual movement of all these broadcasting rights to you know online platforms so 11 is a business that that was founded by esser so it was uh it was something that uh you know was uh again born out of an idea of andrea given his expertise in in the space we are the majority shareholder but we do have minority shareholders you know which are you know very reputable and big companies in the world of sports

and media and all recognized investors like Sapphire and Sapphire Capital which you might know not far from you guys originally or NBC via Comcast

or Liberty Global Ventures Snap is a minority shareholder or to name a few. So obviously, we have built a business that has got some recognition now in real scale. We got over $300 million of revenues for the year just closed, pro forma for the acquisitions that we just closed. And I think the secret to have a successful business like that is to be more in control of your destiny, really. So you mentioned, yes, buying rights but not just focus on the live rights is also you know what other sort of

you know propositions you can offer both to to the fans and and to the partners that that you have you know the the rights holders so that's why you know we acquired and build new capabilities whether it's with the acquisitions on my kujo we did last year now elevenspots.com or with with Whistle, which is the business that we originally invested in in the U.S. a few years ago as a venture and then was ultimately acquired by Eleven, because I think that allows to offer more original content that is attractive to younger demographics, as well as additional services potentially to the rights holders. Would there be, this is kind of a random question, but would there be any benefits to taking

any of your assets public? I know it might be hard, I guess, with a sports team, although I've seen Man United, I think it's publicly traded. I feel they're public, I feel they're for sure, yeah. Would there be any benefits to that?

I think, you know, particularly with the SPAC case that you guys, I'm sure, have debated in the past, you can imagine that, you know, there is definitely a lot of focus on sports right as well i mean that's also well known there are i think you know tens of sparks folks on the space so obviously you know we we have to consider that as uh as

options you know it's also part of a job of an investor to look at every option as part of it you know you're right there is a lot more examples of people sorry of companies rather in the in the media and media sports space listed in uh than clubs uh i think you know it's definitely it's definitely an area that we would need to to consider i mean on uh on the on the media side i think it's easier to get comfortable with the diversification on the on the sporting side you know you just you know you mentioned very very big club uh you know i guess somebody also needs consider how to build that uh that position as a one single club right right and i guess do you want to talk about the u.s operations what all do you guys own as far as uh investments over here

yeah obviously we are very active in the u.s whether it's to our you know partnerships that i mentioned with the 49ers already but also you know direct investments that we have made in the past i i said you know we we invest in this business called team whistle that was then bought by 11 sports so that was our first big investment in the u.s but we also are a an investor in a company called sports data labs that is a software as a survey proposition focusing on collecting human data from athletes oh cool nice yeah so that's uh that's a you know another business we're invested in and also live now is very active in the united states so definitely you know we we unfortunately haven't been spending physically as much time as we would

have liked in the u.s we used to come very regularly obviously with covid you know i'm based in london it's been a bit more difficult but i hope that will change soon but we definitely see the u.s as an important part of our investment and opportunities so with you know stuff in i guess it's in any area so do you think the best way to um i don't know if it's just revenue maximization or just the ability to get the most from your avid watchers do you think the best way to do that is to go after some you know niche subscription services kind of like a lot of people have been going after or do you think just add some bad supported model is better because it seems like there's a lot of avenues that you can go about it once a lot of these rights get

debundled from you know the uh what's what i'm missing the the cable bundles i mean at the end of the day it's uh content and uh you know reach dependent in a sense right i mean there are some content that can definitely work well with niche subscriptions and should definitely be pursued i think it can also be always an additive strategy for content that might be big in certain countries or in certain areas but only in others because you know people are more mobile and there will be you know with somebody out there that might want to be willing to pay to get access to original content some somewhere um and then on advertising versus pay you know obviously there are examples of successful businesses with both strategies.

So it's about how you make sure that you have the right reach to either create the right base subscription model or generate the right advertising bundle. So I don't think it's a one-size-fits-all. And you said mobile viewership is growing a lot. How are you guys leveraging that within your assets? It sounds like LiveNow has an app.

Am I getting that right? Yeah, as an app, also Eleven in the major markets obviously has an app and, you know, make sure that people can use them as well as being available online. You know, in some markets we only operate in Italy and in Japan we only operate over the top. So there are definitely reasons to make sure that, you know, you have to pursue that mobile strategy.

And I think, you know, there is, again, some content that works better on mobile than others. but i guess overall with ig and all the improvements in technology will continue to be an important component of our viewership right i guess one this is a switching a tiny bit but you mentioned formula one i don't know if you followed it for the last uh or if you're a fan at all but if you there's a lot of people i guess in the u.s now after the netflix documentary that are fans of formula one i'm fans myself how does that business work at all if you if you can share that uh and if not we can go to another question how does it work i mean like how does that business how does

the how does the league work at all i guess you know you mentioned before that you did yeah yeah absolutely absolutely look i mean i i did a lot of work from my one when he was under the ownership of cvc the private cut the private uh the private equity firm since then has been sold to liberty media so obviously it's new ownership i haven't been as close to the business performance as it was but the business you know it's uh it's a great business you know they definitely have a you know good setup with a league that controls you know the revenue streams and distributes them to the team by way of price money the revenue model is very similar to a club in the sense that, you know, there are obviously commercial revenues,

ticketing revenues, in that case, media revenues, and also, you know, host revenues. So, you know, if you want to host a race, you also have to pay. You know, you could argue it's part of the much more the football you would call much day experience. You know, it's obviously a great sport. I'm pleased to hear that they managed to, you know, make additional heroes in the U.S.

because definitely that was part of the strategy at the time when I was working with CBC. yeah it's funny watching everyone become Formula 1 fans I'm an expert now after watching 10

episodes but so if a team opens up we can say you don't have to answer this but Acer you know

they could be coming in maybe making a little I know there's only 10 teams and there's a limited supply but that seems like one of the best

sports assets at least in the world yes yes they've been definitely you know doing a great job Formula 1 there is also you

some uh some new sports focused on uh electric cars so there is formula e as well that uh you know there are races focused on cars that are more you know race racing cars but only electric and uh recently there has also been a launch of extreme e which is more of a race between you know kind of a let's say an suv type car in a very remote location again only electric so you know with the with the move towards you know new technologies for from engine motors you know it would be quite interesting to see how that develops but you know formula one cars they already are hybrid right they're not they're not you know as they used to be just petrol cars What impact do you think

And correct me if I'm wrong But it sounds like they're putting like a budget Across the league sort of like a salary cap Do you think that would benefit the league at large So there is no such thing as a salary cap At the moment In the Premier League Which is where it's raised

There are some restrictions In terms of financial fair play so there are some restrictions in terms of how much money you can invest into the club or you can lose have a club lose so basically you know it's sort of a element of controlling the fact that you know you can't just keep spending if you don't have the revenues to support that spending so you can only you can only lose a certain amount of money each year let's say controlled over a three-year period there have been you know noises in the past around salary caps

so for example I think the league below the Premier League in England considered that last year but ultimately

it wasn't approved would it be would it be a good change look I mean the key point here is that I think it's important to consider that

clubs need to become sustainable you know that's for the good of everybody in sports nobody wants to see a club going bust so hopefully

you know that's that's going to be achieved somehow could a salary cap being a route for it maybe but obviously it has to be looked at in the context of what else is being done to preserve you know competitiveness and ultimately you know an exciting competition right right and i guess i have one last one kind of along those lines um so as the clubs i i guess

i'm just assuming this but you have a revenue share um across you know all the clubs in the certain leagues as investors or anyone on the business side are you working with all the media rights um sorry the media are there are the people that broadcast stuff so i guess for example if say you were the the league was doing a negotiation in the united states with you know espn nbc or whoever are you working on that at all uh because i know that can have a big impact on annual revenues for clubs yeah so there are some rights that are centralized and so it's the league that monetize those for everybody the most obvious ones are indeed the tv rights or the broadcasting rights i say tv but that's very old school obviously they're also distributed over the

top um but that's i think how still everybody calls them and then there are some rights and that are monetized club by club so sure sponsorship it's another obvious example so for us you know it's it's uh of course you know very much involvement on the ones that we can monetize individually for the club versus the ones that they monetize all right that makes that make sense oh i have one last question too do you have any take on the european super league oh that was kind of relevant more a month ago but what was the incentive there from the clubs and then uh if i'm if i remember correctly leeds was the team that had the shirts on that i'm blanking on what it said yeah if you want we can send you one you know yeah we're all game we're good

you know the you know football is for the fans that's exactly what we said i mean uh but that's that's indeed the point i mean i think the clubs that subscribe to it they had in the press release that they felt that, you know, well, for a start, you know,

they were obviously looking to get more cash in after COVID. You know, they had significant losses and of course, if you are a big club and you can't host

20 games through the season, you know, you're going to be, you're going to be more, you know, you're going to lose more revenues

than a small club, right, that has got five people going through the gates. I'm not talking about my club, our club, I'm just saying in general,

obviously the bigger you are, the more, the more revenues you lose from loss of ticketing. I'd say, you know, the overall structure, the overall thought process around that was really mind-blowingly badly executed, you know? And that's why it ended so quickly. It's definitely, you know, an area that I think people

we need to just be mindful of you don't want something like this to you know happen in that in that shape or form without being without being really discussed uh i think you know there are great competitions already happening uh to the extent that people are looking at ways to make the sports industry more sustainable let's talk about it right i mean as i was saying before by any means it's important that the sports sector remains more sustainable but uh you know doing a have a club you know probably you know wasn't well received by the fans and ultimately you know without fans there is no there is no successful sports team and you said it was poorly executed i think that was kind of the view from the rest of the world as well what would you or what do

you think they should have done different in trying that strategy i mean obviously we weren't part of it so you know we definitely don't know all the things that they've done or they may have not done but just looking at it from from outside i was uh you know i guess surprised that there was no clear no clear management structure that was presented you know no spokesperson you know that was identified so you know you kind of have a few clubs speaking rather than one central representative i guess you know it's look it's it's it's difficult to to mention but i think most importantly perhaps

was the lack of inclusion of the rest of the football world I think it really looked like

you know it was you know six clubs against was it six right six or eight

yeah six initially six clubs against the rest of the world so there was

it you know probably not the way you know you expect what is still you know

a sporting world to to be to you know to be the way you start something new right you probably want to make sure that you know there is a obviously there are regulators there are a lot of other players in the space you know even politicians i guess you know it was quite surprising i guess the political reactions was was also bad and just wonder how how did that happen you know it was if it was such a big project that has secured potential funding from big banks and the likes you know how did

They just, you know, not include the rest of, you know, the rest of the stakeholders. Right, right. It seems like, especially with sports assets, taking care of your fans and I guess the other stakeholders are really important for building a durable franchise. Mm-hmm. Yeah. Yeah. Yeah, yeah. Absolutely.

Absolutely. Okay. a wrap-up question we ask this to all our guests what is one piece of advice you have for anyone that's considering a career and i guess your background's kind of in finance so anyone considering a career in finance um i think i think it's very important to you know just uh first of all you know make sure that you you look at why you might want to get a career in finance and uh and then you know just uh be very focused on uh securing an opportunity in it because there are opportunities you know your first one might not be necessarily the one you know you were

wanting but you know at the end of the day that's not that's this is probably for a reason you know if you keep focused on it and you keep uh you know being very um you know motivated it you can definitely you can definitely make it you know it's uh it's a career that uh it's you know obviously has a lot of has a lot of entry points so you know once you find the entry points you just need to be focused on executing it properly all right and uh i mean that's all the questions we have where can any listeners find you if they want to follow you or anything like that you on

twitter yeah i'm on i i have i actually you know good question i don't use

twitter that much but linkedin is good or you know the yeah that's that's probably the

best platform yeah i mean i'm on instagram but i guess it's a acer acer ventures if

anyone wants to check it out aser aser the uh i mean that website's cool checking

out all the stuff you guys uh are a part of so yeah thank you mass thank you very much for your

time and it's been a pleasure to speak with you cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid downloads a song from a shady link and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with Cox panoramic Wi-Fi. Advanced security must be enabled in the panoramic Wi-Fi app. Restrictions apply. All right, welcome back in. Thanks again to Massimo Maranelli for joining us. Next, we're going to talk about our stories for the week, and I'm going to kick things off. So Zoom acquired a company called Five9 this week, or they are acquiring them, and it's for

$14.7 billion in an all-stock deal. Have you heard of this company before? I have not. I had seen it once i don't think i've ever dug into what they did very much i think it was during my summer at the motley fool that i came across them but it's like on a screener uh so didn't really do any digging but the acquisition comes at a 13 premium to five nines closing price on friday and it's the second biggest acquisition acquisition of the year for tech i think the first one was microsoft with nuance communications uh but uh i'll kind of talk about what they do and then i'll dig into some of the financials so they are a b2b software as a service provider mostly for enterprises and they're providing customer contact solutions so uh it's inbound outbound email so you see the

little chat box in the corner of some of the websites they're kind of powering that uh automated voice uh like contact center if you know what i mean so like when you call and it receives any inbounds um and it can kind of process them it's helping enterprise companies okay so a little bit of a twilio competitor they're kind of stepping towards yeah that market a bit i think they called themselves a customer contact as a service provider which i didn't even know that was a market nice um but yeah and they were i guess an 11 billion dollar business before zoom came in and acquired them. And the stockholders will receive 0.5533 shares of Zoom for every five nine share they have. And Zoom's market cap for reference is just over a hundred billion dollars. So some of five

nines financials, they did just under 500 million trailing 12 month revenue. It's growing at about 40% year over year. COVID helped them out a lot. And then 92% of their revenue is recurring. I think something like 80% is from enterprise, which is what they were hoping for. And then 121% dollar-based retention rate revenue retention rate and then operating cash flow margins of like 15 free cash flow margins are about half that and so zoom is buying five nine at roughly 30 times sales and they're growing at 40 year over year look i mean i i hear something zoom is using their stock which seems smart right so i was kind of like okay all stock deal this is great but if you're acquiring a company that's trading at 30 times sales it feels kind of like

a break-even. If someone's buying Zoom stock right now, they might be disappointed, but if you're a long-term shareholder, you kind of got to like them using their stock price to their advantage. I'm pretty sure, so Eric Yan and the CEO of Five9 were both employees at Cisco

in a prior life, so they may have known each other before. And I am reluctant to question anything Eric Yan does if it's cloud-related, because i'm sure he knows the market better than me um and i also like him as an executive but 30 times sales seems pretty steep it feels late cycle for sure like cash flow margins have kind of

stagnated over the last three years and i guess revenue has grown so are you talking about for five nine yeah um i mean for reference first of all do you think the deal makes any sense so zoom trades i ran some rough numbers in zoom trades at roughly 60 63 times trailing 12 month free cash flow so i guess when you think about that as their valuation using stock as currency is great but as you said it's kind of a kind of balances itself out when you acquire someone for 30 times sales you hope that you're using that expensive stock to acquire someone that's trading at i don't know 30 times cash flow or less or something like that or even more depressed i don't know how does this work into their business though i don't know i didn't think there's much opportunities for

cross-selling there's god i mean there's probably a claim that you know that it's probably in the write-up so if you're an investor in zoom you can easily see what they're claiming but i don't know i mean this makes sense for like twilio right twilio's kind of get into this you know but zoom is more i don't maybe they have a whole plan here for like okay okay here's something that's coming to mind what about like you're a business that subscribes to zoom you can also add on these features if you're a consumer facing business but i think that's a small part of zoom zoom's just not consumer it's like two different elements like one's meant for like to interact with customers and then one's meant for like internal communication i just don't see

the i don't know yeah the overlap of zoom subscribers who would want five nine at all seems low right well i mean zoom subscribers applies to everyone i imagine saying the overlap is pretty low like how many how many people or businesses even even no consumers that use zoom need it and then there's probably only a few businesses you know i mean it's a few in like hundreds and maybe thousands of businesses that would want to use five nine services that are also using zoom i mean the overlap is probably because everyone uses zoom so i imagine most of five nine's customers also use zoom yeah the chances for cross i mean i i can't imagine there's that many five nine customers that don't have their own uh don't either have zoom or some

using some video chat google meet or whatever whatever they are called now i'm at that point it's already everyone already has some video chat so i don't know well all these are we at peak zoom michael burry said it like six months ago i think he timed that perfectly right with the stock tries yeah i mean zoom i have no take on what zoom's gonna do but the the deals what are the three deals have been tossed around there was okay slack got acquired by salesforce that was expensive this one got a uh uh shoot what was it what was it um 30 times sales yeah 30 times sales here i don't know what slack was it was a little less than that i think um you want communications microsoft yeah but that's big tech they got so much cash flow to cover that but there was another

one like the all-star could have been a twill it's one of those ones that twilio has been kind a serial acquirer those the the deal prices on these seem they seem yeah i don't know they seem aggressive you know the historically a lot of times at the end of a cycle and everyone says this you can never predict what the end of the cycle is but historically when you look back aggressive deals kind of signify the late stages of a bull market let's tag in mark cuban here yeah taking that yeah who acquisition all the contributors on anyone who works for cnbc now can thank themselves for the late acquisition uh late acquisition deals of the tech bubble but yeah i don't know this might not make sense to me but i don't really understand these businesses

all that well and people you know they don't want with them let's get to your story okay so the umg deal is squash again like we mentioned at the start that is a universal music group so pershing Square, Tontine Holdings, whatever it's called, Bill Ackman's SPAC was going to acquire UMG, but that deal was squashed by U.S. regulators. Ackman will instead take a direct stake from his hedge fund instead, about 5% or 10% of UMG, which is leaving the SPAC still searching for a deal. According to Ackman, the SEC raised a, quote, deal killer concerns with them last week, so the deal has to be stopped. These concerns could have been, this is kind of from an article I was reading it could have been restriction on foreign securities, holders who are using margin because there are some complications with the deal.

It was – we mentioned probably this at the time of the deal. It was the most insanely complicated deal. There was like 20 steps you had to read. I don't know how many people actually understand what was going on. And there also was problems with people who could have owned call options because they were trying to roll over something with the SPAC. I don't know. It's all over my head. But now Pershing Square Tontine is apparently going to go forward with a straightforward SPAC deal, according to Ackman.

IPO SPAC index, for reference, is down about 26% from the February peak. Excuse me, 26%, if you didn't hear that right. Is now the time, you think, to start digging a bit at these ruins? Or what are your thoughts here? Well, I am hesitant to buy it. Maybe it's just the risk aversion in me talking. But buying any pre-merger SPAC at a premium seems like a risky strategy considering that it cannot go through unless you maybe hedge it in a way. There's a floor.

Yeah. But you are literally saying – I mean let's say the merger opportunity is like 50% or 60% that it will happen. You're essentially saying like I will lose money if I'm wrong, like if it doesn't go through. No, I mean you just don't get any returns because you just get the cash returned. But doesn't it go back to – down to ten dollars a share yeah if you're buying yes that's why i say if you're okay i didn't hear that yeah assuming yeah if you're buying it above that ten dollar share or whatever the baseline is yeah i mean there's probably a way to hedge that but yeah i don't i don't why not just wait until

post merger i guess is what i would say there's got to be some if yeah if things continue to fall there's got to be some post merger opportunities here because if hundreds of companies are going to start merging over the next year or so there's got to be at least a few out there that you can understand and like yeah i saw i mean there are some it's kind of like a red or i guess a yellow flag for me uh companies that chose to go public via a SPAC and if they didn't need it yeah but there are definitely some gems i'm guessing maybe three percent of the SPACs that have happened are going to be thriving businesses in the public markets yeah or good yeah i mean stock returns you know more than three percent will be viable businesses but the aggressive valuations and if

valuations were so aggressive if the and i guess not really valuations if the multiples were so aggressive a 26 percent downtick isn't much you know you know what i mean on some of these that were trading at 100 times sales or whatever yeah i don't know yeah that's all i have for that pretty quick yeah just wait until post-merger wait unless you have some hedging strategy or if it's at a discount maybe but a pre-merger premium you are you you could definitely lose money that's true because you're hinging it on a binary event yeah yeah that is true all right um my next story it's called the we that didn't work so an article came out in the wall street journal this saturday uh talking about some of the fun stories of we work our favorite company

and i think that i believe the title of it was the we that didn't work so i'm stealing that from them there's infinite puns you can make in titles whether we work so that that's that'll never end yeah and it it's worth the read for anyone that has access to the journal uh their saturday editions are always the best anyways so just if you're going to subscribe maybe just go saturday editions but after they talked about some of the stuff between masa sun and adam newman so i'll dig into it they said after several early funding rounds uh masa sun and adam newman were apparently discussing a new deal that would include Masa-san writing a $20 billion check to the company. They'd already funded them with $4 billion. So this was, I believe, the biggest private

funding round that would have happened ever. It would have been a majority stake in the company, I should hope. But if you've seen the documentary, the WeWork documentary on Hulu, you knew exactly how this money would have been spent. Plenty of music festivals and A lot of alcohol. Corporate bloat. I think we said this before, too, that the guy just needed to spend a few years at a state school. And we were put it never happened. Yeah, that's probably true.

Like if he just got his partying out earlier. But there are some good quotes, too. And then apparently as they were discussing it, Masa-san pulled out his iPad and started jotting down some notes. Here's a quote. He was jotting down notes on a picture of Yoda. And here's a quote from the article. It says, Mr. Sun, a risk-taking investor who likened his gut-based strategy of use the force to that of the bat-eared Star Wars Jedi, was visibly excited that his new disciple was pushing for such an ambitious plan. Mr. Sun, so Masa-san, then proceeded to do some quick back-of-the-napkin math on top of his Yoda picture, and they have this picture in the article.

Is it in the book? Was that from the book, or is it just his name? I'm not sure. I haven't read the book. but well it was the wall street journal reporter wrote the book which is why yeah yeah uh but anyway he calculated that we work would be worth a 10 trillion dollars in a decade so just you know bring out the pen the ipad a yoda picture i mean this is what good underwriting is i mean yeah 10 percent of the real estate market or whatever it is yeah it's easy and that doesn't take any money

to we all know the issues it just like you gotta go look at these notes because it was just like they had like a hundred buildings or something like that and he's like i want 10 000 buildings yeah and he's like 10k 10k 10k in everything he's like everything needs to be bigger and then he's like 10 trillion that's what you guys could be worth i mean it's a pretty scalable business model it just takes a lot of money to do right you gotta buy these buildings yeah and then i mean 14 months later uh the company collapsed and newman was removed so he just bought that house in miami though yeah no i mean i'm sure he's doing fine oh he's doing great he bought a palace in miami so things are looking up for that city i encourage everyone to go watch that documentary maybe read

the book as well it sounds like uh i know i sound like a broken record here but was this the greatest corporate collapse of the last 50 years so far no just joking uh uh i don't know probably well no no no no enron definitely enron that was i think they were had a hundred billion dollar market cap and same with worldcom maybe and lehman and uh they probably had bigger market caps but this i mean i guess other than all right enron and worldcom i guess uh i believe they They're frauds, but Lehman was more bad decisions. It wasn't smoke and mirrors. I guess maybe you could – yeah, I guess you could say it was.

Those are corporate collapses. I don't know. Could you ever invest in SoftBank? I know this is a value investor, Darlene. Yeah, a lot of people have been talking about it. I mean it's trading at a huge discount to NAV, which would be like the net asset value since a lot of it – SoftBank – we can't go over everything. We can't go over everything because there are so many different holdings.

But if you add everything up and the value that they're trading at. Who's calculating that now? Yeah. Well, it's sometimes other VCs writing up the investments in other rounds. I mean, they've had a lot of successes. Coupang, well, Didi's kind of struggling now. Yeah. What were some of their collapses?

I mean, they were in green. But the thing is, they're in Cartera collapse. But you've got to expect that with the big risk. I mean, the WeWork stuff is definitely not great. Yeah, I mean, there's a lot of people that I think are smart, rightly so. They're like, it's trading at a discounted NAV. Okay. They might take risks, but that's not for me.

The value investor in you aside, you have someone jotting down $10 trillion on a Yoda picture and underwriting that. Yeah. He's still the CEO. Yeah, management is not for me. Too much risk. What is the net asset value worth if it can disappear tomorrow? Yeah, well, you have to, I think a lot of people who invest in software would say that you have to expect greater returns for the risk you're taking. So you'd have to expect higher, like, you know what I mean?

Compared to another- At least obviously had some winners. Yeah, so compared to other investments, maybe in your portfolio with safer, stabler business models, this would be something that you'd want higher returns on because you're taking that more risk. But you, it's, I don't know, maybe. It's a home run business for Masa. Yeah, it's, it seems like. There's not a lot of singles here. Yeah, no singles whatsoever.

I don't, yeah, it's, again, I guess I'm just going to say it again. A lot of risk, a lot of risk. Okay. All right. What's your last story here? Okay. This one, everyone loves, I bet, yeah, no one really probably likes when we talk about cryptocurrencies but i think this is interesting because it relates to public companies and we

can probably talk about how you can react or think about a public company that you might be invested in getting into cryptocurrencies which is something that is increasingly happening so square which is a company that if you're a long time listener of the show you know that we used to own our personal accounts but i just want to be clear here it's not something we own currently could own in the future but just to be clear we have no skin in the game here uh this is everyone's favorite fintech company they're getting more and more into cryptocurrencies from ceo jack dorsey square is quote focused on building an open developer platform with the sole goal of making it easy to create non-custodial permissionless and decentralized financial services our caveat

that was saying that square is this they're a centralized entity so i don't know but apparently the new unit which will be what people are calling a bitcoin defi uh i'll explain that a bit but Apparently, the new unit will include the seller, cash app, and the recently acquired title businesses. What is DeFi, you might be asking? It broadly means financial transactions that don't rely on centralized authorities like a bank, exchange, possibly exchange, but I don't know how you're doing this without some sort of exchange, or like a clearinghouse. Again, I get confused, though, because you could argue that the software or whatever you're building it on is something centralized. Maybe I'm being nitpicky.

So it's decentralized with Dorsey in the middle. Yeah, I don't get when they say decentralized because at some point something is centralized. Something is. Again, that could be nitpicky, but I don't know. But, OK, this also comes at the same time that Jackson Palmer, who created Dogecoin as a joke, I'm just saying that because he is someone who understands how these things work. You know, one of the few people, unlike us, that understands the nitty gritty of a cryptocurrency. He had a tweet thread saying cryptocurrency is built, quote, to amplify the wealth of its proponents and evade taxes, quote, controlled by a powerful cartel of wealthy figures and use a shady marketing to, quote, extract new money from the financially desperate and naive, plus a lot of other things.

So the people in the – whatever you think about that aside, speaking more broadly about any stock you might potentially own, how do you weigh the risks and potential when a company makes an investment in cryptocurrency? Well, I don't – I think this is wasted capex or I guess investment. Expenses, yeah. Just expenses, yeah. I don't like it. I don't know. I guess, yeah, there is obviously upside. But if you provide a service or a product that is core to your customers' lives, it doesn't matter what they pay in. Yeah, well, okay.

So why invest? No, I'm not talking about your opinion on cryptocurrency. So what if, say you hold a company, a stock, and they announce, like Square is, that they're getting into Bitcoin and all that type of stuff. and you're a shareholder of that stock, as an investor, how do you evaluate that? Yeah, I don't think they need to. That's what I'm saying. It doesn't matter what the currency is.

Yeah, but you can't control that. How do you think about that for evaluating whether to buy or sell the stock? Well, depending on the... There's nuance. But depending on the size of the transaction, to me it's a bit of a yellow flag. Yeah, I think it adds uncertainty

because it's something that, at least on our end, it's something we don't understand. If you don't understand that, that adds more risk uncertainty you might not know what's going well or not going well you probably want to up your return expectations because it is adding more risk i think that's probably a good way to go about it and there's probably a threshold too where if this company goes full on micro strategy i mean you gotta get out like you know there's like a threshold where someone might be investing two to three percent of their money that's maybe the worst part is

it starts small and then everyone says well if it works out they're in good hands and if it doesn't You know, they've – it was minuscule. Yeah. But that's just – that's the peak of the iceberg. They head down the rabbit hole. It happens – I mean, go look at Michael Saylor. You start small. I don't – it feels like it's like – it feels to them it's like an addictive drug sometimes.

People get addicted to the cryptocurrency market and they can't stop. And it just – again, as someone who can't control what a company is doing as an outside investor with not very much money, it just adds uncertainty thing is i know we know plenty of people that own square we know plenty of people that own paypal that are doing this to me it's a to me it's a yellow flag i guess yeah well i yeah it's also like let's say you are a software or services business that's asset light and you can potentially invest that cash at high rates of return why do you need to invest that cash in bitcoin if you can get good rates of return elsewhere yeah no yeah your balance sheet doesn't need to be in it you provide a valuable service yeah it doesn't make any sense

to me um i think but i think the claim that this is just a customer acquisition tool is out the window now it's more than that for sure i mean it may it may serve that purpose but obviously he wants it to be a larger part of the business yeah and that that yeah yeah i mean i've i've said it twice i guess but it adds the uncertainty where just like with softbank you're going to want to up your return expectations because it seems like the the uncertainty with the downside is going up so well and the the part that irritates me the most is as new information is presented it's for dorsey it's always been like how do i get this to fit my existing framework my mental framework of understanding it like like think about that

remember when musk tweeted this stuff about energy use and then which may have been just because the china was about to crack down on it yeah coincidence no no that was a coincidence right but i mean my concern is like remember how they were like well let's have a conference and discuss this we're gonna have a zoom meeting to try to convince you otherwise it's like just let people think independently yeah well yeah i mean that's a whole nother thing but all right i have no more stories yeah last one i thought this would be a great way to wrap it up Earnings season is upon us tomorrow. Netflix, or today, I guess, when you're listening to this, Netflix will report, which I think

is kind of, at least for the tech bro circles that we kind of run in on Twitter or whatever in the investing community. Yeah, well, some people might call it Netflix, but Netflix is always the one that kicks it off because there's so many hot takes, whatever. And then there's the Delta variant news now, and possibly, well, you know, that's hitting full volume. What are your feelings, thoughts heading into this earnings season? should be a fun one overall but anything specific

no i don't know i mean what what kind of comps are coming up on here now q2 so that was full covid right yeah we're hitting full covid cons but then there's the summer like slight reopen definitely going to be some comp not really necessary crimes but people are going to look at comps probably with you know the headline numbers can make comps look weird right now I think there will be – remember how there was a lot of like – last year a lot of people were thinking like what's going to persist? Like what's going to be an acceleration of a continued trend versus what's temporary? I think everything is going to feel like a continued trend. All right.

I don't think there's been a lot of – I mean maybe we'll get restaurant comps that are absolutely ridiculous because they – I think for Q2 there's a large chunk where they just weren't open, right? Yeah, not sure on that. That would make sense. Yeah, the only ones – it seems like consumer discretionary will probably do well. I mean travel is going to do well. Apparel will probably do well. A little recovery restaurant will probably recover. But within the services –

I don't know. They've had the worst library recently of content. It's been pretty – yeah, that's anecdotal. But I'll say I agree as well. It's been pretty piss poor. I will also – I'll caveat that by saying I haven't churned yet. So congrats. Yeah, no one – yeah.

You always say that, but you never churn. But, yeah, with Netflix, it's always. Disney Plus, Loki, crushed it. Well done. Oh, really? You know what? I was a doubter to start. Marvel's kind of, I don't know.

I'm Marvel now, dude. Aren't you too cool? No, I'm not too cool for Marvel. It's just a lot of hours. I mean, it's just a lot of hours. Which means a lot of content. I guess, yeah. I mean, yeah.

A lot of them are rewatchable. But yeah, I guess I don't have any hot earnings takes. Hot earnings, yeah. There's going to be people that think it's the end of the world like always and there's going to be people – Well, I really look forward to when like Netflix reports and then everyone is like, what could Netflix earnings mean for everyone else? Oh, that's the Motley Fool articles we're going to be writing. No, well, I hope things happen where companies you like have just a tiny miss and then the stock drops 10%. gives you an opportunity to buy.

That's what I look forward to potentially happening during earnings season. And I love with Netflix specifically because it's either up or down 5%. That's always irrational. Yeah. If it's down 5%, the bears, which have been around for a long time,

are like, see, we're right. And then the next quarter they could be wrong again. It's like a never-ending cycle with this Netflix thing especially. All right, I think that's going to do it unless you have any more hot earnings, Jakes. No. All right. Thank you, Massimo, for coming on the show. Thank you if you stuck around for our fun show notes, but that is going to do it. Feel free to contact us, chitchatmoneypodcast at gmail.com, or you can DM us if you're on Twitter. It's at chitchatmoney.

Links will be in the show notes if you need them. That's right. And we are not financial advisors. So anything we say or discuss here on Chit Chat Money is not formal advice or a recommendation. We are, however, general partners at Orange Capital. So clients may have positions in the securities discussed on this podcast. Thank you guys for listening. We'll see you next time.