The Breakfast Club - Money & Wealth w/ A-Rod

Episode Date: November 10, 2024

The Black Effect Presents... Money & Wealth! You might know Alex Rodriguez (better known as A-Rod) as an athlete, but in this episode, you'll get to know him as a business man! John and A-Rod discuss the journey from humble beginnings to securing generational wealth.    To get John's book, Financial Literacy for All, visit: https://johnhopebryantholdings.com/financial-literacy-for-all-book/ To learn more about John's Operation Hope initiative, visit: https://operationhope.org/how-we-help/credit-money-management/  See omnystudio.com/listener for privacy information.

Welcome to Money and Wealth with John Hope Bryant, a production of the Black Effect Podcast Network and iHeartRadio. This is John Hope Bryant, and this is Money and Wealth, and I'm honored to be here with a new friend, Alex Rodriguez. Many would know him as A-Rod. Let me give you the part that's easy for all the baseball fans. You may or may not know that he came from Dominican Republic. His family were immigrants. Victor Rodriguez's father. And Lourdes Nelly Navarro Mello, I hope I said that right, his mother.

They came from, well, he came, was born in 1975 in Washington Heights, section of Manhattan, and came to this country with a dream. He was raised alongside his siblings, Joe and Susie, and achieved incredible things in his professional career that started, as you know, playing 22 seasons in Major League Baseball. That's the Seattle Mariners, the Texas Rangers, the New York Yankees, and of course, later as chairman and CEO of A-Rod. But we're going to get into that because it actually wasn't later. It was actually almost right away, but I'm getting ahead of myself. And he has been passionate about business and sports and community. And I will say from my own perspective, I would say the maximization and unleashing of untapped human potential at scale. We'll talk about a little bit about that, about with regard to how he treats his employees. Alex and I spent some time in the community a few months ago here in Atlanta at Clark Atlanta University. He showed up very simply for no compensation

because he was asked to. And so this is an important conversation about things that matter most at a time where everything matters. And I'm honored to be with my new friend, Alex Rodriguez. John, great to be here, man. We've been looking forward to doing this together. We have. We have. And the story of your sports success is a topic of obvious legend. And I don't know if you get tired of talking about it or not, but I want to talk about your sports success from a different window, a different vantage point. I want to understand, was this always about you aspiring to do more? My guess is initially you were passionate, absolutely passionate about baseball.

That was when you were in the Dominican Republic, that was something that you obsessed on, is that right? Yeah, like ever since, you know, I was born in New York. I was born in the shadows of Yeshiva University, right around 183rd, 1975, very close to Yankee Stadium. My father owned a shoe store in our apartment. And very much like my father, ever since I was 10 years old, I've always wanted to be a baseball player and a businessman. And I was fairly good with numbers. My father was too. And I had a passion for it. And ever since I was a rookie and I got drafted in 1993

by the Seattle Mariners with the one pick overall in the first round, I was thinking about life after baseball because I'd seen enough examples of players that have gone like me from rags to riches back to rags. And I didn't want to be an addition to that, you know, unfortunate number or statistic. So that was my passion early on was to have a path to have a good life post baseball. You were inspired by that balance initially from your dad. Is that right? Yep. Yeah. And mom is where you got the self-esteem. She poured the love in you and said you can do anything.

Is that right? Yeah. My father, he passed some years ago and he left us when he was 10. And I never saw in those 10 years, my father raised his voice once, even though he was an alcoholic. He would drink 24 beer cans a day, Budweiser, I'll never forget, and two packs of cigarettes a day. So in my mind as a 10-year-old, John, I thought my father's going to be dead by the age of 30. There's no way that anyone can live this type of lifestyle. But never saw him drunk, even though I'm sure he was, but he was an acting alcoholic and very functional. And the amount of cigarettes he would smoke in my house was intoxicating. But my mother, I got my toughness and my grit and my work ethic from her. She worked at General Motors for over 20 years.

And then when Stad left, she had to pivot. Once we arrived in Miami at the age of nine and I joined the Boys and Girls Club, she was a secretary in the morning and served the table at night. And I remember her coming home after 12 hours of working around midnight, sometimes 11 o'clock at night. And I would just be watching, finishing watching the Mets game, watching Kiner's Corner. And I would give her a big hug and I would take her pouch where she had her tip money. And I would start counting that money. And on Thursdays, Mondays, Tuesdays, it was $32, $28, $29, $30. But Fridays and Saturdays were the big ticket nights. And she would come home sometimes with $58, $59, $60. I said, boy, we're richer than Warren Buffett. We made it big. But then, John, she did something interesting. She would then take that pouch and put that money out and put it in an envelope.

And then she would say, son, help me pick up the mattress. And I remember an 11-year-old boy, like it was yesterday, she would take that envelope and put it right under that mattress. And I said, mom, but wait a minute. There's banks all around our neighborhoods. Why don't you go put the money there? And being an immigrant mother and not trusting banks, she goes, son, we don't trust banks. We trust cash and we trust our mattress. So that was the start for me where I said, financial literacy is going to unlock my future and hopefully get me out of this neighborhood.

You and I have a lot in common. The more I hear about your story, the more it relates to mine. My mom told me she loved me every day of my life, just like your mother told you. She worked as a seamstress. My dad was a business owner and had issues. He had other problems, wasn't alcohol, but had other challenges that bedeviled him. I can relate. And I'm very proud of how you have, how you circumnavigated that entire situation and found always that sweet spot of what was most important. And so now I'm going to pivot back to something I said earlier, which is, yes, you were passionate about baseball, killed it for 22 seasons, became a legend in baseball. I'm sure it lived your dream, made everybody proud, both in New York

and in the Dominican Republic, maybe even all of Latin America. But you were dreaming also parallel about business. And I understand it. At the time, you had the largest contract of anybody who signed a baseball contract. It was over $200 million at the time. As I understand it, your first call was to Warren Buffett? Yeah, but 100% right with one addition. Pre-signing that big deal, I didn't have a lot of capital. I was just a young kid. I entered the big leagues at 18. And somewhere on 21 or 22, before I got paid, I made my first investment, and that was a duplex. And that duplex was about $250,000, right around Miami Arena, right there on Biscayne. And I had a $48,000 down payment. And that was the start of basically what

is now called A-Rod Corp. And once I got my contract with the Texas Rangers, I was naive enough to think, well, if Warren Buffett, who insured my contract, and that got back to me, I said, well, now we're partners. So let me call him and make sure that I'm going to let him know his money is safe with me because I don't plan on getting injured. And of course, I sent an email. I thought I would never get an email back. And he sure responded about, you know, an hour later. And I said, if you're ever available, I would love to come down to Omaha and have lunch with you. And he said, how's October? And I said, well, when I go to the playoffs, I'm totally free. And that started a series of about five to seven years of me going there every year postseason.

One, to make sure that the insurance money was good because I was looking healthy and good. And second, he became a mentor where he would basically look at all my businesses and give me great advice. He insured your contract through one of the businesses that he has. Is that right? Yeah. Or, I mean, he probably did it from his balance sheet. Right. It was he was trying to get that. We were trying to show the last third of it were having a hard time because it was hard to forecast that far out. But Warren basically said, yeah, if you send me this check, I'll insure the last three years. And that was the end of it. And thank goodness we cemented the deal.

So I don't think, and I don't want to presume or assume, Alex, that the audience understood what we just said. They just see you playing baseball. They see their favorite athletes just doing what they do, and they just assume that the check is coming in the mail, and they get their check from their employer. Now, you just unpacked a whole other situation, as they say in my neighborhood, where a contract is underwritten for insurance. Can you explain that just a little bit before we go further? Sure. Essentially, John, let's just say that, you know, I give you a hundred million dollar contract and it's 10 years and it's $10 million a year. Right.

A hundred. I'm going to have to go insure that contract, meaning that if in year three, John breaks his knee, injures himself, he can no longer play for the rest of his career. I'm still as the owner on the hook for $70 million. I have an insurance policy that let's just say I paid $2 million for, that premium would essentially take care of the $70 million. And now I'm off the hook. John has paid his balance of $70 million and the insurance takes it on the chin. But in most cases, John is going to remain healthy. And that $2 million premium basically goes to the wayside on my end. but you and I can sleep at night because the contract is insured and the insurance wins in this case. So before I ask you the question

about who paid the premium, which is an interesting take on it, whether you as a contractor or the owner of the team, but for the audience, what he just described, think about an insurance premium for your house. Think about an insurance premium for a life insurance policy or your car. That premium is a small fraction of the value of the insurer. They hope that you never call them with a claim. And this is how, and people not calling with claims is how the insurance company makes a profit. And you want the insurance company to make a profit in this deal. That's the way capitalism works. And if there's too many claims, of course, they could go out of business. So in this particular case, there was a premium. Alex is the corporation. This is separate from A-Rod. This is Alex Rodriguez, the professional

athlete, has got a $200 million contract, and he is the product and is a premium for the underwriting of insurance for that contract. Now, Alice, who paid, I hope I'm not getting into your business now. Let me put it another way. Was this sponsored by the owners of the team? Yeah. So it's the responsibility of the owner to ensure the contract. Because obviously, as I just explained, if you have a $100 million contract and things go the wrong way and you get injured, I as the owner don't want to be on the hook for that $70 million because John's not available to play. So the owner in this case, in this case, it was Tom Hicks, who was the owner of the Texas Rangers.

He wires the money to Warren Buffett. Right. The reason I ask the question is, you know, as entrepreneurial as you are in your mind, if the owner said, look, I'm going to do five years of this or three or five years of this contract, I'm not going to insure 10 years of it. I'm thinking the entrepreneurial Alex that I know would say, well, let me go to Lloyd's in London. Let me go someplace and see if I can get the back end insured myself. I'll write the premium check. And this is a small price to pay to know I've got the guarantee of all the money. So there's a number of ways to cut this. But in this particular case, they felt so strongly about you. And of course, you're in such a wonderful negotiating position that you got the entire contract. It was guaranteed. Is that right?

Yeah, you're spot on, John. So let me add to that. So a lot of times, and I did this exactly what you just described, the team is trying to ensure that contract for protection of a downside event of an injury. The player, me, or you in this case, you can go to Lloyds of London and say, look, if I'm supposed to be playing for 15 years, but I get hurt and I'm only allowed to play for five years, then Lloyds of London will give you an additional check to John. Now, assuming that you play those 10 years injury-free,

the John insurance that you paid to Lloyds of London, that goes away. You lost that money, but you made the hundred. And the team is very happy to lose the two million because John played incredibly well. So double ways of insurance. And by the way, you can also insure your house a couple of different ways, not just one. And for those, we unpack everything on this podcast. We make things simple so you understand it. But if somebody ever talked to you in financial literacy, like Alex's mother and my mother taught me in the bigger of my classroom. So we want to, there's no silly questions. There's nothing that is off limits. Whether you're starting or scaling your company's security program,

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tried to get his life insured and tried to get a million dollars of insurance for his family. And Andrew Young, Ambassador Andrew Young, as we know now, and him went to London, literally going to London and ran around. No one would insure him, Alex. They thought he was just too much of a risk. And he was only, you know, he was 30 something years old. They just figured, you know, the chance of something happening to you is extremely high. Here's a guy about to get the Nobel Peace Prize. They finally got, they wanted a million dollars. They finally got $100,000. Premium was very high because the perception of risk was very high. Just because you're on the front page of the newspaper doesn't mean that you automatically get a yes to your answer.

But underneath a lot of these things are insurance policies. And the older you get, the most expensive that policy gets, if you're getting a life insurance policy, it's very cheap to get one at 20, 30 years old. Try to get a life insurance policy at 70 years old for your life. The premium is going to be astronomical. And you can't be mad at the companies. If you want to distribute money like a socialist, you got to first collect it like a capitalist. So we want companies to find a way reasonably to make a profit so they can afford to give back and reinvest and take care of their employees.

And on the topic of taking care of his employees, I want to get into that in a minute. But I want to commend you also, Alex. I don't know if anybody said this to you in this way, but my sense is that you're the only or the first Latino billionaire entrepreneur from professional sports in America. I don't think there's anybody else who has that moniker. First of all, I don't know of another Latino billionaire in America, I'm sure they exist. But one that came from sports to business, there's no question in my mind that you checked that box. And I think you just got into the billionaires club

late last year. So assuming I'm correct on all that, congratulations. Well, thank you, John. And you know what, again, I started from literally like ground zero, I'll never forget, John. And I think I told you this when we had dinner. You know, I was 12 years old and, you know, dad had left a couple of years ago and we were at Publix, a supermarket down in Miami. And I'm with my mom on one of the rare nights that she didn't work. It was probably like a Sunday night or something. And as we're trying to pay for the bill, the bill might have been like 75 bucks or something. We had like a couple of carts of food and cereal and all of that. And as she's kind of shuffling through her purse, some funny money comes out. And I said, Mom, that money is red. It looked like Monopoly money. What is that? And she was very embarrassed and ashamed and kind of looked down and she goes, well, you know, the government's given us some help. And my heart stopped, you know, even as a 12 year old, my instincts were to very,

very protective of my mother and to be where I am today, play for almost 25 years and be very fortunate to be part of an ownership group. You also have to commend, you know, Adam Silver in the NBA that he's opened up the floodgates to have folks like you and I sit at the very top of the chain as governors. It's extraordinary. And I know that Adam and the NBA has great ambitions to continue to promote diversity and more folks like us, people of color, to the owners group. No doubt. And I'm an owner of part of Centennial Yards, which is right across from State Farm Arena,

as a partner with Tony Ressler, who owns the Atlanta Hawks. And Tony is a big, in accommodations, definitely the Adam Silver, who's a part of Financial Literacy for All. Tony is a big booster that civil rights, modern civil rights is in the suites, not the streets, and the color is green. It's about education, access to capital, low cost capital, and opportunity for all. As Michael Milken would say, which is where we, I think we originally, where we physically met our friend Michael, intelligence is equally distributed, but opportunity is not. And so we are at these tables and we should not take it for granted. And thank you for

doing this podcast to help to spread the message of unpacking the memo. We unpacked a little bit about insurance and about how you underwrite a long-term professional contract. I'm sure the audience didn't know that. We're going to get into, well, here's another get. There is no billionaire who came from professional sports or entertainment who's a person of color who didn't go over the bridge of business, particularly corporate. I'll say that again. There is no professional athlete that you're listening, that you're thinking about right now, or entertainer, think Jay-Z, think whoever you like, who went from performing, playing, whatever, into the boardroom and became a billionaire without coming into corporate. So this is a pathway that everybody needs to understand.

We've got to go from the streets to the suites, from protesting to prosperity, and there needs to be a business plan for that. So your obsession, your dual obsession of being smart at the baseball diamond and then smart as a diamond in your brain, and then getting into real estate, which was a really smart move, biggest business in the world, what was your motivation there? And then treating your employees, your second biggest asset, the right way, as I understand it, you make employees your shareholders in your dream as well because nobody washes rental cars. What's your mindset there? I'm not getting into the most valuable thing we have, Alex. It's not the money. It's not the assets. It's not the real estate.

It's the, it's our mindset and our relationship capital. The way we treated each other, the way you and I treated each other when we first met set the stage for everything. I asked you to come to Atlanta. Originally your office said you didn't have time and you didn't. And I said, this was for the people. I don't want to know this unless I said it. This is for the people. There's no commercial.

There's no commercial anything in this. And you just said, yes, I'll do it. And you came here at your own expense and spent several days with us pouring into the people. And I think that's going to pay dividends, not only in heaven, it's going to pay dividends here because whatever goes around comes around. But that's mindset, that's character, that's integrity. That's how you treat people, treat them how you want to be treated. And that carries over to how you treat your employees. Talk to me about your mindset to win and why you think it's important to bring others with you. Yeah, great question. And we had a phenomenal time. And boy, was that an impactful day when we were at that university

and talking about some of the history around some of the Black college and the history of what it's done for so many people. And very proud to be there. And thank you for that invite. Look, John, the way I look at this is like financial freedom comes from two things. It comes from knowledge and the power of knowledge and equity and ownership. And it's kind of what the rich dad, poor dad teaches, right? I get excited when I get to invest into equity. And I think most people get scared. And the truth is, if you're scared and you don't know, it's probably better to have fear, right? Rather than jump in and do something that's wrong

with not the right leadership group around you. I've often said that the three things that could take a man down or people down in the world of business are the three L's, liquor, ladies, and leverage. So you got to watch those things. But to me, John, it's really about simplicity and sticking to your circle of competence, which I learned this over two decades ago from Warren Buffett. And the reason why I started with multifamily apartments and a small little duplex is because I understood it because we were never we never had enough money to buy anything. So I remember as a 10, 12 year old boy, I went down to my knees and I said, dear God, if I can ever trade places with a landlord. And about a decade later, I had an opportunity to be a landlord, even though it was a small landlord of two apartments, a little duplex, I bought that. And all I was really doing was I

knew that at some point, my ability to make money from the Yankees was going to come down. But if I had assets that would hedge my bet, and as my earning power came down, my assets would appreciate. Now I knew that I didn't need a lot of cash flow. So I was able, my strategy was simple. If I can play for 10 more years and I buy one asset per year, I can appreciate in value and in cash flow. By the time I was done, those 10 assets would be my insurance policy for never going broke. And that was it. It was nothing from Einstein. It was nothing. I'm not that smart. But you try to be clever and try to be smart and work as hard as you can with your competitive advantage. And I thought that was mine. So, audience, you just heard and Alice does not know this about me. We've exactly the same philosophy. I had this nonprofit. It was draining me dry. Not really, not literally, but I mean, it was nonprofits are hungry. And Alice, by the way, volunteers at the Boys and Girls Club as well and mentors.

And and I didn't want to go begging anybody. I wanted to be my own resource. And so I went and started buying single family residential homes. And he started buying multifamily homes. And we are both together, two of the largest people of color who own both. I think as an African-American, I'm close to 700 single families. And he's got an incredible portfolio of mostly multifamily. Why? Because you make money during the day, you build wealth in your sleep. The contract that Alex got, that was the grease on the gears.

You can get rich, but you can also go broke because the cash flow stops and you go broke. But your expenses have not. Please listen now. What he said, he said to you, he said it very eloquently. The cash flow is coming in. Your expenses are now rising to meet it, standard of living. Your cash flow for the contract is going to end because 70% of all those in professional sports, unfortunately, will file bankruptcy within five years. You've got to have something to augment that. And he did that through capital gains and capital asset or capital appreciation of capital assets, asset accumulation through real estate, which gave him both appreciating assets and income that replaced the income he has as a player. I get that right, Alex?

That's exactly right. And even to simplify it and just make it even more simple, because I know this is what the mission of this podcast is, is to educate and inspire and to teach people how to have a better life. If he or she is listening right now and you know that you're making $100,000 a year, but that's going to stop in 10 years, then you better start hustling today for what's going to stop in 10 years, then you better start hustling today for what's going to happen in year 11. So in very simple terms, if that is your life, that is the life of an athlete, just add a couple of zeros to it. But nevertheless, you have a partner. And if you're in LA or New York, that partner is going to take 60% of it between taxes,

agents, and managers. And John, people ask me this all the time. How in the world does an athlete make over a hundred million dollars and like you mentioned so eloquently can go bankrupt? Well, let me give you an example. If athlete name Chris makes a hundred million dollars a year, a hundred million dollars in their career. And they're playing for the Yankees or they're playing for the Lakers or they're playing for the Dodgers. 55% goes to the government. So now you're down to 45 million, 10% goes to your manager.

Now you're down to 35 million, 5% to your agent. Now you're inside $30 million. You haven't bought a house. You haven't bought a car yet. And you haven't even been divorced for the first time. Or paid alimony on all those kids. All of that. So it goes quickly. It goes quickly.

So what we're saying to you, audience, is anybody can be an Alex or a John financially. Just take away a couple of the zeros. Start simple. He made it. He had an income that allowed him to provide for his lifestyle and make an investment. I want you to have a good income. Think about a house in the hood, the worst house and the best block. Buy it, rehab it or a duplex. Buy it, rehab it. Rent it. I would say hold it. Alex may say sell it. I don't. But, you know, everybody's economics are different. Do that two or three times and you create a generational wealth. And Alex, it's just as Alex has paid it, poured into his own community and doubling and invested back in with his employees. Still want to hear that story. I want you to think about hiring local talent from the community as plumbers, electrician, lighting, roofing, landscaping, painting. You're creating local jobs, reinvesting. That's your philanthropy.

Magic Johnson is one of your mentors that helped you to navigate what you've done. Really good guy. What was the influence on you to double down on this and go large? And again, I want you to touch very specifically about how you're helping your employees as I really was touched by how you're doing that, just not what you're doing, because you back them, you backstop them. And then before we finish, I really want to get into

when you hit your head against the wall, when you stubbed your toe. It's all about a bed of roses, because you had to take no for vitamins. Everybody's not just saying yes to you because you're Alex Rodriguez. It's like, hey, man, you're a baseball player. Go go go over there. You know, you had to you had to earn your seat at the table. Yeah. Yeah. Great. Great question. So first of all, Magic Johnson was my my my kind of my beacon of inspiration.

I mean, he gave me an opportunity to say he gave me a role model. And Magic Johnson is such an incredible person. You know, he's one of the greatest basketball players of all time. One of the GOATs, right? Five-time world champion, MVPs, you know, a gazillion dollar smile. But when you meet Magic, he's even more inspirational. And he's such a good man that he sat down with me for three hours and basically gave me a roadmap. And I had nine pages of notes. And I said, Magic,

we were supposed to meet years later for 30 minutes. Why did you give me three hours and cancel dinner with Cookie? He said, you know what? Because you're one of the first athletes, if not the only one that came with a notebook. You came on time. You were asking good questions. And you had like 10 pages of notes. And I thought that was interesting. But because he's a man of color, I saw a path and an inspiration of someone who could be a Hall of Fame basketball player and then be a Hall of Fame businessman in the boardroom. So that was a pathway. When you look at A-Rod Corp, we have over 500 employees. We call them team members. 85% of those are minorities, men of color, black skin, brown skin, women. And I was inspired by my mother because my mother never had an opportunity to invest with Warren Buffett or Blackstone or KKR.

Goldman Sachs and JP Morgan wouldn't even take her calls. So as I think about our investment, if we make an investment of $10 million into a company, every person on my team has an opportunity, even if it's $2,000 to invest with me, pro rata with me, side by side, right? At my value, no promote, no fees, because I want everybody on my team to have a path to having a better life. And the way you have a better life, as we talked about, is by having more assets and less liabilities. A liability is a car. An asset is a house, is a multifamily, is part of a business that generates cashflow. Another way of saying it, John, for your audience, is what is the difference between a liability and an asset? Liability takes money out of your pocket every month, like your home,

and an asset puts money in your pocket every month, like a multifamily apartment. Okay. So it always bothered me that only the rich people, at least it felt from my prism when I was really young, had the opportunity to invest with the Warren Buffett's like. And today my mission is to work on financial literacy for my community. And secondly, to give people an olive branch and an opportunity to invest side by side. That's right. Even if it's $2,000, it never made any sense to me that only rich people get to invest in assets. How about the poor people? Okay. That was me. That's my mom. So that's one. And if you don't have the money, John, what I'll do is as an example, and I did this with one of our team members, they didn't have

the money. It took $50,000. I fronted the 50 for them. That 50 became 500,000. They paid back my 50 with an 8% coupon. And then they kept about $400,000 on a profit and they put down zero. So now the next investment, they're putting down $200,000 and have $200,000, to slow yourself down. Stop talking so loud, long and fast and explain this to me. You mentioned the word coupon. You mentioned the word promote. Can you get so promote is something that Alex and I love.

Think about a license. Anyway, explain to them in your words, promote and coupon. We all we love both of those phrases. But what you explain that in your work. So if I lend John, my friend here, one hundred thousand dollars and he pays me eight percent. I'm so glad you said that, John, because all these fancy terms and they're just there to confuse people, right? Our people in our community. So that's a great question. We take it for granted sometimes because that's the way you and I talk when we're in your office or my office. So I lent John $100,000. He pays me 8%. So essentially he's paying me $8,000 a year on that hundred, right? And that's called a coupon, right? And if that coupon is out for

three years, $8,000 times three, he owes me $24,000, essentially, right? Now, if John and I are partners, and we buy a business for $100,000, and five years later, we sell that business for a million one. Essentially, there's a million dollars of profit. And because John and I are the co-GPs on that million dollars of profit, once they get their money back, our investors, plus an 8% coupon or return, then there's about plus or minus a million dollars of profit, which 20% of that goes to John and I. And that's $200,000 that John and I get for putting the deal together, underwriting it, managing it, sourcing it, and essentially bringing value to it. So John and I walk away with $200,000. So our partners are super happy because they got almost

a 10X and John and I are happy because happy because they got almost a 10X. And John and I are happy because we were able to promote a great deal. And then we're off to the next one. So you might be thinking about it. People might be hearing like a concert promoter. Right. I guess you can generally get your hands around it, but it's a deal promoter. It's an investment promoter. So the promote is the percentage of the profit that the developer gets by bringing the deal to market successfully and the value added on top of the cost and agreed coupon. He said it much better than I did. Let me add one thing for our listeners and our viewers listening in. John and I only make that promote if we make money for our investors. Hello.

Very, very important. We have complete alignment. If that's a donut and we don't make any money, John and I are out. We don't make any money, John and I are out. We don't make any money. We only make money once the investor gets their money back, plus an 8% coupon, right? Return on their investment. Then after that waterfall, which is called a waterfall, once we do all of that, and we have a million dollars left in profits, then John and I split that 80-20. 80 goes to the investor, and that 20% goes to John and I as co-general partners. The first time somebody mentioned the word waterfall to me, I was actually looking for where we're going on vacation.

What's a waterfall? For the listeners, the waterfall is the way in which the transaction breaks out. How does that dollar split up? What's a waterfall? Who gets what first? What's the waterfall? Who gets what first, right? And what's the priority of the distribution? I'm saying this in plain English. That's what we call a financial waterfall. I want you guys to become experts in all this stuff so no one can, as Malcolm X said, we've been bamboozled, we've been tricked, we've been fooled. I don't want

anybody to fool you anymore. I want you to be financially literate because you're not dumb and you're not stupid. It's what you don't know that you don't know that's killing you, but you think you know because no one ever taught you. I agree with that. And I think sometimes these acronyms sometimes are made to keep our people out of the room and keep them not smart. And really, our listeners are very, very smart. We just have to have better teachers that are willing to teach and bring people along like you and I are trying to do. But we do have a lot of resistance because I do feel there's a lot of people that are trying to keep the people down. And I think you're really doing God's work and helping educate people

and teach people. And there's no greater gift than teaching someone how to fish versus just giving them a fish. Financial literacy is a civil rights issue of this generation, in my opinion. When you know better, you do better. We don't have much time left in this incredible podcast we've had together. This has been rich. I do want to cover a couple more things before we exit here. As you were talking about the waterfall and the coupon and all that, you and I, Alex, don't get a chance often enough to thank people who helped to get us here. Magic Johnson would talk about all the people. He'd leave a game, a basketball game, and ask for the people who were sitting on those front benches for

their cards. And he'd go visit with them and use his credibility to get in their offices and just listen. Right. And a lot of those guys end up doing deals with. And basically, you just said the same thing. You've given Warren Buffett some credit. Thanks for saying that. I want to give Tony Ressler, 200th richest man in the world, credit for doing a deal with me. And I own, you know, at the end of that deal, all of the company, he just wanted a coupon. He just wanted a 7% return on his money, him and Michael Arrighetti, everything else paying other than paying my debt, debt and preferred equity. I own the rest. And we should, we should all be grateful and gracious about spreading the credit when we actually succeed. Is there somebody that

you want to mention that helped you get here, Alex? And also, I didn't want to end with this rainbows after storms, but mistakes you made is something you kick yourself about. Why did I do this stupid thing? Something you're not, you you know that's a lesson now for the audience yeah so I'll keep it to to finances and mistakes that I've made there because we don't have enough documentary all my mistakes so I'm gonna try to keep this tight my good friend grant Hill once gave me great advice he always talked about the five B's. And he said, be brief, brother, be brief. So I'm going to take Grant's advice on that.

So first of all, shout out to Tony Ressler, who's my partner at the NBA. He's one of the coolest people that I've met, but also very generous. He is someone that really believes in bringing people, all people in the room with him and give him an opportunity, as you well eloquently just described in your partnership with Tony and his partner and your other partner. As far as mistakes, I'll go to 2008 because it was a really, really tough time with the financial meltdown. I bought a piece of property, 500 units, right around George Steinbrenner Field in Tampa, where we held spring training. And my thesis was, if it's good enough for George Steinbrenner and the Yankees, it's got to be good for my apartments. So I basically bought 500 units for about $60,000 per door. I had $20,000 of equity per door door and I had a loan for 40,000. What happened was from a Monday to a Thursday when everything went upside down and we had the financial crisis in 08, 09, my properties, my units were now worth 38,000, but I owed 40,000. So basically that's what they

call your underwater. And unfortunately I was young and not experienced. And I had what is called the PG, which PG stands for personal guarantee. Oh yes. Which if you're listening and you don't remember anything else, John and I said, please remember this part, never sign personal guarantees unless it's your home. Now, I was fortunate enough to have some liquidity and I negotiated- Cash. Everybody, it means cash. Cash and life. I was fortunate enough to have cash and I was able to negotiate with the banks a very clever deal in which they had like a $50 million write down in exchange for a $4 million check. And then we said to the bank, look, you're not in the business of managing

these assets, meaning multifamily apartments. We are. So why don't we give you a $4 million check, you write down $50 million, immediately from losing $200,000 a year in that portfolio. We started making $200,000 a year because we owed less and we put more equity in. And then we said to the bank, when we sell in the next five years, we'll give you another 15% of the ups. So essentially, thinking outside the box, Wow. The bank became a promoter on our deal. Yeah. And that was what we call a win, win, win alignment structure. And we sold it for a big number.

We gave the bank another few million dollars on the ups. And to this day, that's still my bank. And we did the right thing at the toughest time. It's the best kind of, it's the most appropriate type of debt for the type of large scale transactions that Alex and I do. You're a personal resident. There's nothing wrong with a personal guarantee.

I have a personal guarantee in our home, right? That's right. But when you're doing business deals, you should try to let the assets speak for themselves. But what he did structurally was brilliant. And when you're being run out of town, get in front of the crowd and make like a parade. And I had followed him. I thought I knew where he was going, but that last piece was very creative. He turned his banker into a venture capitalist,

into a joint venture partner. It was really quite, quite clever. And you turn a negative cashflow into a positive cash flow overnight through structure. Listen, everybody, there's a crisis coming in some parts of the economy. Commercial real estate has got a trillion dollars of refinancing they got to do in the next year or two. There may be properties that become available. Real estate has never gone down in the history of the world. I mean, in America, rather, over time. Think about some of this. It's not a problem, but as Alex just said, in your neighborhood, maybe some of this is an opportunity for you to reposition that asset,

help the bank, the lender, help yourself, help your community, and create low generational wealth. Alex, you are walking generational wealth. You're walking integrity. You're a good guy. And, you know, we're all angels with dirty faces. You know, a saint is a sinner that got up. So none of us are perfect. But I like your imperfection. I like the way you roll. And I appreciate you coming on this podcast and being so transparent. Charlemagne, myself, all of the friends of this podcast, thank you for just being you. John, thank you very much for having me. I consider you a dear friend and we're going to do a lot of great things together for the community and maybe even in business. But just one last message for your great audience. And again, I want to just say how important it is that they know that they are smart. They are capable. They are enough. We just got to do a better job as leaders to educate

them and bring them along. And don't forget that. Remember this. Remember this. A champion is a loser that tried one more time. Don't give up and just keep on trying. You can do this. And John and I believe in you. Yeah. Alex believes in you. That's why he's pouring into you because he sees you in himself. He sees you as the little boy, the young person who is trying, struggling. He sees his mother in the single parent households. He sees the young black man trying to make it as a parent. He sees his father there. He can relate to you because he was you. So go out there and kill it and then help somebody come up behind you. This is John O'Brien. This is Money and Wealth. And this is my man, A-Rod.

John, my man. Thank you so much for having me. Money and Wealth with John O'Brien is a production of the Black Effect Podcast Network. For more podcasts from the Black Effect Podcast Network, visit the iHeartRadio app, Apple Podcasts, or wherever you listen to your favorite shows. Thank you. We'll be right back. Outro Music