Dec 6, 2021 · 1h 18m · capital-allocators
Ian Charles & Doc O'Connor – Investing in Sports Teams at Arctos Sports Partners (Capital Allocators, EP.225)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Arctos Sports Partners co-founders Ian Charles and Doc O'Connor join Ted Seides to explain the investment thesis, regulatory landscape, and institutional strategy behind acquiring minority equity stakes in professional sports franchises.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 14.8% of the talking time here. How this is scored →
Ted as informed peer 2.9 Guest teaching 4.7 Guest disagreement 0.4 Ted pushing back 0.2
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 55:15 Ian mocks generic private equity marketing jargon
Ian colorfully dismisses conventional private equity pitch decks as inapplicable to sports investing, rejecting generic operational claims like 'flywheels of excellence.'
Hardest push from Ted ▶ 38:06 Ted presses on generating private equity returns without leverageTed challenges the guests on how a strategy lacking the traditional leverage characteristic of buyout funds can deliver comparable risk-adjusted returns.
Biggest teaching moment ▶ 32:12 Ian details the 115-year return statistics of pro sports assetsIan provides striking empirical data demonstrating the New York Yankees compounded at 9.7% over 115 years against 3.1% inflation and 5.9% public equity returns.
Ted holds their own ▶ 48:38 Ted frames the coopetition conflict across competing franchisesTed displays firm structural grasp by drilling into the governance friction of owning minority stakes across rival teams competing on the field.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Doc O'Connor's Background at CAA and MSG | 2 | 3 | 0 | 0 | Ted opens with a broad invitation for Doc to detail his background. Doc provides an autobiographical account of his 32 years at CAA building the sports division and his subsequent tenure as CEO of Madison Square Garden. | |
| Ian Charles' Career in Secondaries and Data Science | 2 | 3 | 0 | 0 | Ted prompts Ian Charles to recount his career path. Ian details his early days founding Cogent Partners and later establishing the data science and secondaries practice at Landmark Partners. | |
| The Genesis and Partnership of Arctos | 2 | 4 | 1 | 0 | Ted asks how the two co-founders came together. Ian and Doc humorously recount their initial mutual skepticism over dinner before realizing shared values and a complementary skill set. | |
| The Sports Investment Opportunity and Market TAM | 3 | 5 | 0 | 0 | Ted asks about the core sports investment thesis. Ian outlines the $400B addressable market across major leagues and explains Arctos' three primary transaction structures. | |
| Evolution of the Sports Franchise Business Model | 3 | 5 | 0 | 0 | Ted probes how sports franchises evolved from vanity assets into commercial businesses. Doc details the shift from live ticketing to massive media rights and corporate sponsorships. | |
| Sophisticated Capital Entering Sports Ownership | 3 | 6 | 0 | 0 | Ted asks how ownership structures changed to allow institutional minority stakes. Ian provides quantitative context, showing 60-65% of new control owners now come from technology or private equity. | |
| The Three Layers of a Sports Franchise Investment | 4 | 5 | 2 | 1 | Ted asks about what is actually acquired in a minority stake, surfacing a friendly debate between Doc's view of pure content and Ian's asset-underwriting three-layer framework. | |
| Why Leagues Opened to Institutional Capital | 3 | 6 | 0 | 0 | Ted asks why sports leagues altered rules to welcome institutional capital in 2019. Ian breaks down the multi-billion dollar control valuations, the need for secondary liquidity, and growth capital constraints. | |
| Historical Returns, Diligence, and Fan LTV | 3 | 6 | 0 | 0 | Ted asks how Arctos underwrites historical franchise performance. Ian cites the 115-year 9.7% compounding rate of the New York Yankees versus the S&P 500, while Doc highlights multi-generational fan lifetime value. | |
| Sponsor: Ridgeline | 4 | 6 | 1 | 1 | After an initial sponsor message, Ted presses on how Arctos generates private-equity-level returns without traditional financial leverage. Ian explains low loan-to-value caps and historical 500-bps outperformance over the S&P 500. | |
| Scarcity, Vetting, and League Approval Bar | 3 | 5 | 0 | 0 | Ted inquires about the strict vetting process and scarcity of pro teams. Doc highlights the extreme reputational diligence leagues impose before admitting minority stakeholders. | |
| Local Due Diligence and Senior Advisors | 3 | 5 | 0 | 0 | Ted asks how Arctos identifies and diligences off-market minority stakes. Ian describes their proprietary database of 1,200 LP owners and 17 operational senior advisors. | |
| Governance, Compliance, and Commercial Value-Add | 4 | 5 | 0 | 1 | Ted asks how Arctos manages coopetition across competing clubs in the same league. Ian explains strict MNPI-like firewalls on player personnel alongside collaborative commercial advisory. | |
| Impact of On-Field Performance on Economics | 4 | 5 | 1 | 1 | Ted questions how much on-field wins impact financial performance. Doc points to his tenure with the New York Knicks to prove customer loyalty and venue monetization can supersede losing records. | |
| Fund Structuring and Limitations of Traditional PE | 4 | 6 | 3 | 1 | Ted asks how standard 10-year private equity fund structures manage exits given league restrictions on forced selling. Ian sharply criticizes traditional buyout fund playbooks as unsuited for pro sports. | |
| Future Secular Growth Drivers in Sports Assets | 3 | 5 | 0 | 0 | Ted asks about future secular growth drivers. Doc and Ian detail sports betting, streaming transformations, international market expansion, venue upgrades, and adjacent real estate. | |
| Key Risks: Media Contracts, Pandemics, and CBAs | 3 | 5 | 0 | 0 | Ted inquires about strategy risks. Ian identifies media rights renegotiations, pandemic disruptions, and collective bargaining agreements, while Doc emphasizes the 100-year durability of sports franchises. | |
| Arctos' Vision and Strategy Scaling | 3 | 4 | 0 | 0 | Ted asks about the firm's forward-looking expansion plans. Ian discusses leveraging Arctos' proprietary data moat into sports-anchored real estate and credit solutions. | |
| Personal Pet Peeves and the Fishing Prank | 2 | 4 | 1 | 0 | Ted kicks off closing personal questions. Doc shares a humorous story about Ian organizing a fake fishing party practical joke on his birthday, and Ian calls out bullying as his primary pet peeve. | |
| Key Mentors in Entertainment, Finance, and Family | 2 | 4 | 0 | 0 | Ted asks about influential career mentors. Doc credits Lorne Michaels and Michael Ovitz, while Ian cites his wife Jamie and Oaktree co-founder Howard Marks. | |
| Formative Career Mistakes and Learnings | 2 | 3 | 0 | 0 | Ted asks for major career mistakes and takeaways. Ian reflects on learning active listening, while Doc recalls rushing through his first literary deal at CAA without having all the answers. | |
| Life Lessons and Parting Reflections | 2 | 3 | 0 | 0 | Ted concludes by asking for overarching life lessons. Doc emphasizes staying present and enjoying daily struggles, and Ian stresses having the courage to pursue non-consensus paths. |
Statements from this episode (31)
MSG Chairman Jim Dolan is a notoriously demanding boss
“Jim is a famously difficult and demanding boss, and I had a great experience for the nearly three years that I was there, but it was time for me to go when I left.”
Sports team minority stakes blend infrastructure, real estate, and growth equity
“It had a lack of correlation. It's really hard to find. It had attributes that looked a little bit like a blend of core infrastructure, core real estate, but also growth equity.”
Sports ownership is a closed garden resistant to Wall Street mindsets
“This wasn't going to work unless our founding team included well-known senior members of this community. Cause it really is a community. It's a closed walled garden. They're really not into the wall street private equity mentality.”
Media rights constitute the largest revenue stream in professional sports
“Media both Locally and nationally is the single largest revenue stream in sports today. Ticketing, game day revenue, the second most important revenue stream of all.”
Leagues banned institutional owners after corporate forced sales depressed team valuations
“Disney owned the Angels and the Ducks, and Fox owned the Dodgers. But what happened was those institutions by their own governance were forced to sell. And as forced sellers, the leagues perceived those values to be diminished in the marketplace. So they disal…”
Modern collective bargaining agreements have lowered the relative cost of player talent
“More rational collective bargaining agreements have brought the general cost of talent, which is the single cost Largest cost center for any sports enterprise down over time.”
Tech and finance executives comprise 60% of new sports team owners
“So if you look at control ownership transactions over the last decade,
I think something like 60, 65% of the new control owners in North American pro sports have either come from the technology sector or finance.”
Sports franchises are legal monopolies with call options on ancillary businesses
“These are legal monopolies that exist inside and have geographic exclusivity in most cases, except those cities where there's more than one franchise in a given league, but they're given very clear geographic parameters within which to operate, and it gives an…”
Investing in sports teams is fundamentally a content and IP play
“Ultimately, I believe this is all a content business. We are investing in the content that is generated by these teams and leagues, franchises, and all that derives from that content, including hard assets, like venues, like marks and logos, media content, etc…”
Major North American sports leagues are standalone $25B to $150B businesses
“These leagues by themselves should be valued anywhere between 25 and one hundred and fifty billion dollars by themselves.”
The average Big Four sports franchise is valued around $2 billion
“I think the average evaluation for one of the teams in Major League Baseball, National Basketball Association, NFL, NHL, I think it's about two billion dollars, 2.2 billion dollars, something like that.”
Ninety-five percent of major professional sports teams generate positive operating income
“And 95% of these businesses have positive operating income.”
New York Yankees equity compounded at 9.7% annually over 115 years
“Over the last, I think it's 115 years, US inflation has run at an annualized rate of around, I think it's 3.1%.
US public equities have compounded at around a 5.9%.
And equity in the New York Yankees has compounded at 9.7% per year for a 115 years.”
Major League Baseball will continue to hold a World Series in 2071
“I do know 50 years from now, there will be a world series in October.”
Forced selling impairs long-term asset returns by establishing depressed transaction comps
“Forced selling is one of the ways you impair long-term returns. If you go through a phase of forced selling, you get bad prints and it suppresses price appreciation until you can get inertia back in a positive direction.”
North American sports leagues restrict franchise debt to an average 14% LTV
“So an owner is not allowed to use their team as a piece of collateral on a loan. And the leagues regulate maximum leverage at the franchise level to the point at which across the big four North American leagues, the average loan to value is about 13, 14%, whic…”
Pro sports franchises returned 12% to 14% annually over 20 years
“It has a correlation to traditional asset classes in the U.S. Of between -.2 and positive .3. And over the last 20 years has generated Compounded returns of 12 to 14% per year, which is about a 500 basis point premia to the S&P 500.”
League-level revenue accounts for 40% to 80% of sports team economics
“Depending on the league, 40 to 80% of the economics for each team are generated at the league level.”
Arctos is contractually prohibited from accessing player or coaching information
“Anything that touches players, drafts, free agency, farm system, anything that has to do with players, coaches, we can't be involved. We can't have any information. We can't have any dialogue. We actually are prohibited from receiving any information on those …”
Value created for a sports league benefits all rival franchise owners
“But remember Ted, in addition to being intense competitors on the field, on the court, on the ice, whatever it is, more importantly, they're all partners. So if Arctos or any entity for that matter can bring value to the league, it's a value to all 30 or 32 te…”
Customer experience matters more to team economics than winning in MLB
“In baseball, in hockey, and in Major League Soccer, winning is probably more important, but even in those circumstances, winning and losing is less important, I believe, than the customer experience.”
Owning venues and ancillary real estate insulates sports teams from losing
“If you own your arena, if you own your venue, if you own a bunch of the ancillary assets, winning and losing becomes less important.”
The losing Knicks led NBA revenues until the Warriors' new arena
“The garden was at capacity, or certainly near capacity, and we sat atop the revenue food chain for the entire time until the Golden State Warriors came along and beat us in many revenue categories with their new arena”
Some sports leagues mandate institutional funds have 10 years of remaining term
“So some of the leagues require that a fund have at least 10 years left in its term to be considered for approval.”
Some leagues require funds to dedicate $500M to $700M for ownership
“Some of the leagues Require that you have at least 500 or seven hundred million of capital dedicated to their league.”
Sports leagues ban institutional funds from using leverage or holding governance control
“You're not allowed to use leverage. You're not allowed to use the assets as collateral in a back levering package. You're not allowed to have formal governance control.”
Sports betting sponsorship is an entirely new revenue category for leagues
“In fact, sports betting has become an entirely new category that didn't exist five years ago.”
Real estate development surrounding sports venues is a $50 billion opportunity
“Then you've got all of the real estate around the venue. It's a massive 20 to fifty billion dollar opportunity over the next five to 10 years.”
Major sports leagues recently locked in media rights for 12 years
“For us, a big part of that risk has been taken out of the system for the next seven to 12 years because Major League Baseball, the National Hockey League, and the NFL, and a couple of the European soccer leagues have all repriced their national and internation…”
Pro sports leagues have proven incredibly resilient through a century of crises
“All I would add to that is that in the last hundred years, these leagues and teams have survived many global pandemics, global depressions, world wars, nuclear war, a whole host of environmental and physical catastrophes, and yet they persist, and they're dura…”