Image via Skotywa/Wikimedia
In Part I, we looked at hedge funds top-heavy with cash that love to step in and guide the future of an organization. For-profit education got a going over in the last issue. Corporate giants also form bizarre relationships: Verizon (VZ) acquiring Yahoo; Microsoft (MSFT) acquiring Nokia; News Corp. (NWSA) buying MySpace as well as Glaxo Wellcome (now GlaxoSmithKline [GSK]). The need to look before leaping proves a major strength of the well-run corporation.
Greek Debt – The New Crisis
Greek debt surfaces as a problem once again. The crisis trigger is a 7 Billion euro payment due this summer. Two significant barriers cast a giant shadow over Greece’s ability to follow through. The Greek economy remains moribund, moving slowly in a perpetual Great Depression mode. In addition, the nation has not made great progress in reversing the financial practices that got them into trouble. As expected, those who view financial matters politically predict a bad end. But, let’s look before we leap into agreement. As of April, 2017, Greece’s bond interest rate stands at 6.69%, marking it safer than Russian (7.92%) and Brazilian (10.19%) debt. So, Smart Markets see austerity outpacing default.
While the underlying issues remain ominous, the drama lacks the zest of previous years. This year’s return stands well below the earlier crisis. We may conclude that the risk has not detonated either. (If only MF Global had waited!)
Soccer in the US?
Why is the world’s biggest sport unable to sweep across the US, or even gain a solid footing? The question frustrates millions of fans and many potential investors. The Wall Street Journal reports that as Major League Soccer begins its twenty-second season, “billionaires and business titans from a dozen cities are clamoring for the right to commit more than a quarter-billion dollars apiece to launch a new crop of expansion franchises.” (online, Feb. 28, 2017) Here is an opportunity to look before leaping. When the economy rolls along sopping with liquidity, all opportunities look good. Even soccer pulsates. The Myth Buster has run into many enthusiasts and a few would-be investors who WANT to believe that soccer capture hearts and minds across the US. Therefore, they argue often aggressively, this is the right time to dump billions into the world’s favourite gridiron game.
Enthusiasts argue that the game is already well on its way to knocking football and baseball off the sports mountain. Major League Soccer claims 2016 brought 7.4 million spectators, a huge increase, and a rise in profits. So, how attractive is the sport? Here are five considerations for the wary investor:
- Every sport and entertainment source is growing. The big bang in cable television makes everything grow exponentially. For example, cooking shows are now divided into those that show you how to cook, travel-related cooking, reality cooking and cooking competition. The Food Network (SNI) attracts more than 700,000 daily viewers. However, the Food Network only ranks between 10th and 13th of all cable channels based on Nielsen ratings. In sports broadcasting, ESPN (DIS) runs nine channels. A look at their programming reveals that even in the middle of the night, when they used to show Women’s Volleyball, they now prefer re-running evening programs or games that have finished, even classics going back decades. Soccer is hard to find!
- The fragmentation of television viewing spreads to all sports and entertainment. A rapidly growing clique watches sports on mobile devices or laptops. Netflix (NFLX), Amazon (AMZN) and others vie for the lead in best TV shows. Major movies roll over to Netflix within weeks of release. In the massive cuisine world, the Food Network has many rivals. Here are three food shows from an alphabetical list: Hell’s Kitchen; Hippy Gourmet; How to Boil Water. (The Hippy Gourmet does a very good job with a recipe that calls for short strips of paper!)
- Soccer enthusiasts argue that football viewing is slipping because soccer viewing is rising. This sounds plausible, but football and baseball are enormous. Total baseball attendance was 73,000,000 in 2016. Football and baseball also face the same kind of fragmentation from mobile devices and rabbit-like cable TV growth that the traditional channels and movie theatres must deal with.
- Major League Soccer operates franchises in some pretty small markets (Salt Lake City; Portland, Washington; Montreal). Investors will recall that the Expos moved from Montreal to Washington (now the Nationals).
- Major League Soccer recently signed an agreement to stream games on Facebook (FB). The Godzilla of social media plans to reshape how people receive news and entertainment. By streaming news and sports, they hope to draw people farther into the mobile cave and away from television, cable, theatres and other venues. Facebook thinks that if they make headway with soccer, some day they might draw really large numbers from football and baseball. That time is a long way off.
If soccer were worthy of the billions ready for investment, wouldn’t one of the nine ESPNs run soccer at 3:00 am, then, as viewership expands, move to 1:00 am, eventually reaching primetime? Unfortunately, soccer falls into the category of the sports version of a cooking show called “How to Boil Water.” It just doesn’t set the audience on fire!
This entry looked at the need to be cautious about bailing out of a bad situation (Greek debt) and the reverse situation of diving from the top of the cliff into the ten-by-ten soccer pool. This myth proves instructive on leaping for or leaping against. In the next instalment, we will rustle up more intriguing cases including the latest evidence on Avon and its Cerberus connection.
Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.