Bobby Bonilla Day, Sports Team Valuations and the Rise of Women's Sports - Episode 194

AJ: Hello, and welcome to The Liquidity Event. I'm your host, AJ Ayers, and this is episode 194, being recorded on June 11th, which was a long time ago, and airing today on July 1st. Happy Bobby Bonilla Day! You can always email us your finance questions at liquidityevent@brooklynfi.

com, and we will answer them live on the air. A huge day here in New York. Also, Kody's here. Sorry, Kody, I didn't introduce you.

Kody: Hey, guys. Yeah, game four of the NBA Finals - the Knicks pulled off the biggest comeback in NBA Finals history. They were down 29, and they won with a tip-in with like 1.2 seconds left.

AJ: Incredible. Yeah, I was on an airplane coming from Fort Lauderdale, Florida to New York for the first half of it, and then I landed and had to get home. By the time I got home I was so exhausted that I went to sleep thinking they had lost. Then I woke up and I was like, "What?

Oh my God." The first thing I saw was like the Taylor Swift meme of her and Mariska Hargitay hugging, and I was like, "Wait, why are they hugging? We lost really badly." So today we are talking about sports.

I invited a sports expert onto the show - literally any man I could find. So I've got Kody Shearland here with us today. We got the idea for this sports-themed show at our all-company retreat while I was playing a prank on John, where we borrowed a friend's pontoon boat to pretend to be the SEC arresting him. And my friend whose boat we borrowed mentioned this day that I had no idea about - Bobby Bonilla Day.

So Kody, tell us what July 1st is for those not in the know. Kody: July 1st is Bobby Bonilla Day, which is short for the New York Mets deferring some money to a player that they had cut after the 1999 season. They pay him $1.2 million every July 1st from 2011 to 2035.

AJ: Baseball team. Incredible. Kody: There's a long story here, but yeah. AJ: Okay.

So this baseball player - they were like, "We need this cash for other people who are gonna help us win games today, so let's do a deferred annuity," basically. This is an annuity, for lack of a better term. So the idea was they were gonna pay it with a minimum 8% interest rate, right? Kody: Yeah, it was 8%.

Yep. AJ: And then where it gets really interesting is that the Mets franchise owners were invested with our friend Bernie Madoff - who's not our friend, by the way. They were seeing crazy outsized returns on their money from the Ponzi scheme of the Madoff investment company. So they were like, "Oh, 8% interest, no problem.

We'll keep paying that." And then we all know what happened with Madoff - he was exposed as running a fraudulent Ponzi scheme. So they were left with this quite interesting bill to Mr. Bonilla.

He's sitting pretty in Florida now collecting his million bucks every year for another nine years as of today. Kody: So when the Mets cut him, they owed him $5.9 million. And if you run the math - which I did with my handy dandy TI-89 - it comes out to 8% interest.

They didn't pay anything for the first 10 years, and then they're doing $1.2 million for years 11 through 35. If you do the time value of money, it discounts to the exact same number, which is wild. It sounds crazy for someone to be making $30 million gross, and for that to compute back to $5.

9 million, but again - time value of money, folks. These guys thought they were gonna be able to basically write an annuity product, and Wilpon thought he was investing in something great. It turned out to be none other than Bernie Madoff. AJ: Incredible.

And we're seeing this same thing showing up now with another baseball player on the Dodgers, right? Kody: Mm-hmm. Shohei Ohtani - who is not an old guy getting cut because the team doesn't want him anymore, but he's the best player on the planet. He signed a huge contract with the Dodgers.

AJ: Which means he's expensive. Kody: Yes, and the Dodgers have signed a number of those players over the last 10 or so years. Because the Dodgers are trying to win, they don't mind being a little cash flow negative. So they're paying him like $2 million a year for 10 years, and then they're gonna owe him $680 million, which doesn't even start paying out until like 2034 or 2035 or something like that.

AJ: What happens if he's not alive to collect it? Does his estate get it, or is it only if he's alive? And is someone gonna try to murder him? 'Cause that's what I would do if I...

Anyway. Kody: Hopefully it's not his interpreter, who was using Shohei's money without him knowing to gamble. AJ: Oh, right. I forgot about that.

Yeah, I mean, when there's so much money being thrown around, someone's gonna want a piece. We've seen that over and over again with athletes where their job is to be strong, win games, make baskets, make home runs, and they're not necessarily looking after their money. When you see these numbers, you're gonna have people calling themselves wealth managers come and try to get their money. I only hope that all athletes find fiduciary financial advisors to work with.

Tell me, anything else you wanna say about Bobby Bonilla Day? Happy Bobby Bonilla Day. Kody: He actually has a few more deferred payments coming from a few other teams too. He bounced around in the late '90s after what was a legitimately good maybe 10-year stretch.

He was a good player, but boy is he making out okay. AJ: I love this. Every July 1st we'll celebrate and pour one out for Mr. Bobby Bonilla.

I love funny history like that. Okay, tell us why investing in sports teams is a good idea. Kody: Ooh, why is it a good idea? Well, if you are fantastically wealthy and you can buy a sports team for over a billion dollars, it tends to be a pretty good cornerstone of the portfolio - at least in a backward-looking sense for some of these guys.

NFL and NBA teams in particular have gone up many times over the last 15 years or something wild like that. It's been really good with TV rights getting renegotiated, with cable cutting, with sports going to platforms like Amazon Prime and Netflix, and getting new deals with NBC and Fox. I mean, they are printing money. It's an entertainment product at the end of the day.

AJ: Yep. So is this like buying a sports team - if you bought the Knicks during their multi-decade slump, and if they win this championship, the return on that... I know the Knicks owner is a piece of work. As someone who dated a Knicks-obsessed fan for many years and went to many games in my early 20s, I heard lots of stories about the Knicks owner.

So he could make out like a bandit because valuations have gone up so much. What are we seeing - like more than 13% annualized returns year over year? Kody: That's about right. AJ: Which is basically like the S&P 500 - maybe even making out a little bit better if you're buying these sports teams, if you have that massive amount of capital to invest.

Kody: Mm-hmm. I think the Knicks are somewhere around the sixth most valuable sports franchise on the planet. I think they're worth about $10 billion. That's a huge number.

AJ: How much does winning a national championship increase their valuation, in your opinion? Kody: Probably a fair amount. I mean, they're in the best media market in the world. How many celebrities did we see sitting courtside over the last two games in New York City?

AJ: I only saw one. I only have eyes for Taylor personally, but I'm sure there were others. Kody: I saw a good tweet yesterday. It was like, "My mayor is Muslim, my bagel's Jewish," tailored fitting courtside Knicks five.

AJ: Yeah. Did you see the BKFi tweet this morning? Kody: I did. Yes.

AJ: I don't remember what it was exactly. Kody: "My portfolio thrives" Knicks five. AJ: Knicks five. Yeah.

So a good example is the Clippers - undoubtedly the second rate team in Los Angeles. The Lakers are far more important and popular. Kody: That explains why my dad took me to Clippers games growing up and not Lakers games. AJ: Oh.

So the Clippers - they were not a successful franchise for a long time and their longtime owner Donald Sterling had a major fall from grace. Look him up - it wasn't good. The NBA forced a sale. They sold to former Microsoft CEO Steve Ballmer for $2 billion in 2014.

Everybody thought that was a crazy number - way too high. Kody: They're worth $7.5 billion now, which is about a 12% annualized return. As a former Microsoft CEO, you're pretty happy about that.

AJ: Yeah, you don't need your RSUs. Kody: They're 15th on the Forbes list now. They're ahead of the Dodgers, ahead of Real Madrid, ahead of the Green Bay Packers. AJ: Do you think that has to do with the market they're in, in LA?

That LA and New York are just superior cities to everywhere else? Kody: I think the NBA has done a really good job monetizing its product. It's a league driven by star power, driven by personalities. You can see the players' faces on the court.

You can see the fans sitting courtside. It's so marketable. It's getting popular internationally. It's a fantastic product.

AJ: Cool. When was the last basketball game you went to? Kody: I went to a Timberwolves season opener, which was a lot of fun - not this year but the year before. AJ: I went to a Knicks game - either earlier this year or late last year - and LeBron was there.

They put his son in like the last minute just so he could get 60 seconds on the court. Little Bronny going up and down the court. Did you know that Bronny and I have similar heart conditions? His little heart defect is a similar one that I have.

So fun fact. Basketball. Anyway. All right, what else do we got?

So we've got the NBA, franchises worth $10 billion. But it's not just the men that are valuable these days. We are also seeing this trend that women's sports teams are finally getting their due. Women's sports - there's such interest in sports that it can no longer be contained by one gender.

What's the women's sports team in your neck of the woods? Pop quiz. Kody: We've got the Minnesota Frost - they won two championships with the new women's hockey league, the PWHL. And the Lynx are the women's basketball team.

They've won a number of championships over the last decade or so. Yeah, I mean, women's sports are super fun. The star power of some of the star women's athletes like Caitlin Clark or Paige Bueckers - shout out Minnesota, she grew up and went to high school like five minutes from where I'm sitting right now - they're so marketable and it's so fun to watch. I went to a women's hockey game and sat in like the sixth row down by the glass and it was amazing how good they were.

They are so absurdly talented and fun to watch. And honestly, the USA women's hockey team won more gold medals than the guys did at the last Olympics too. AJ: Oh right, I remember that. Yeah.

Kody: They were unreasonably criticized by someone in particular, but yeah, they got their due. They're so good. AJ: Yeah. I mean, we have the Liberty here in New York.

Growing up in LA, we had the Sparks. And if you wanted to go to a Lakers game - and these are just prices I remember - you could get great seats for like $112. If you wanted to go to a Sparks game, it would be like $10. There wasn't a ton of interest, and it just took a long time for the generation to get used to it and for the fandom to coalesce.

And now a Liberty ticket at Barclays is like $300 a seat. So there's money in it, and when there's money, there's interest. The two go hand in hand. So much so that in Brooklyn we now have two women's sports bars.

One is this cat-themed women's sports bar, which I don't quite understand, but here we are. Kody: Do they have cats roaming around the bar? AJ: I don't know. I have not been.

You should go and report back. It's called Athena Kiki's - it'll be both a community hub and a place to watch women's sports. The bar's namesake is the cat the two owners adopted in New Orleans when they lived there in 2018. Athena the tabby also serves as their mascot and logo.

And I also wanna shout out a sports bar in Portland, Oregon, which has the best name I have ever heard - Sports Bra. Kody: That's really good. AJ: It's so good. Kody: The one in Minneapolis is called A Bar of Their Own.

AJ: Oh, okay. Yep, A League of Their Own, of course. Everything I learned about baseball - no crying in baseball, right? Greatest Tom Hanks movie ever.

Okay, what are your top three sports movies? Kody: Ooh, top three sports movies. Number one is Moneyball. AJ: Okay.

Yep. Yep. Kody: Number two I think is Miracle. AJ: Hockey, right?

Kody: Yep. The 1980 US hockey team. Herb Brooks, a team full of a bunch of Minnesotans. I just keep having to ram that in there against the LA/New York bias.

AJ: Yep. Okay, fine, fine, fine. Whatever, flyover states. Kody: Third best sports movie - I don't know, maybe we just have to go with the Mighty Ducks just to keep it local here.

AJ: Yep, fair enough. I just Googled sports movies to remind myself of all the options. A League of Their Own is definitely one of my favorites of all time, despite the fact that it's about sports. I gotta go with Rocky.

I gotta go with the Rocky franchise. What else do we got - we got Seabiscuit. I guess that's a sports movie. Angels in the Outfield - that's a good, like, hallmark-y kind of movie.

Bad News Bears. Sandlot. I liked all those '90s ones. Kody: The Sandlot.

AJ: Yeah, those are good ones. And like, the F1 movie is technically a sports movie too. All right, what else do we got here? We talked about women's sports.

So all these multi-billion dollar men's franchises - people are getting priced out, right? It's been such a good investment and we've seen such great returns, so now money is flowing into these women's teams, which I think is really cool. Basically, it's too expensive to go in over here, so let's find the more upcoming product that's gonna have the higher returns later on. So watch women's sports - as the shirt says.

Kody: I see those shirts too. Yeah. AJ: Um, what else do we got? Oh, let's talk about younger athletes finally getting paid.

College athletes, until 2021 - this is very recent history - were not able to collect money. You definitely know more about this than me, so I'm not gonna pretend. Please explain. Kody: Sure.

After a handful of court decisions, it was ruled that despite the NCAA's longstanding rule that players were not allowed to get paid, they should actually be allowed to get paid for their name, image, and likeness. Because at the end of the day they are participating in and driving an entertainment product that is incredibly valuable. For the longest time the NCAA said, "You're getting a free education out of this," which wasn't even true for a lot of those athletes. There are only a certain number of scholarship slots available for every sport.

AJ: It's a scholarship that doesn't even cover your full costs. Obviously they're well taken care of, I hope, as athletes - but not all of them. You had to be in like the top percentile. Kody: Yeah.

And if you play football at Georgia, that's a really valuable role. That football team wins national championships and drives a lot of money toward the school. AJ: Did Melanie pay you to say that? Kody: No, she did not.

Um, yeah, so I think that players getting paid is a good thing, right? And regardless of the subjective opinions on it, it is causing a lot of complication and interest in what's happening in college sports. The NCAA has lost a little bit of its stranglehold on the way they control different sports. Players are getting paid.

Players are starting to transfer from school to school between seasons because they can just go get a better contract somewhere else. There was a longstanding fear that this would cause the rich to get richer - that the Alabamas and Georgias were just gonna keep winning, Texas was gonna win a bunch of national championships, and teams like Kansas State or Virginia Tech or Washington State were never gonna win anything because they didn't have that much money. I don't know that that narrative is actually true.

Look no further than college football last year - Indiana ran the table and won the national championship. They haven't won a national title in football in over 50 years. AJ: That's crazy. Kody: Yeah.

They were able to collect a roster of juniors and seniors that maybe weren't starters at their old schools, and they won a championship. They did not lose a game. AJ: And so the fear about it just becoming a biggest-check game was disproved by Indiana winning last year. Kody: Yeah.

And you know, there's a reasonable argument to be made that maybe these players are getting a little bit divorced from the education if they go to four different schools over five or six years. And it is a little bit preposterous that you can play college sports for like seven years in a lot of these cases. AJ: Yeah. Kody: COVID was a long time.

AJ: What does Shane always say? Shane always says he's got one more year, two more years of eligibility left if anyone wants him to walk on and play. Kody: Yeah. And the team that Indiana beat in the national championship game was Miami - a team that has been scratching and clawing at getting relevant again ever since its heyday in the '80s and early 2000s.

Their quarterback was a transfer from Georgia, Carson Beck, and I want to say it was his sixth or seventh year in college. There are players in the NFL who have played three or four years who are younger than he is. He's making money playing college football and living in Coral Gables, living the dream. AJ: Hell yeah.

Probably playing golf. Yeah. Kody: Yeah. A reporter asked him - since the national championship game was in Miami - "How does it feel to be practicing and sleeping in your own bed and playing a national championship game at home?"

Like, "What's it like going to class?" He said, "I haven't gone to class in two years. Wait, am I supposed to say that?" AJ: That's like Animal House, right?

I mean, I would love to have stayed in college for a few more years and gotten paid to do it. But yeah, the idea was that these kids were gonna make a ton of money for these schools and the schools were just getting rich off their backs. So now they can get cash from endorsement deals with the Nikes of the world. What's interesting is that this whole little cottage industry has sprung up of tax advisors, lawyers, and financial advisors who target not professional athletes, but specifically college athletes.

We actually have a few friends in the financial planning space who specialize in that. I think that's pretty cool. But I cannot imagine being an 18-year-old football player and being hit with a seven-figure Nike deal and not wanting to spend it on stuff you're gonna regret 10 years later. Kody: Yeah.

We work with a lot of people who experience significant liquidity events and they are very often in their 30s or 40s, maybe late 20s. I can't imagine what it must be like to be a 19-year-old playing college football with a half million dollars. AJ: Oh my God. I mean, hopefully this is where we get into the issues with, "Oh, I'm 18, I can do whatever I want."

And the parents are probably like, "Please, for the love of God, listen to us." But then you also run into these situations where the parents mismanage the money or quote-unquote steal the money, or they feel like they should be paid back for the years of coaching and support they gave. It's a complex situation. Yeah, just wanna shout out a friend of mine, Dizarte, who just launched a whole platform for student athletes called Bench.

I just saw that on LinkedIn a couple weeks ago. So shout out to him - if you're a student athlete, that's probably where you wanna head. I don't know that BKFi is the place for you if you're a student athlete - that's pretty far outside our niche, unless our clients had kids who were at the professional youth athlete caliber. What sports did you play as a kid?

Kody: I was exclusively a baseball player. I lived, breathed, and ate baseball until I was like 19. Wasn't able to play golf, wasn't able to play hockey - you know, what I actually want to do now. AJ: The things you love.

Yeah. Kody: Yeah. AJ: Do you have any love for baseball now or does it feel like work? Kody: I love baseball, but there is a fair amount of scar tissue - literal and figurative.

AJ: Yeah. It's also kind of a hard sport to just be like, "Let's go play baseball," you know? Like, you need mitts, you need at least two people to throw back and forth. Anyway, I played softball.

Kody: Yeah, like softball you need at least 15, 18 people to have fun. AJ: You eat a bunch of crap. Okay, my final parting words - people love sports. I don't love sports, but I can get into it.

I'll go to any sports game. But what we don't like about sports is the gambling aspect of it. Folks, do not waste your money gambling on sports. There's a lot of temptation.

This is like my PSA, the after school special part of the episode. I was just at MSG last week - not for a Knicks game, but for a Phoebe Bridgers concert during the Finals. And there was just DraftKings everywhere. Just betting, betting, betting.

And I know that's a big part of sports, but it ruins people's lives. So here's your PSA: if you or someone you know is getting their life ruined by gambling on sports, please get some help. Sorry to end on that sad note. Knicks game is when?

Saturday? Kody: I believe so, yeah. Should be game five. AJ: Well, I hope they win.

By the time this episode airs, New York City will hopefully be painted orange and blue. Go Knicks. Kody: Yeah. Don't bet on it.

AJ: Yeah. There you go. Good parting words. Thanks for chatting sports with me, Kody.

I'll see you next week, folks. Bye.