Gerry Cardinale has spoken at length about his vision for how football clubs should be owned and run, re-iterating his belief in the use of data analysis.
The managing partner of RedBird Capital and owner of Milan spoke earlier this month at the Sloan Sports Analytics Conference together with Atalanta co-owner Steve Pagliuca and LAFC co-owner Mitch Lasky.
He spoke about investments in the world of football, the future of Serie A and the importance of knowing how to exploit analytics when building teams, and MilanNews transcribed his comments.
Gerry, what was the journey that led you to own three teams?
“Just like Steve [Pagliuca] I was only 1m80 tall and in rowing that’s not enough (laughs). What you learn from rowing is that it’s more of a mental thing than a physical one. This routed me to the world of finance and Wall Street. After Harvard I went to Oxford and competed in rowing, and I discovered a love for this kind of competition,” he said.
“The great thing about rowing is that it truly is the epitome of team sport and amateur sport. You spend all your time training for a six minute race, in the case of the boat race 20 minutes, and if you’re not rowing in the rain or terrible weather it’s like you’re not really doing it (laughs). Playing team sports is a great way to get used to the world of work, I agree.”
When it comes to the sale and value of sports teams, are we in a bubble?
“We’re definitely in a bubble, but it’s certainly not something new. I think we’ve been in a bubble for quite some time. Already a few years ago after some club sales [American football] I thought that the value could not grow compared to the purchase price, but instead look where we are now.
“On the one hand I say that we’ve been in a bubble for a while, on the other hand it’s a phenomenon [the value of the various clubs] that continues to grow. The question to ask is ‘why is this so?’.
“I’m not crazy about this, it’s an easy idea that I’m starting to hear and that always concerns the concept of sport as an ‘asset class’ and I would say, at least from my point of view, that the moment we start talking about sports as an ‘asset class’ everyone has to stop for a moment and say: ‘Wait, what’s going on?’.
“The reason is that I hear this laziness that it’s not market related, valuations keep going up and when you look at the analytical rigour around these things equity research in sports relies on Forbes magazine.
“It’s like you look at your last trade and put a profit margin on it. These things might have worked 20 or 25 years ago. Today we’re dealing with multi-billion dollar live event entertainment assets and I think there needs to be a little more rigour in the concept that these assets are bought at a multiple of annual turnover.
“I think that’s a bit of a concern too, these assets would have to be bought at a multiple of the annual cash flow and that’s the investment I’m looking to make when we look at these things, which is to know if you can work to get profit on an overpayment and must be cash flow driven.”
Can you tell us about your journey in European football? Toulouse in 2020, Fenway Group in 2021 and now AC Milan in 2022? Do you have a vision that includes a common project for all three clubs or do you look at each of them individually?
“My ‘euphoria’ about European football is relatively recent. For years I have not been interested. My business model, speaking of sports, has always been about doing business around sports, creating partnerships with the various rights holders and creating terminal value businesses around these rights.
“It started with the Yankees, then the Dallas Cowboys, then the NFL. Five or six years ago we asked ourselves: ‘Why don’t we think about integrating vertically and becoming rights holders ourselves?’. Doing so in the United States is difficult due to restrictions on institutional investment funds, while in Europe there are none.
“In Europe, however, there is a transfer market and the possibility of relegation. When you see that there is an ecosystem that attracts sovereign states and oligarchs you have to ask yourself what you are doing.
“I have to give credit to Billy Beane, he was the one who ‘educated’ me. He’s been in European football for 20 years and he told me I wasn’t looking at the situation in the right way. I had to approach European football with the ‘Moneyball’ mentality, which says there is no need to sacrifice the level of performance on the pitch for cash flow or vice versa.
“We spent 5 years studying and learning. We thought we knew a lot about sport, but when we arrived here we had the feeling that we really had to do a full immersion. We met with around 200 teams in all countries, made our first investment with Toulouse, mainly driven by data.
“It was really a great experiment, the starting price was around 60 million euros, the team was relegated and we bought it for 15. The first year we sold the first player for 15 million and now we are in the middle of Ligue 1.
“It was a good experiment, we learned a lot. Fenway was something like that, a move to a bigger club, and eventually we got to AC Milan. I think AC Milan is one of the biggest brands in European football. Berlusconi was the first oligarch, he was the George Steinbrenner of his day.
“One of the things that surprises me is that Milan are the second club to win the Champions League after Real Madrid, I didn’t know about it. It is an asset not exploited enough for what its value and level could be, like Serie A.
“The Italian league has the right to sit at the table of the best, just as Milan have a place at this table. Our job is to take it there. The advantages for those like me and Steve [Pagliuca] who have gained experience in this field, is to be able to bring our mentality and our methods to Europe and be very helpful.
“And there is a need to do so, because here you are moving into something that is a bit like the wild west, there are no property regulations, anyone can buy these assets. And so you see a move of England away from the continent, corporatisation in England versus the continent, the only two institutional owners on the continent I think are RedBird and Qatar in PSG.”
What can all this American influence bring to Serie A?
“I know we can control what we can control, so we will definitely handle it with tremendous financial discipline. I really believe in Billy’s point of view, that we don’t have to sacrifice performance for cash flow.
“There are performances on the pitch and performances off the pitch and we can bring a lot to Serie A. Steve and I are both competitors and partners in Serie A. The Premier League is different.
“There’s also an interesting dynamic, the continent versus England – we can take advantage of that kind of situation. There is a 3 to 1 ratio between Premier League and Serie A media revenues, and a 2 to 1 ratio between La Liga and Serie A. There shouldn’t be this disparity.
“We treat our team investments no differently than we treat the business side. We would not make an investment where we are passive, where we have no control. Going into making these investments we obviously have a business plan on how to generate cash flow and we build on that, as we do for all of our other companies.”
How do you differentiate your strategy between investing in teams and investing outside?
“Investments that don’t directly concern the teams are our daily bread, the model hasn’t changed since we created YES Network in 2001. Today there is more and more convergence between sport and the media, as well as a third point: the culture.
“In America the culture is ‘urban’, in Europe it is ‘fashion’. In the end it’s about monetising intellectual property, with a market that has become increasingly fragmented and based on the individual: see our partnerships with The Rock and XFL, LeBron James with Fenway and Spring Hill, his media company. Our investments that do not directly concern the teams concern different media.”
Gerry, how did you use data and analysis to bring Toulouse back to Ligue 1 from the French second division?
“Nowadays everyone uses data. We have a data analytics company called ‘Zelus’. We all get the same kind of data, it’s how you use it that matters. At Toulouse we have players from 18 different countries, and the team was built only based on data analysis, without scouting.
“It was an experiment, and after a year we were promoted to Ligue 1. We are now in mid-table, we are playing at a level that is two and a half times what we invested in the transfer market. I think data plays a really big role, but particularly in bigger teams there is a need for a ‘hybrid model’ between humans and data.”
Finally on the Super League…
“The Super League phenomenon was a failure. However, one must ask why this happened, and it is the same phenomenon that we have had in the United States in certain leagues. In baseball there is a tension between the small and big markets, as well as in MLS.
“There is the same thing in Europe, the tension is between the Premier League and the rest of the continent. In sport, you can’t buy championships. I would obviously like to win the Scudetto and the Champions League every year, but if we did it would be contrary to our job.
“Our job is to get a return on this investment and if they always win the same every year it wouldn’t work, right? It would make the assessment entirely dilutive. What we can control is to reduce performance inconstancy. The thing that I find phenomenal is that a lot of people get into sports and think that the goal is to win championships.
“Obviously we all want to win, but when you look at it through the purely non-emotional lens of an investor the goal is to consistently perform. The Super League is a distraction, we have to focus not only on being competitive in Serie A, but also on helping Serie A to be competitive with the Premier League and La Liga.
“We have to think about how to help Serie A and get the best kind of deal for the sale of TV rights both in the country and abroad to close the gap. And if we succeed then we do good for the whole FIFA ecosystem, with the continent managing to be more competitive against England.”
I for one agree with the data analytics model but they need to do something about pioli waiting until the end of a season to give them a chance.