Alan Waxman on the Deals Behind Sixth Street's Sports Empire | The Deal

This transcript features a discussion with Alan Waxman, co-founder and CEO of Sixth Street Partners, about institutional investment in sports, specifically focusing on his firm's minority stake acquisition in the New England Patriots and their broader sports investment portfolio. The conversation, hosted by Jason Kelly and Alex Rodriguez, delves into Sixth Street's investment philosophy, the process of acquiring sports assets, and the future of institutional capital in major sports leagues. Waxman begins by describing Sixth Street's investing ethos as one of "complete flexibility," allowing them to invest across asset classes, geographies, and sectors based on relative risk-reward. He emphasizes a culture of "investor first architecture" with no egos or politics, focused on aligning fund sizes with opportunities. This approach has enabled them to invest in various global sports champions, including Real Madrid, Barcelona, the San Francisco Giants, the San Antonio Spurs, and the Boston Celtics, highlighting a common denominator of alignment in culture, values, and clarity of purpose across these successful franchises. The acquisition of a minority stake in the New England Patriots is a focal point. Waxman recounts how the NFL, initially restrictive of institutional investors, ran a process to select approved investors. Following their approval, the NFL's CFO connected Waxman with Robert and Jonathan Kraft. Waxman describes an almost instantaneous connection, likening it to family, with immediate alignment on team values, culture, and purpose. He notes that the Krafts were not initially seeking minority equity but were open to the partnership, which quickly solidified through a straightforward negotiation focused on fairness and a long-term relationship. This emphasis on culture and values extends to how Sixth Street evaluates any company they invest in, looking at how individuals treat employees and junior staff to gauge the underlying culture. Regarding investment in the NFL, Waxman highlights the league's world-class leadership, including Commissioner Roger Goodell, and the strength of the Boston sports market. He also points to the durability of the league, international expansion opportunities, and the growing global appeal of NFL brands as key investment drivers. He contrasts this with earlier perceptions of these brands as solely local. Waxman distinguishes between private equity and private capital, particularly concerning sports team investments. He argues that traditional private equity structures, with their five-to-seven-year exit timelines, are ill-suited for sports teams. Sixth Street, however, utilizes "patient capital," which is crucial for long-term partnerships with owners who may not have immediate sale pressures. He posits that the future growth of sports valuations will necessitate substantial infrastructure and real estate adjacency investments to justify current valuations, warning that without this, some valuations may prove too high. When dissecting the financial thesis for NFL investments, Waxman identifies scarcity, market dynamics, appreciation, and cash flow as key factors. He also stresses the importance of leadership and ownership culture. The increasing global consumption of sports, particularly through digital platforms and AI, is seen as a significant growth area, with international expansion being a prime opportunity for the NFL. Transitioning to the NBA, Waxman details Sixth Street's early entry into the league with the San Antonio Spurs, achieved through a cold call during the COVID-19 pandemic when revenues were significantly impacted. He describes the NBA as a maturing market with increasing capital and a more competitive landscape but still offers massive international opportunities, driven by demographics and the global reach of NBA players. He notes the "gentrification of the asset class," where private markets have become more investible, especially after COVID-19 opened doors. The current media deal and the continued international growth are seen as significant drivers. Alex Rodriguez echoes this sentiment, highlighting the rise of non-American MVPs and the early stages of the NBA's global expansion. The conversation then shifts to women's professional soccer, specifically Sixth Street's investment in Bay FC, an expansion team in the NWSL. Waxman describes this as a "radical and new" investment, as they were the first institutional fund to become a control owner of a major US sports team. He admits that paying $53 million for an expansion fee, significantly higher than previous fees, led many to believe they were "crazy." However, his daughter's interest in the NWSL sparked his research, revealing an opportunity in the "impact bucket" of sponsorship revenue, which was distinct from traditional CMO budgets. He emphasizes the asymmetric nature of this investment, so much so that he publicly shared their investment thesis on LinkedIn, a rare move for him. He predicts that current valuations and expansion fees in the NWSL will appear very smart in retrospect, as the market continues to grow. The discussion returns to the question of whether institutional capital will ever gain full control of one of the 92 teams across MLB, NBA, and NFL within their lifetimes. Waxman cautiously predicts that it will happen, driven by escalating valuations. He argues that for these valuations to be sustainable, significant infrastructure and real estate investments are necessary, eventually leading to a point where only a finite number of individuals can afford to own such assets. He believes the leagues will eventually consider this shift, though he doesn't foresee it happening in the immediate future. Finally, the participants offer their 30-second prescriptions for fixing baseball. Alex Rodriguez sees today as the best time to invest due to uncertainties around the CBA, believing the bet will improve. He also anticipates Rob Manfred integrating regional rights to emulate the NFL's success, citing the strong viewership of the World Series as evidence of the sport's potential with the right product, teams, stars, and strategy. Waxman proposes raising minimum salaries, implementing a salary cap with the allowance for one or two designated players to be paid without cap restrictions to attract and retain superstars, and aligning media rights interests for global expansion. He also touches on union dynamics, advocating for a more equitable distribution of revenue among players.