buying sports teams on Motley Fool Hidden Gems investing. Welcome to Motley Fool Hidden Gems investing. I'm your host Tyler Crowe and today I'm joined by longtime Fool contributors, Lou Whiteman and Matt Frankel. So it's been a big week in the world of sports. We had the New York Knicks win the NBA finals. We had the Carolina Hurricanes win the NHL finals. We have a very large football or soccer tournament that has global implications going on but for trademark reasons, we can't say the name but all of this just kind of has sports on our mind. So we're going to talk about owning sports teams through publicly traded companies. We're also going to hit the mail bag. But first we want to start with the news of the day and what we saw was Robin Hood announced that they are going to lay off about 10% of their workforce. Now, Matt, when I first see this, we've seen a lot of layoffs lately. So my question is, was this a layoff or a good reason? Layoffs because they're in trouble or perhaps just a nothing burger? Well, it depends whether you believe what Robin Hood is going to tell you or not. So we've seen this with many companies so far, right? Robin Hood is going to frame this as either, you know, move toward efficiency, streamlining operations. The AI tools are making it more efficient to do. You do more with fewer people, et cetera, et cetera. We've seen that time and time again. And to be fair, it's true to some degree. And plus Robin Hood CEO has been very vocal lately about the need to control costs and get margins up to where they should be. But on the other hand, it's worth noting that Robin Hood, like many other companies, kind of overhired during the 2021, 2022 period. Even after a couple of layoff rounds in 2022 and 2023, there are still many more people working for Robin Hood than there were before the pandemic era. My general take, and this is just generalizing, is that a 10% cut to a workforce rarely happens when everything is going as well as expected. Something is going slower than management expected it to be. We'll dive into what that might be in a little bit. But when whether it's good or bad to reduce the workforce in response, it depends on what it is. Yeah, Robin Hood basically said that this is just cutting fat. They said these are middle management positions. And Vlad talked about not being heavily layered as an organization, which to me is code for, we had too much. I don't know if it's always means something's wrong. We could, I mean, it could be in this case, but I think you also see this at times when there is cover. And I think everybody else doing it and the AI bugaboo, I think that gives cover. So whether or not it means there's something wrong with the business or whether or not you just, you don't waste an opportunity, we'll see. I don't think though, whatever we say about AI, that this is about AI, I use a lot of AI tools. I do see the value. I am yet to see that AI can completely take over the functions of a human being. Maybe it's coming, but it's not here yet. This is bloat. And I guess good on them for getting rid of it. You know, we could see a turnaround guys, if it is the business. Robin Hood's US downloads hit their highest total in at least six months on Friday, thanks to the SpaceX IPO, so to the moon. Well, it only took us half of a segment to get to a SpaceX position already. So I want to put on my cynical hat for a minute because with a lot of Robin Hood's kind of earnings and stuff like that, a lot of it is related to order flow for equities, but also they do tend to charge fees for things like Bitcoin. And that has been one of the more profitable segments for a while. One of the things I was thinking is, is this masking for the fact that Bitcoin has been down, trading in Bitcoin is down, and those fees associated that have not been as good. Since this was, I wouldn't say like they're bread and butter, but it was pretty close. Is that like maybe to that duck and cover thing, is this maybe a sign that the Bitcoin cryptocurrency trading aspect of their business isn't doing so hot? Maybe, I mean, Bitcoin is way down, as you correctly point out, that crypto revenue for Robin Hood has been volatile for a while, that's nothing new, whether it's been in the right direction or the wrong direction. And it can certainly move in the wrong direction, given where Bitcoin and other cryptocurrencies are at right now. But I have to believe that some of it, there's a lot going on in the business. There's regulatory risk related to that pay for order flow model and options in particular, not IPOs like SpaceX, I said the magic word again, options in particular have been the cash cow when it comes to pay for order flow. And the prediction markets, which you didn't even mention, there's a lot of regulatory risks around those, which remember those aren't gambling. I know you guys are soccer fans and you could buy securities on soccer there, not gamble. And this could be factoring into their decision to downsize as well as just them seeing an elevated level of risk throughout the business, not just in crypto. When the crypto thing, Coinbase just announced a 14% cut, which I think gives some credence to the idea that yes, it's crypto, but again, Coinbase was a bloated organization too, so who knows? Look, trading volume is up big in stock so far, but on some crypto exchanges, volume is down as much as 40%, or at least it was in the first quarter. So yeah, that's probably part of what's going on here. I'd push back on the idea that the pay for flow model is under heightened regulatory risk right now, relative to how it's been. I mean, this is in political podcasts, but I don't get the impression that the current regulatory state is intensified over a few years ago. We'll see what happens down the line, but I don't think it's a reason to lay off now. The prediction market is mostly done with partnerships right now, so yes, there is risk there, but they haven't announced a lot of hiring there. I'd be surprised if they're throwing in the towel, or if it's really related to predictions. I think of anything they are looking to scale that up, at least for now. Last question before you go, and both of you thinking about these capital market companies, we've got the Robin Hoods, we've got the Coinbase, you can think of our own brokerage companies, also got ones that work more in foreign markets like Etoro. Like you said, really kind of dependent on trading of crypto, because it has been a very profitable endeavor. So when you're looking at these stocks as investments, do you, how do you think about crypto trading specifically? Is that just kind of like a bonus, and you need to underwrite the business without it? Or do you just be like, yeah, it's just gonna come and go, and I don't know when, but it's gonna be beneficial down the road? For me, it depends how much of the business it is. With Robin Hood, for example, it's a lot more of the thesis than with a company like, say, SoFi, which is just starting crypto trading, and it's just kind of getting off the ground. And to me, that's a very, very minor part of the thesis. But for a company like Robin Hood, it is something to keep in mind. For a company like Block, to name another one in my portfolio, where Bitcoin revenue is the biggest line item on its income statement every quarter, you have to kind of consider that and understand that it will be volatile, no matter what, even if Bitcoin is doubling year-over-year, it depends on investor interest and how attractive Bitcoin is at any certain time and how much it's in the headlines and how many people want to buy it. It's gonna be a volatile revenue stream, and I have to factor that volatility in when I'm forming an investment thesis for sure. Generally speaking, I don't like brokerages or exchanges in any form because it is just a volume-weighted business, and there's not really much more to it than that. That said, for that reason, if I am gonna lean in, I'm gonna lean into diversification. Now, probably I want more diversification than just crypto and equities, but to me, the more the merrier. I think everybody needs to have table stakes here. Yes, it creates volatility, but you need to be there. But again, I think just the widest net you can cast here is probably the best companies because all of these things tend to have inflow. Coming up after the break, we're gonna find some ways that we can actually buy a sports team ourselves. ["Sports Team"] Nobody asks to have a lifetime of memories slowly erased. Nobody asks to have a loved one not recognize them. Nobody asks to feel lonely and confused. But today, you could change this. By leaving a gift in your will to Alzheimer's Society, you'll help fund life-changing support, vital campaigning, and groundbreaking research to tackle Britain's biggest killer. Discover the impact your gift can make, search Alzheimer's Society wills. So one of the things that kind of bumps me out as a Boston Celtics fan is that I missed my chance to actually own this company because back in the late 80s, all the way up until 2002, it was actually publicly traded as a limited partnership. But wasn't quite around to buying stocks at that time, especially limited partnerships on the market. So, hey, maybe someday down the road, I'll get to own my own fair share of it. But one of the things that's kind of interesting here is there are actually more opportunities to buy individual sports teams in the market than we would have thought. I know there's the history of the Green Bay Packers and things like that. But the chances are opening up, and it does give me to the question, why don't we see more of this? Like, why aren't people who own sports teams looking to, I don't know, raise some money by issuing stock or something like that? Yeah, I mean, we'll get to some of the ones that are actually publicly traded in a minute, but sports leagues generally prohibit this, or at least make it very hard for them to take a team public. The NFL bans public ownership entirely. You mentioned the Green Bay Packers, which are grandfathered in because they're structured as a nonprofit. The NBA and MLB, for example, require that there is a single controlling owner with a 30% plus stake. That's a pretty big hurdle for a lot of companies. Plus, most owners don't want to worry about things like earnings calls, and activist investors trying to tell them what to do. And historically, most of the return from owning a sports team has come from the eventual sale of the team itself, not from the profits it's making on an annual basis. And that necessarily doesn't translate well to the public markets. Yeah, so as Matt said, there's a lot more of this in Europe. And the issue is, and I think it probably, it doesn't one for one to the US, but it's a warning sign for the US, the issue is that sports teams are very expensive. It's hard to make money, real money, even in a closed league. As Matt says, the payoff is normally in a sale, and fan-owned teams are less likely to sell because they are mostly owned by fans. If you buy in, you're just begging for capital calls and other expenses, not dividends. And also, just as a practical point, we always talk about trying to take the emotion out of investing, right? Invest in your favorite sports teams, that's not gonna reduce emotion. That is going to add emotion to the investing decision. Most sports fans, myself included, are irrational, maybe borderline delusional. That's a terrible mindset for making investment decisions. I actually, guys, I own a very, very small part of a small British soccer club. It is 100% a Trophy-Ax asset. I think of it as an expense. I paid for the certificate that came with it. It's almost like I just bought art off of eBay or something. There is zero expectations for return. I think that's it. That's how you gotta limit yourself here. That soccer club isn't like one of those, buy the League Four team and hope to bring it to the Premier League like Rexham or Lake Como or Castillo. No, but Elton John is my chairman, so I got that going for me. Well, Matt, you said something earlier, and I find a very interesting point about this. It seems like professional teams get sold. That's when all the money's made, right? But at the same time, there's always some snarky piece that says, well, if they had just bought the S&P 500 instead, trying to compare returns of these monstrous numbers they get when they sell these teams. But let's face it, to lose point, nobody buys a sports team to maximize their returns. So thinking about it, there are options in places where you can invest in publicly traded sports teams. So what are some of the ways that they can do that? And bonus, have any of them actually even done better than the S&P 500? Yeah, so I know this technically is not a team, but Formula One Group is publicly traded. Ticker Symbol is F-W-O-N-K. That's been kind of a standout in recent years. Liberty Media acquired Formula One in 2017, and it's meaningly outperformed the S&P over the past five years or so. Liberty, they've done a great job of expanding that that sports commercial success, especially in the United States. Think of the big Formula One event in Vegas that happened a few years ago, just to kind of increase its visibility and commercial viability here. Another one, Madison Square Garden Sports. Ticker Symbol is MSGS. They own the Knicks and the Rangers, and they've been a stellar performer lately. I mean, the Knicks just won the NBA finals. It's really, your team's value goes up when you're good. But not so much prior to last fall, if you look at the chart, it was pretty much flat for the four years before that. Atlanta Braves have been public since 2023. I know that's Lose Home Team. They've underperformed the market. Manchester United for the soccer fans has been a pretty poor investment since it went public in 2012. There are some indirect ways that could be worth a look. Comcast, for example, owns the Philadelphia Flyers. There are some options that might be worth a look, but none of the direct ones. Yeah, there's Picks and Shovels plays too, kind of. You look, if you like Formula One, you could buy Ferrari. The big media companies that broadcast games are out there, sports data and gambling sites like Sports Trader or all of that. Look, there's even in Peril brands, if you really want to. But the bottom line is, I'm a sports fan. I don't find any of those really attractive as investment opportunities. Most of these ideas that both Matt and I just gave are kind of uninspiring investments. My investing advice here is to separate your life into categories and don't let them overlap. Invest in good companies and enjoy sports. You enjoy? Yeah, it's, again, looking at some of the price charts for some of these companies that are publicly traded. Maybe they're not as great of an investment as originally thought. So Tyler, if you want to, I can put you in touch. There is actually a very small English soccer team that has been pinging me and probably the rest of the world on LinkedIn trying to find board members, which I believe involves also investment. So if you want in, it's there for you, baby. If I can be on the board, that changes things entirely. Coming up after the break, we're gonna dip into the mail bag. This episode is brought to you by Coca-Cola Zero, official partner of the FIFA World Cup 2026. Coca-Cola has also partnered with Panini to bring fans closer to the tournament. Selected Coca-Cola bottles will feature exclusive Panini FIFA World Cup 2026 stickers under labels. Collect 12 exclusive stickers for the dedicated Coca-Cola double-page spread. Pick up a Coca-Cola Zero Sugar and a Coca-Cola Zero a Coca-Cola Zero Sugar and start collecting. Peel, sip, collect. Hi everyone, just a quick reminder. If you want to get your questions in and have them read on air, email us at podcasts at fool.com. That's podcasts with an S at fool.com. The only three requests I make when we try to answer these questions is one, keep it foolish, two, keep it short enough I can read on air and three, we can't give investing advice. So try direct investing advice for an individual. So try to keep it generic. Like what do you think about a company or what do you think about baskets or something like that? Let's not get in trouble with the SEC here. So today's question comes from Mike Hoffman and it's about Alexandria real estate, which is a real estate investment trust. It trades under the ticket ARE. Here's this question. I've been a long-term shareholder and I loved that it is a key supplier of office and lab space to the pharmaceutical and biotech industries. Unfortunately, it's been a terrible investment. Is there any hope here? We would love to know if the analysts consider a buy, sell or hold. I mean, you should mention, I originally bought us a recommendation on a foolish service based on real estate and dividend investment services. So Matt, I know that while you didn't have the final say, I think you were in the room when they were making some of the decisions on a company like Alexandria real estate. So why don't you just give us like the bull thesis why you guys are really excited about it and maybe why things didn't quite work out here or what you're thinking about it today. So I wasn't an analyst on the real estate services that are mentioned. And Alexandria was actually one of our original 10. I think I picked five and our other analysts picked five and that was one of his. But at the time it was recommended, which was in 2019-ish, Alexandria was not only benefiting from a low rate environment that was lifting all real estate investment trust essentially at that point, but also a surge in demand for medical office and lab space. And that was especially true shortly after we invested during the 2020 and 2021 biotech boom, not just because they were developing COVID shots, just there was a lot of investment going on in that space. So in the year since rates, interest rates have risen dramatically. Biotech funding has essentially fallen off a cliff and most of Alexandria's tenant base has become generally weaker. Plus the company operates in some very expensive markets. It's concentrated in Boston, San Francisco, San Diego, which right now have excess supply and vacancy problems, which are causing Alexandria to offer concessions to keep tenants in place if it can. So lab space is a more capital intensive type of real estate than say an industrial property like a warehouse. So more frequent vacancies require a lot more capital to get it ready for the next tenant. And when you have that at a time when costs of capital are elevated like they are right now, it's a bad combo. There are some legitimate reasons to take a look at these levels. It does trade at a pretty rock bottom valuation compared to its history. Its portfolio quality, meaning the properties themselves are legitimately the best in breed when it comes to medical research space. And it has a high dividend yield right now. If you're willing to wait and just collect income, if I already owned the stock, I'd probably hold at this point. But my honest opinion is that the red flags right now outweigh the bull case and I probably wouldn't buy new shares. Yeah, I mean, I think my question is why, what were you trying to accomplish with this investment? And this is a question I have a lot about REITs. If you are looking to exposure to medical research, I don't think a REIT, or let's just say it's a very cumbersome lousy way to do that. If you want exposure to real estate, you're really putting yourself at the mercy of some pretty complex business cycles by focusing on something so niche. For me, real estate deserves to be part of a diversified portfolio, but a small part. There are easier sectors to invest in that constantly beat the market. Matt mentioned the dividend yield. Yeah, so great. You're getting a risky 6.5%. You can, I mean, I'm targeting the S&P is 7% to 10% a year. So even with that, you're not necessarily buying a winner. If you do buy REITs, I'd advise pay very close attention to the cycles the businesses are tied in and they go for either mega trends or diversified holdings. So many of these REITs looks fantastic in certain moments, but are underwhelming most of the business cycle. So you're largely buying, I guess, black swan insurance. I just think, yes, there's a place for REITs, but so often or not, they are the cumbersome complex way to attack a trend when there are easier ways to do it. It does seem, and this isn't just to Alexander real estate specifically. We could broaden this out to the real estate general and publicly traded REITs sort of thing. They had an incredible run from, I want to say like the early 2000s all the way to 2025, 2022, right around when we saw interest rates start to go up again. And that's kind of the whole point is we saw this very, very long, you could probably even go back further than when I was, the time I was saying is you had a very long period of gradually declining interest rates. I mean, you could even pin it back to the 80s. And that entire declining interest rate environment brought up the price of real estate relatively quickly because the valuation of those will go up with lower interest rates. Now that we're starting to see that trend of interest rates either not necessarily go raise much higher but staying at elevated rates. And we're talking about interest rate hikes instead of cuts. It is something to consider that that long-term tailwind is not as much as in places used to that would benefit the company like Alexander real estate. As always, people on the program may have interests in the stocks they talk about and the monthly fold may have formal recommendations for or against. So don't buy or sell stocks based solely on here. All personal finance content follows multiple editorial standards and it's not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to our producer Dan Boyd and the rest of the multiple team for Lou and Matt myself. Thanks for listening and we'll chat again soon.
