I hear Dan Snyder is interested in owning a baseball team.

Whooo boy. The other shoe, she just dropped.

[sigh]

The whole Liverpool thing still makes no sense. I mean, I suppose it is/was an undervalued asset to an extent (and thus perhaps worth buying in the abstract if you think you can bring it to full valuation), but if owning it is going to torpedo the fistful of dollars you rake in with your other club, what's the point?

Maybe they're just tired of all the agitation involved in running sports teams. Liverpool fans complain even more than Red Sox fans. I fear their spirits are broken.

The whole Liverpool thing still makes no sense. I mean, I suppose it is/was an undervalued asset to an extent (and thus perhaps worth buying in the abstract if you think you can bring it to full valuation), but if owning it is going to torpedo the fistful of dollars you rake in with your other club, what's the point?

Very few highly successful people avoid hubris completely.

Frank McCourt can give you two billion dollars right now

Please let it be McCourt.

So, Dan Duquette's Orioles are headed to the playoffs and the John Henry has to sell the Red Sox because his hedge funds are crashing.

It's the karlmagnopocalypse.

The Luccino solution has been found, goodbye Frying Pan!

Frank McCourt can give you two billion dollars right now

Hello Fire!

(As a small note, there's actually no evidence that hedge funds do anything other than transfer wealth from rich hedge fund investors to rich hedge fund traders. So I am not surprised Henry's having a bad year, I am surprised he'd ever sell the Red Sox because of it.)

And I'd bet money that Henry isn't going to sell the Red Sox. They're crazy profitable. He should only sell if he's going to be liquidated otherwise.

Henry's denial.

Clearly Fox Business is acting here as a media mouthpiece for the Red Sox front office. Take this as a sign that the Red Sox owners are trying to unload themselves, and are looking to tear down public opinion of themselves so they'll look good when they dump themselves.

Despite the last twelve months I'll be very disappointed if the Henry group sells. They aren't perfect but I can't ask much more out of owners than these guys have done. They spend on the team, they've made dramatic improvements to the ballpark and they've run a very competitive team.

And I'd bet money that Henry isn't going to sell the Red Sox. They're crazy profitable. He should only sell if he's going to be liquidated otherwise.

If someone comes and offers Dodgers-plus-a-little-extra megabucks it could be a good opportunity to cash in, because those valuations needs extra-crazy profitability to make sense.

What is the point of Liverpool? Do they think they can actually make money in the EPL? Does Henry like the idea of owning a soccer team? Is the plan to tread water until a random oil billionaire shows up to buy it off of them at a huge markup?

As a small note, there's actually no evidence that hedge funds do anything other than transfer wealth from rich hedge fund investors to rich hedge fund traders. So I am not surprised Henry's having a bad year

Concur. Hedge funds are a scam, unless they are insider trading.

I wish it was only rich people investing. Unfortunately, lots of pension funds invest.

What is the point of Liverpool? Do they think they can actually make money in the EPL? Does Henry like the idea of owning a soccer team? Is the plan to tread water until a random oil billionaire shows up to buy it off of them at a huge markup?

The EPL just signed a huge domestic tv deal and will soon be signing a huge international rights deal, on top of which LFC has massive marketing possibilities. They'll be able to sell the team for 4 times what they paid for it.

Ah-ha. I'd assumed that the annual operating losses that most EPL teams seem to run was something that was likely to continue for some time into the future.

What is the point of Liverpool? Do they think they can actually make money in the EPL? Does Henry like the idea of owning a soccer team? Is the plan to tread water until a random oil billionaire shows up to buy it off of them at a huge markup?

It's absolutely easy to make money in the EPL if you set the parameters and not necessarily play to win, although that helps. For every Abramovich and oil sheik, there are others that are content with being in the EPL and not overspending or accumulating debt (hello, Newcastle, Arsenal). What most unscrupulous owners do is unload all the debt onto the club and pay yourself a handsome owner's fee and, voila, you're rich! At least, that is how the Glazers do it with Manchester United (as well as other owners). The lure is that the EPL is becoming the preferred international soccer viewing in the US and globally (take that, Serie A!) and as such this is happening:

The EPL just signed a huge domestic tv deal and will soon be signing a huge international rights deal, on top of which LFC has massive marketing possibilities. They'll be able to sell the team for 4 times what they paid for it.

The only problem with the LFC marketing is that it won't happen in England, I don't think - Liverpool is a divisive team that doesn't appeal outside of it's corner (and even then, Everton cuts into the fan base in a small way). However, globally, it could perhaps rival Manchester United, if done correctly, which means finding star players and winning. But the potential is there, especially as China gets to know futbol/soccer.

Ah-ha. I'd assumed that the annual operating losses that most EPL teams seem to run was something that was likely to continue for some time into the future.

Depends on the club. Man U would make a huge profit if they weren't leveraged and didn't have a pack of ravenous Glazer family members sucking from the teat. Arsenal is profitable, Spurs break even. Man City and Chelsea don't exist in a world with any economic sense so they don't really count. I think Liverpool could be solidly in the Arsenal range of profitability which would make LFC worth a hell of a lot more than FSG paid for it. Below those teams it's kind of hit and miss but most clubs lose money as they don't have the commercial income of the bigger clubs.

With the Dodgers going for $ 2.15 billion, local RSN deals skyrocketing and the national TV contracts doubling, it's a good time to compare the discounted cash flow value versus actual market value of your business entity.

How much would the Sox and NESN go for? A lot of chowder, I'd bet.

Shooty - From the full article;

If NESN was included in a full auction of the Red Sox, the ball club could fetch $1.5 billion to $1.6 billion, said one person intimately involved in financing sports deals.

Despite the last twelve months I'll be very disappointed if the Henry group sells. They aren't perfect but I can't ask much more out of owners than these guys have done. They spend on the team, they've made dramatic improvements to the ballpark and they've run a very competitive team.

I'd said in another thread that, in retrospect, the team has been acting like a group that has already accomplished all their goals. The things you mention were part of that effort. But honestly there's only so much improving they can do to the park now without making it un-Fenway; they've navigated through the low-hanging fruit of real estate development around the park; they've mined a lot more $ from the fan base, and expanded the fan base around the world; they've diversified into other sports; and expanded the ring count, from what I recall.

One could argue there is no next big thing for this ownership group, at least not something that involves continued ownership of the team. Although I would be surprised if they sold, I wouldn't be shocked.

VI - Agreed all around. Maybe they aren't the right guys for the next decade but so far they've done a terrific job and I've seen enough lousy owners in various sports that I don't want to see the Sox go that route.

One could argue there is no next big thing for this ownership group, at least not something that involves continued ownership of the team.

I see your point but isn't the 'next big thing' for the owners 'continue to make lots of money by owning the Red Sox'? I think we just hope that that goal coincides with continuing to invest lots of money in payroll...

I see your point but isn't the 'next big thing' for the owners 'continue to make lots of money by owning the Red Sox'? I think we just hope that that goal coincides with continuing to invest lots of money in payroll...

Yeah, but maybe they can make more by pocketing $1.5B, and investing it elsewhere.

Am I wrong to think that the Red Sox (and NESN) should go for more than the Dodgers?

I don't see how selling the Red Sox and "concentrating" on Liverpool is a good money-making venture. Liverpool is going to need a lot of money to get to the point where they are making Champions League every year. Plus they have an old stadium in a poor area. While there is a ton of history in the club, I just don't see how they would be more appealing to someone in Indonesia or China than say Arsenal, Chelsea or Manchester United.

How 'bout they sell the team to L#ria & contract the Marlins?

Mark Cuban, COME ON DOWN! (Or up. Or sideways.)

Am I wrong to think that the Red Sox (and NESN) should go for more than the Dodgers?

I was thinking the same thing. It's not sharing its market, the team has more history, and the team is much more likely a bet to be a money maker in down years than the Dodgers (afaik). But then, maybe the new Dodgers TV deal is actually better than NESN, I dunno. There was additional crap in the Dodgers sale involving land around the property, right?

I think the Red Sox should be worth something like the Dodgers too. Though it's hard for me to argue that they should be worth the actual humongous sum that was paid for the Dodgers when I don't think that was a reasonable price. But I wouldn't expect FSG to sell for a price that was just reasonable, either.

It's not sharing its market, the team has more history, and the team is much more likely a bet to be a money maker in down years than the Dodgers (afaik).

I think this is selling the Dodgers short. LA is a much bigger market than Boston, and sharing a market doesn't cut the potential of it in two. The Dodgers have enough history and tradition for a solid (and insufferable) fan base. The Red Sox are also limited by Fenway.

The Red Sox are also limited by Fenway.

I don't know how true this is. After all the work they've done Fenway is pretty nice these days and has an appeal that I don't think Dodger Stadium has (I'm open to disagreement on that though). Also, and this is based on one visit last year, Dodger Stadium is pretty run down. When I went I told friends it reminded me of Fenway pre-renovations. While the capacity is a plus the money that may need to be poured into it probably becomes a minus. Also, Fenway's forced scarcity helps in the down years.

I think your first point about the market size is the important one. Los Angeles has what, about 4 million people? That's an awful lot of potential fans geographically accessible. That's just a massive market.

Concur. Hedge funds are a scam, unless they are insider trading.

I wish it was only rich people investing. Unfortunately, lots of pension funds invest.

That is a load of sh!t actually.

Uh, I have seven bucks. Think that will be enough?

Think that will be enough?

You can only get a piece of the Mets for that.

Am I wrong to think that the Red Sox (and NESN) should go for more than the Dodgers?

No, because people will stay around Fenway and spend money from the 7th to 9th innings

Concur. Hedge funds are a scam, unless they are insider trading.

I wish it was only rich people investing. Unfortunately, lots of pension funds invest.

That is a load of sh!t actually.

See Lack, The Hedge Fund Mirage.

The best summary and response, I think, is in Felix Salmon's post "Why Investors Should Avoid Hedge Funds":

The main thing that you’re looking at here is the final line. If you look at the money that investors made by investing in hedge funds, it comes to $70 billion — a number substantially smaller than the $379 billion that the hedge funds managed to skim off in fees. Now the $70 billion is profit over and above the risk-free rate of return on Treasury bills. But it’s not the end of the story. Because funds-of-funds were very popular for most of this period, investors also paid some $61 billion to them. Which left them with the grand total of $9 billion in profits, compared to the $440 billion that the hedge-fund industry took in fees.

And even that overstates the amount of money that hedge-fund investors wound up with. There are lots of other fees, too, going to hedge fund consultants, family offices, and the like. On top of that, the fees in this table are actually understated, by some unknowable amount. I’ll let Lack explain, from his book:

Estimating fees on the industry as if it’s one enormous hedge fund does include one simplification, in that it excludes any netting of positive with negative results. To use a simple example, if an investor’s portfolio included two hedge funds whose results cancelled out (one manager was +10 percent while the other was ?10 percent) the investor’s total return would be 0 percent and for our purposes here we’ll assume that no incentive fee was paid on the 0 percent return. However, in reality the profitable manager would still charge an incentive fee. It’s not possible with the available data to break down the returns to that level of detail, so the fee estimates derived are understated, in that it’s assumed incentive fees are charged only on the indus try’s aggregate profits, whereas in fact all the profitable managers would have charged incentive fees with no offset from the losing managers.

I think Liverpool could be solidly in the Arsenal range of profitability which would make LFC worth a hell of a lot more than FSG paid for it. Below those teams it's kind of hit and miss but most clubs lose money as they don't have the commercial income of the bigger clubs.

I think that is a stretch for Liverpool for two reasons

1. They need a big stadium with corporate facilities, which they won't get unless they pay for it themselves and the city isn't giving them planning permission anytime soon
2. They aren't in London and Liverpool is about as much an economic powerhouse as Boise, Idaho.

Liverpool has a very large fan base in asia. Anecdotally they are probably the 4th biggest 'brand' in China, behind Man U, Real and Barca. This was the biggest reason for Standard Chartered to pay a record 20m quid a year to sponsor their shirts. The club has a lot of upside financially...if they get their act together

Mitt Romney has money to buy the club and will have time to run it in a couple of months. He's a fan of sport.

Yeah, I'm sorry. The "hedge fund as good investment" argument is really weak. I'm sure some people make a lot of money off of it- if they get in at the right time when a new fund is having a run of success. But on the aggregate it's basically a siphon of cash away from their investors and into financiers pockets. I want to start a hedge fund that charges 4 and 40, because then the "sophisticated investors" would think I'm twice as good as the regular fund.

That is a load of sh!t actually.

Let me guess, you work for a hedge fund?

2 and 20 is an obscenity; if your performance is so great, just take the 20%. Hedge funds offer outsize fees w/o an equivalent performance gains.

See link for some analysis.

http://www.forbes.com/sites/greggfisher/2012/01/23/chasing-the-mirage-of-hedge-fund-returns/

32--looks like they got you dead to rights, Deacon--might wanna think about taking up a new profession--I don't know, maybe, learn to work the saxophone?

Hahahahaha

If I were rich, I'd buy the Red Sox, run them into the ground and then trade away all their players.

Oh, wait...

I am no fan of hedge funds, but the studies that Lack cites in his book don't actually support his contention that hedge funds have underperformed Treasury bills once you factor in fees. Lack focuses on the period of 1998 onward, which has been a bad period for many investments, and ignores earlier years when hedge fund strategies were better able to rxploit market inefficiencies (when dozens more funds are doing merger arbitrage, the profits from merger arbitrage shrink, for example). The issue is complicated by the lack of transparency -- including some big and successful hedge funds that don't report their performance figures to the various hedge fund databases; Salmon addresses this in his column, but it casts more uncertainty on the numbers than he gives credit. I think it's fair to say that hedge funds as a whole have not proven themselves worthy of their enormous fees and frequent outsized risk (especially if you compare them to mutual funds and other investments), but I am not sure we can say for sure that hedge fund managers have taken the vast majority of profits and left investors with mere crumbs (one of Lack's main points). That is a conclusion that would not shock me, but I don't know that it has really been proven.

Concur. Hedge funds are a scam, unless they are insider trading.

While I agree that hedge funds in aggregate aren't worth their fees, this is an overstatement, since their have clearly been funds that are slam dunk great investments run by skilled and ethical investors. David Einhorn is one present day example, and an historic example was Warren Buffett.

Let me guess, you work for a hedge fund?

2 and 20 is an obscenity; if your performance is so great, just take the 20%. Hedge funds offer outsize fees w/o an equivalent performance gains.

See link for some analysis.

http://www.forbes.com/sites/greggfisher/2012/01/23/chasing-the-mirage-of-hedge-fund-returns/

There is so much wrong here I don't know where to start. For starters, using a link to Forbes for any real analysis is never a good idea. It's the equivalent of linking to Variety for a serious discussion of acting.

The overarching problem with your (and others') analysis, is that you are making a point about every hedge fund by pointing to industry averages. Just because the average batter hits .270 does not invalidate the existence of a Miguel Cabrera. Most (i.e. the average) big, long-term deals in baseball aren't worth it. Does that mean that Manny Ramirez's contract wasn't worth it?

There are countless hedge fund "mannys" out there. The overall industry data has no relevance to them.

As for the fee structure....who forces anyone to pay it? Funds that aren't worth the fees won't be in business very long. Those that are worth the fees can charge what they want. If a fund's NET returns are high enough (even with 2 and 20) to attract capital, then why shouldn't they? Renaissance charges 5 and 44, and has had annual NET returns of over 40% annually since inception. Do you think their investors complained? (NB: they no longer have outside capital and now it is entirely GP money).

"Hedge funds are a scam unless they are insider trading."

Probably your most egregious comment and utterly false. I'm going to assume you said it for effect, as I refuse to believe anyone (particularly someone who is almost always very thoughtful on this site) is that unencumbered by facts.

Yeah, I'm sorry. The "hedge fund as good investment" argument is really weak. I'm sure some people make a lot of money off of it- if they get in at the right time when a new fund is having a run of success. But on the aggregate it's basically a siphon of cash away from their investors and into financiers pockets. I want to start a hedge fund that charges 4 and 40, because then the "sophisticated investors" would think I'm twice as good as the regular fund.

Best of luck with that.

Fooled by Randomness.

There are countless hedge fund "mannys" out there. The overall industry data has no relevance to them.

Anyone who looks at baseball-reference could tell Manny Ramirez from Omar Vizquel. Anyone with mild statistical expertise could give you a good estimate of the degree to which Manny would outhit Omar over the next year. I know of absolutely zero evidence that this is analogous to picking hedge funds.

One key point that Salmon and Lack make is that while it's not impossible that there may be some great hedge funds out there, there's little to no useful evidence for investors to use to identify them and there's a strong tendency among both investors and managers to mistake luck for skill.

The central re-reading of the hedge fund data in Lack is that he re-weights the performance of hedge funds by dollar instead of by fund. This makes a major difference because smaller hedge funds in the sample outperform larger ones. When a hedge fund has success, it draws in investors, and then it regresses to the mean. This is suggestive evidence that most of the hedge funds that appear to be "beating the market" are just the lucky ones. (It also suggests that the data is actually further skewed, beyond Lack's reading, by "backfill" of small, successful funds providing their information to the index after they've been successful, while small, failed funds never report at all.)

When a hedge fund has success, it draws in investors, and then it regresses to the mean. This is suggestive evidence that most of the hedge funds that appear to be "beating the market" are just the lucky ones.

That's likely part of it, but it's also the case that it's a lot easier to invest $1 million profitably than to invest $1 billion profitably. When a hedge fund or any other kind of fund starts drawing in huge sums of cash, it often forces the manager to venture far from the expertise that created those huge returns in the first place.