Investing in a professional sports team might be perceived as the greatest moneymaker, from private boxes and championship parades to pride in front of everyone at every dinner table. However, the person who has just paid $700 million to buy Sporting Kansas City doesn’t want to sell you the dream. Instead, he makes clear: do not fall for this as an investment choice.
Peter Mallouk is a financial planner who managed to grow his company Creative Planning to become one of the biggest financial planners in America, managing $700 billion worth of client money. The man recently entered the ranks of billionaires in the world. And even when asked whether it is a smart move financially, he answered quite frankly, not really.
A Billionaire Who Still Prefers Stocks
Instead of using his experience in investing his own money in a soccer club to market sports ownership as a new asset class, he is doing the contrary.
His opinion is clearly expressed in his preference for stocks as investments compared to ownership of a sports team. This is quite a surprising statement from a man who already owns the majority share in Sporting KC, alongside the share of the Kansas City Royals. Thinking about your long-term financial future? Read our guide on retirement planning and housing affordability.
Why did he do this?
This One Was Personal, Not Financial
It was not the numbers on a spreadsheet that made Mallouk acquire Sporting KC. He has always said that he did not approach the whole idea with economics in mind.
He grew up in Kansas City. He adores the city. He adores sports. It was this blend of factors that got his attention and not any appreciation of franchise or financial growth. At the end of the day, when you have more than $16 billion in your bank account, it allows you to do something that is more heart-driven than number-driven.
The Team Needs the Investment
It is important to understand that this is not the age in which Sporting KC enters. It has been one of the teams with the smallest salary payroll in the entire MLS league that consists of 30 clubs, and it has been close to the bottom of the table for many years.
According to Mallouk, he is ready to increase the number of investments to improve this situation. This is a positive aspect for the fans of the team. However, more money spent on players’ salaries is not an easy way to become profitable.
Sports Franchises Have Become “Trophy Assets”
However, there is an underlying trend beyond this single owner and single club case. It has been noted that franchise valuations in all sports have shot up very significantly in relation to actual revenues. Where before franchise multiples used to be in the low single-digit range in terms of revenues, today, they are in the double-digit range.
This sort of valuation is not based on conventional business considerations but on scarcity and prestige. Sporting KC was purchased at a revenue multiple consistent with that of
other MLS franchises, but it is far higher than what one would have to pay for a club of similar size in any of Europe’s top leagues.
In simple words, the buyers are investing in buying a status symbol.
Why This Matters for Everyday Investors
And here is the lesson to be drawn from all of this, and why it makes sense to take Mallouk’s words seriously. Given that one of the wealthiest people in America, whose job is to help people make money, admits that he would not recommend investment to his clients, it should be a message worth listening to.
- Ownership of sports teams works well for billionaires, because:
- They have enough capital that spending on their passion will not put them in financial trouble
- They do not need the sports team to earn a living or plan their future
- Their emotional gain is equal or even greater than the financial one
None of those apply to an ordinary investor who has been working on their own pension plan or saving up for a house. It is easy to fail to beat even the most boring, diversified stock portfolio by pursuing trophies of success.
The Broader MLS Ownership Trend
Mallouk is not doing this alone. MLS has seen waves of billionaires enter the league as their overall team valuations have increased through competition among wealthier owners. Some ownership groups see value in investing money due to the growing interest in soccer in America. Others just want to enjoy the fun of owning a growing league.
But both are valid motives. The problem is that they are not the same, and it is rare to hear an insider make that distinction as Mallouk did.
Final Thoughts
It is rather refreshing to hear such an admission from a billionaire about his expensive purchase being of no monetary value whatsoever. It seems like Mallouk knows the difference between investment and the hobby of an affluent individual and says it out loud.
The message from all of this for an average person is not “never dream too big”. It is about learning to differentiate between something that is not an investment and something that is a luxury. Buying a piece of a sports team, collecting a rare item, or something similar, can be one hell of an enjoyable way to spend your money, but only if you can afford to lose it. Want more insights from one of the world’s leading financial experts? Explore: Jamie Dimon’s Hourlong Podcast Interview.
