I had an aha moment recently when I read about the Arizona Public Safety Personnel Retirement System Trust’s 2021 investment in English football team Ipswich Town. Because whereas I used to think buying a sports team was something ultra wealthy people did to demonstrate status and entertain themselves, I am increasingly coming around to the idea that sports teams are a fascinating asset class. So I read with great interest how CIO Mark Steed had the idea of “hedging against stock markets by buying a sports team.”

Per The Wall Street Journal, what he ended up doing was paying $30M to buy a third tier soccer team, courting its biggest fan Ed Sheeran to cheerlead the deal, and then hiring in managerial and playing talent. Now, Ipswich Town is on the verge of winning its way back into the Premier League (teams that finish first or second in the Championship division are rewarded with automatic promotion), which would make Ipswich Town worth many, many multiples more than what Arizona PSPRST paid for it.

As I thought about this investment, the brilliance of it is what an asymmetric bet it was even if it may not obviously look like one. Because here’s the Journal repeating the commonly-held view of what it’s like to own a professional football team: “By all rights, the erratic, cutthroat world of English soccer shouldn’t make for safe investing–just ask any of the dozens of billionaires who has set hundreds of millions of dollars on fire trying to keep their teams in the Premier League.”

A key difference here is that Ipswich Town wasn’t in the Premier League, but because of English soccer’s promotion and relegation system, it could be. What this means is that if you own any lower tier team, you basically have a deep, out-of-the-money call option on owning a Premier League team, but also one that should never expire worthless because it has no expiration date. In other words, a lower tier team (provided you avoid relegation) might always be worth what you paid for it because it always has the chance to be worth many, many multiples more (provided you achieve promotion).

Mathematically, that makes this a good bet. But what makes it even better is the fact that it’s uncorrelated, i.e., the drivers of the performance of the bet have no ties to the performance of the other bets in Arizona PSPRST’s portfolio. That’s because, presumably, the players should play the same regardless of whether interest rates or the stock market or the prices of molybdenum or feeder cattle or whatever are up or down.

Plus, you know, it’s probably fun to own a football team.

-Tim

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