Monday, April 14, 2008

Collateral Damage

I was born stateside, and somewhere during the 1980s felt an irrespressible urge to get the fuck out. Maybe it was Reagan or 3-Mile island. Or perhaps it was the lure of the more exotic . Maybe it was just the shitty beer before the dawn of the micro-brewery. Two decades then passed between between attendance at a live American sporting event. During the interim, I will confirm that I managed some visits to the terraces at White Hart Lane to watch the Argie Ossie Ardiles and almost-England manager, Glenn ("Crippled People Deserve It") Hoddle. (errr any readers who can shed light on this most mysterious of beliefs along with what Scientologists might be thinking would be greatly appreciated). I would be surprised if I paid more for that than I did for a pullman seat for an arthouse flick at the Chelsea Cinema, albeit for the right to stand,sway and sing communally. My last baseball ticket (for a Phila. Phillies game c.Larry Bowa & Greg Luzinski) couldn't have cost more than $5, while my last "Sixers" tix went for little more than $10, which at the time would have paid for reining in the "afros" for their entire backcourt that were fashionable at the time, so many miles away from the tattooed gangsta look of Iverson and ilk. As for the Flyers, even then these were the dearest at $12.50-a-pop. Bernie Parent was still getting used to his mask, while the novelty [for hockey] at the time was Gerry Cheevers utilitarian facial adornment picture above left, which if I am not mistaken was borrowed by the villain in "Friday The 13th" or "Halloween". I doubt either Cheevers or the Bruins were content with the misappropriation.

I returned to the American Hemisphere in the new millennium to discover that, like my beloved Chateau Malarctic-La Graviere, or over-oaked Kistler, I could barely(*) afford the price of a professional sports ticket (note: I am taking artistic liberty here by exaggerating a wee bit). Even if I could afford it, I reckoned it represented one of the lamest value propositions known to mankind outside that of boat ownership. While Vet stadium is gone, Phils tix are ~$30 for comparable seats (cheap but not nosebleed); 76ers will run $40 for the cheapest and $60 for anything acceptable; while the Flyers are the First Growths of professional sports now into triple digits. One can't even park one's car for the price one used to be able to gain entry. Even the beer today (just as shitty and watery as the old days) surpasses the price of a cheap seat "back then". Yet its hardly more enjoyable - even on a an inflation-adjusted basis, and probably less if you ask curmudgeonly me.

But I wonder: isn't this inflation, and the CEO-like salary deals of players all the stuff of bull-markets? Maybe even one would go so far as to suggest that the business of professional sports is a soon-to-be popped bubble - collateral damage victim of the reversal of the great 25 year bull-market in credit and leverage itself. Since we haven't seen a recession in nearly 18 years, nor a serious one in 25, one would be forgiven for thinking due to the absence of a downturn, whether they [owners, media, etc.] have simply ceased to contemplate it in their cash-flow models, and contract assumptions. Indeed, turning the spotlight onto the economics of professional sports one might wonder aloud if this isn't a grand accident simply waiting to happen?!? Club Bankruptcies are becoming rather commonplace in UK football, and one must wonder whether in the event of severe recession (or worse) clubs would simply walk away from their contracts with players, OR media companies whose mega-deals have funded 9-digit multi-year contracts will default on their obligations with clubs, causing a cascade of knock-ons that would - in a word - deflate salaries, revenues, and so the lure and attraction of professional sport as a business pursuit.

When America really begins to retrench, one must wonder what reordering of priorities we will see. What will the first to go? (a) gasoline for commute (b) kids school lunches (c) $200/night family outing to the ballpark + outrageously expensive and bad beer + indecent parking?? Hmmmm. Yes while there are many than would encourage Junior to bully schoolmates into given him their lunch, on average, we know what is discretionary for most people. We see a growing awareness that something is awry, but the reality, the cold-shower, slap-in-the-face confrontation of limited income, unavailability of credit, meeting non-discretionary expenditure will be a sobering experience for corporate owners like Comcast, and enthusiasts like Mark Cuban alike. And then, Celebrity athletes, like that asshole Dennis Miller, will be reduced to doing gameshows, and flogging fast-food in print and TV. Ooops, sorry, I forgot, they already are....


theodore said...

Great blog, love the posts. Are you from Philly? If you're back in town some time, you should come by Wharton, we'd love to have you give a talk.

Any thoughts on RHJ International and why it's so cheap?

Anonymous said...

I've been told that in crisis times the circus audience goes up, and if necessary, they'll give real gladiators and blood.

On the other hand, have a look to third world countries..., football is the king.

I'd to be as optimistic as you about it!, but as you can see, Berlusconi we'll be president for third time.

What else?


James said...

I dont think anyone in the US is even begining to contemplate this kind of stuff. Who goes bankrupt? Thats outlawed by the federal reserve.

Anonymous said...


remember, you can get GOOD beer at the phillies ballpark these days.

they serve numerous local craft-brews at only a slight increase in price--@6.25 or so for a philadelphia brewing co., sly fox, dogfish head, flying fish, stoudts, etc.

"Cassandra" said...

...things HAVE changed since the Rizzo days...

"Cassandra" said...


By all acounts, Tim Collins is smart - and certainly more clever than I if The Tote Board and historical academic and professional accomplishment is any measure. That said, I might be able to take him out in backgammon or "Diplomacy".
Given this objective reality, one should assume that he knows what he is doing.

IF, however, RHJ were not Mr Collins vehicle for distressed investment in Japan, I would have thought RHJ should be trading cheap since it has a portfolio of minority interests that are wholly illiquid and unmarketable, in some of the shittiest businesses, not just in Japan, but in the world consisting of a near-bankrupt maker of antiquated near-obsolete media; a health pyramid scheme; a metal-basher; and a maker of near-obsolete recording mediums e.g. tapes , CDs, DVDs etc. Only U-Shin rates as a business I would (personally) want to own, purchased at a valuation that is attractive.

Maybe there is a tax or structural arb reason for doing this - e.g. he the losses and carryforwards offset gains from his banking coup d'etats. such that he gets the businesses less-than-free. I don't know. Obviously the market doesn't either, but they collectively seem to have similar opinion to me - "cheap for a reason..."

theodore said...

Hi Cassandra,
Thanks for the reply, yeah I definitely remember your post on SFP & Steel Partners, and I've tried to keep that in mind whenever I look at Japanese/HK stocks.

My feeling is the net cash is about 60% of the current market cap. There's a lot of chatter about D&M getting taken out and the book value there is a floor, which gives another 15%, and assuming you impair everything else by 50%, you still have a good margin of safety.

I've gotta do more work on it this weekend, school always manages to get in the way, but I'm totally addicted to these negative stubs. Wendel is another one that recently "corrected".

One interesting thing is Collins doesn't have options or carry, he's paid EUR 100k/yr, so the only way he wins is by growing BVPS.


"Cassandra" said...


I can;t see the allure or the value. The last financials that I see were Mar 2007, and I see a reval of portfolio hldgs basis Sept 2007. The Sept 07 values put the mark-to-market portfolio val @ Euro227mm vs. current Euro600mm Over the past 12mo, small caps have been obliterated, particularly those with leverage (e.g. their port outside of U-Shin) such that one could imagine a 30% erosion from there. They bought back a million shares in Sept @Euro 12 (and its now Euro6). Smart as the PE guys are, maybe they have simply understimated the reality of restrained credit, and the implications upon global growth.

They seem to be consolidating lots on their balance sheet so its tough to know what's what, BUT to me their balance sheet is not that of a "net cash" company since all moentary assets are subsumed by non-long-term liabilities of one type or another.

Wendel is cheap and they are smart guys. There some interesting Swedish holding companies trading very cheap (Investor etc.) but these are o/w cyclicals, so the cheapness is more likely that the market is simply ahead of markdowns. Nonetheless, one might be able to strip out the discount via a market hedge.

Like Leucadia, publicly listed private holding companies with low transparency and aligned management CAN be attractive cap growth mechanisms. But Leucadia and Buffet have consistently bought wisely AND cheap. RHJ appears to have bought cheap, but not, IMHO wisely.

theodore said...

Yeah, I think those numbers are out-of-date.

I'm looking at a KBC Report from April 11th that lists out their holdings, and marks the listed holdings to market.

It's about 350 mm EUR net cash, 300 mm EUR of listed securities (as of Apr 11), and the remaining 500+ mm EUR is unlisted (Niles, Honsel).

On balance, you are right, they have overpaid for a lot of the holdings, but with such a large discount, there is limited downside.

I'll check out those Swedish companies later.