Dwayne “The Rock” Johnson: wrestler, actor, investment genius
Professional wrestler. Player of the Canadian Football League. Actor. Film producer. Dwayne “The Rock” Johnson has worn many hats over the course of a career that has seen him amass a personal fortune of $ 320 million and made him, in Forbes magazine’s words, “the most popular star. profitable Hollywood “.
He is also apparently a hell of an investor.
Earlier this month, Johnson teamed up with his business partner Dany Garcia and RedBird Capital to bring the XFL football league out of bankruptcy for $ 15 million. Equal partners in the business, Johnson and Garcia will each own a 25% stake in XFL, with RedBird holding the remaining 50%.
In a statement announcing the purchase, Johnson explained that the XFL is “an investment for me that is deeply rooted in two things: my passion for the game and my desire to always take care of the fans.” Garcia called the deal an “incredible opportunity”, while XFL President Jeffrey Pollack said the winning offer gave “a Hollywood end to our sales process.”
A (very short) history of the XFL
Founded by professional wrestling executive Vince McMahon as a “spring football league” in 2018, the XFL didn’t start playing until early 2020. The timing was bad.
Just halfway through a 10 game season, COVID-19[female[feminine arrived at the scene and closed the game in March. On April 13, the XFL was forced to file for Chapter 11 bankruptcy. At the time, the league had booked $ 31 million in liabilities.
The $ 15 million that Johnson and his partners will help buy the league out of bankruptcy should be enough to pay off creditors about $ 0.50 on the dollar. After paying off these debts, however, there will likely be nothing left for majority owner McMahon, or for Global wrestling entertainment (NYSE: WWE), which currently owns 23.5% of the “Class B” shares of XFL.
What happens after
The Rock and his partners have expressed a desire to revive the XFL League (possibly next spring), and if the pandemic is over by then, their chances look good. Earlier this year, the hollywood reporter the magazine noted that the league’s ratings in the spring were at least “decent … with the four games of the opening weekend averaging around 3.1 million viewers.”
Granted, those odds have declined over time, with just 1.2 million viewers seeing the last game before the league closed in March. But even so, as a business, the XFL hasn’t done badly. By mid-season, reports XFLNewsHub, the league had already raised $ 19.8 million in revenue through April.
Buy dollars for $ 0.75 each
This suggests Johnson and his partners are getting an XFL deal. If you remember, it was Benjamin Graham – mentor of famous investor Warren Buffett – who said that value investors look for investments where they can “buy dollars for $ 0.50”. So how does The Rock’s investment in the XFL compare to this standard?
Paying $ 15 million for a franchise that made $ 20 million in revenue in four months is already “buying dollars for $ 0.75”. (In financial terms, we could say that The Rock pays “0.75 times sales”, or a price-to-sales (P / S) ratio of 0.75x. If the XFL finished a full season, it is likely that its sales would go even higher, and the P / S ratio would be even lower.
Is this a good price? To find out, let’s compare the ratings investors give to publicly traded sports stocks – teams and organizations that trade on the stock market.
Take the Manchester United (NYSE: MANU) football club for example. Based on data from S&P Global Market Intelligence, if you add up the price of all ManU shares on the stock market, the Red Devils have a total market cap of $ 2.5 billion. Divide that “price” by ManU’s $ 700 million in annual sales, and the stock sells at a P / S of 3.6 times.
Or think of the Atlanta Braves. Represented on the stock exchange by The Liberty Braves group (NASDAQ: BATRA) (NASDAQ: BATRK), this major league baseball team has a market cap of $ 1.05 billion and annual sales of approximately $ 279 million. Its price / sale ratio: 3.8.
Perhaps the most beloved sports team which has already been floated on the stock market is Madison Square Garden Sports Corp. (NYSE: MSGS). The owner of the New York Knicks basketball team and the New York Rangers hockey team has a market cap of $ 4 billion and annual sales of $ 600 million – and has a P / S ratio of 6.6.
(And of course, World Wrestling Entertainment itself, still part-owner of XFL, is selling 3.9 times the sales.)
The Rock: the genius of investing
Now to be sure, unlike WWE, the XFL is not (yet) profitable. But Manchester United, Liberty Braves or Madison Square Garden Sports are not either! Even a unprofitable sports stock, it seems, may be worth Something to investors. And all the evidence, it appears that “something” typically ranges from 3.6 to 6.6 times annual sales, but Johnson pays less than 1.0 times sales for the XFL.
No wonder the Rock concocted a deal to buy the XFL. It was such a good deal he could practically smell it.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.