The Unwise Rich: Why Billionaires Are Bad Role Models for Investors

Peter Mallouk’s remarks on investing in sports teams are a stark reminder that even the wealthiest individuals can be poor financial advisors. As one of America’s top wealth management experts, he should know better than to suggest that buying a sports team is a savvy investment move.

Mallouk compares the LA Lakers’ valuation to the S&P 500 Index, noting that investing in stocks has outperformed owning a sports team over the long term. However, this comparison fails to acknowledge the unique benefits of sports teams as an asset class. These benefits include insulation from macroeconomic trends and the potential for continued appreciation even in times of economic downturn.

The growth disparity between stocks and sports teams is well-documented. NFL franchises have appreciated by a factor of 17 over the past quarter-century, while NBA teams have seen a 26-fold increase. This is not solely due to the popularity of these leagues; it’s also because franchise valuations tend to be less susceptible to market fluctuations.

Billionaires like Mallouk invest in sports teams for reasons that go beyond financial gain. While they may enjoy perks such as courtside seats and access to influential individuals, their primary motivation is often a desire to support their favorite teams or give back to their communities. For example, Mallouk’s investment in Sporting KC is driven by his lifelong affection for the sport and his commitment to Kansas City.

However, when advising clients, Mallouk recommends approaching sports team ownership with caution. He suggests that investors prioritize traditional private equity funds before adding a sports fund to their portfolio. This is sound advice, given the significant fees associated with owning a sports team – 2% annual management fees and 20% performance fees are not uncommon.

For investors considering buying into the sports team ownership space, Mallouk’s comments highlight the importance of doing one’s own research rather than following in the footsteps of a billionaire. They also underscore the need for caution and diversification when investing in asset classes that are less correlated with traditional stocks.

Mallouk’s remarks serve as a reminder that even the wealthiest individuals can be poor financial advisors. Their success may have been driven by smart investments, but this does not necessarily translate to an understanding of what makes a good investment for others. As investors navigate the complex world of finance, they would do well to remember Warren Buffett’s words: “Price is what you pay; value is what you get.”