America's No. 1 financial conglomerate

Chapter 348 Sports Economics

Knicks general manager Ernie Grunfeld's office was completely overrun today.

The space that should have been Ernie's champagne room was completely crammed together by Leopold, general manager of Madison Garden Company, Ralph Payton, private equity manager of Ernst Asset Management, and Ernst himself, with the only thing missing being Ernie's unused desk.

The television screen was still playing live interviews from the stadium, with players sweating profusely as they shared their post-match thoughts. Ernst glanced at it and immediately turned the volume down to the lowest setting.

"Tell me your thoughts?" Ernst spoke first, his tone carrying a mixture of expectation and scrutiny.

Ralph Peyton immediately turned his gaze away from the television, as if he had been prepared, and pulled a stack of documents from his briefcase on the table, handing it over.

"Take a look at this survey data we've compiled; it's guaranteed to be eye-opening."

Seeing Ernst take the book and carefully open it, Ralph didn't stop either. His mouth moved like a wound-up machine gun, and he began to launch into a long-winded introduction: "In 1997, the total global sports market value soared to 3547 billion US dollars. That number is terrifying!"

"The total consumption of the US sports market directly exceeds half, breaking through the $1700 billion mark. What's frightening is this growth rate. For the past ten years, it has been growing at a rate of more than 8% per year, desperately pushing upwards."

He paused, as if the previous figures weren't shocking enough, and added, "This 8% growth rate is the average level of the global market. If we only talk about the US market, the growth rate has directly broken 10%."

"You should know that the US GDP was only eight trillion US dollars last year, and the sports market accounted for 2% of the total GDP. According to our calculations, this figure may reach 5% or even higher in the future. At that time, the sports industry will become a real hot commodity in the economic field, and everyone will want to take a bite."

That's the real reason Ernst came to Madison Square Garden today: to make a fortune in the sports economy.

Originally, he just wanted Ralph to help him set up a sports management company, to manage the Knicks properly first, and to lay the foundation for future development in other sports businesses.

Unexpectedly, when Ralph went back and did some research, he unearthed a gold mine.

He discovered that the development potential of the sports market was simply astonishing, and its stability was exceptionally strong. Even during an economic downturn, the sports economy would still grow, perhaps just at a slower pace; there was no downturn whatsoever, only a question of how much it would grow.

This really excited Ralph, who immediately set his sights on this, wanting Ernst Asset Management's private equity division to get involved and get a piece of the pie.

"We've sifted through nearly a decade of economic data on the sports market and calculated an annualized compound return of over 5.6%—this is an incredibly rare find!"

When Ralph said this, he emphasized the words "annual compound return rate" so that Ernst might not have understood the significance of it.

Ernst frowned slightly upon hearing this, and a hint of surprise flashed in his eyes; he was clearly taken aback by the number.

This is not a regular annualized rate, but an annualized compound return.

Don't be fooled by the fact that it's just a difference of a few words; the actual difference is huge.

With the same $1 million, if calculated at an annualized rate of 5.6%, you would get $5600 million after ten years. This rate of return is far superior to that of more than 99% of financial institutions on Wall Street.

However, with a compound annual return, one could receive $172 million after ten years.

Moreover, the longer the time goes on, the greater the gap becomes, like a snowball rolling downhill, getting bigger and bigger.

Let alone a ten-year term, even a three-year term, those who can achieve this level on Wall Street are extremely rare, like pandas.

What is the first core principle of financial institutions' investment?

It must be stable!

After all, nobody wants to invest money only to lose it all in the end.

No wonder Ralph is so optimistic about the sports industry; the returns are so high that the combined growth rates of the three manufacturing industries can't even match those of the sports industry.

The HVAC project is about to go public and reap the rewards. The scale of the immigration private equity project is also quite large, but that project doesn't require you to put in much real money yourself. It mainly uses other people's money to invest.

Private equity firms invest in quite a few projects, but few of them are truly large-scale industry projects that can truly make a difference.

If they could master the sports industry, it would be enough to sustain their department for decades, and they would never have to worry about running out of projects again.

Ernst tossed the documents onto the table, a smile spreading across his face. "Looks like you already have a detailed plan. Stop keeping me in suspense and tell me."

Ralph shook his head and smiled wryly, not forgetting to flatter him, "Nothing can escape your sharp eyes."

After listening, Ernst rolled his eyes. "From the time I asked you to help set up a sports management company until now, an NBA season is almost over, more than half a year has passed. If all you can offer are these simple documents on the table, then this department is unnecessary and might as well be disbanded as soon as possible."

Seeing Ernst's expression, Ralf knew that his flattery had come at the wrong time, and that he was treating Ernst like a fool. He quickly smiled sheepishly, dropped the empty words, and said seriously, "My plan is to take the team as the core and then radiate outwards like ripples to build up the industry chain."

Ernst nodded, signaling him to continue.

"It has to be admitted that the NBA's commercialization has been truly successful, especially the superstar policy, which has spread the NBA's influence all over the world."

Ralph praised with admiration, "Take Jordan for example. The league treats this Air Jordan like a prince, and he certainly hasn't disappointed, bringing a continuous stream of value to the league."

"Not only does his sports merchandise sales account for 20% of all NBA players' sales, but he also directly drives the entire league to make money. It's no exaggeration to call him the league's cash cow."

"In the mid-1980s, even a superstar like Magic Johnson only had a shoe contract worth $100,000 a year."

But what about now? Garnett, in his first year as a rookie, signed a 5-year, $230 million shoe contract with Nike.

"The commercial development of the NBA is making other leagues envious. Other professional leagues in North America will definitely follow suit. In the end, this trend may spread all over the world, and then the commercialization of sports will become a major trend that no one can stop."

In fact, Ernst Bilalff understood this better than anyone else.

Currently, All-Star level athletes have shoe contracts worth only $500,000 to $1 million a year, but in 20 years, that number could increase 30 to 40 times.

Athletes can achieve financial freedom solely through sneaker contracts, something many people wouldn't even dare to dream of these days.

"And needless to say, the revenue on match days is huge. No matter which league it is, the ticket prices of almost all teams have been rising every year. I've never seen them drop."

"Besides sports equipment and game day revenue, I also discovered a particularly interesting point, which is the investment in sports in the field of elite education."

"Harvard's athletic funding this year exceeded $1800 million, and almost all universities are increasing their athletic funding. Even more astonishingly, families across the US with assets exceeding five million dollars spend a staggering $6.8 annually on their children's athletic education!"

"So many?" Ernst couldn't help but exclaim in surprise; the number far exceeded his expectations.

The United States doesn't have the concept of centralized training from a young age or national unified training. Despite the strength of American sports, most of its outstanding athletes are actually trained by universities.

Where does Harvard's $1800 million annual grant go?

scholarship?

Buying sports equipment?

These are just the tip of the iceberg.

In fact, 70% of the budget is spent on sending student athletes to represent the school in competitions across the United States and even the world.

Therefore, it is not surprising that American students often win gold medals in international competitions. Behind this is the result of universities investing heavily in sports. These students grow up in a formal competition environment from an early age, which is equivalent to students across the country receiving intensive training. It is not surprising that more outstanding sports talents emerge.

Some people always say that you can't find many people who can play football out of 13 billion people.

In reality, the number of people who actually receive systematic training is not just a little bit less than that in the United States and Europe, but hundreds of times less.

In a single European country, millions of children receive systematic football training in school physical education classes, while in China, only tens of thousands of children receive such systematic training. How can you compare them?

Moreover, athletes enjoy a very high social status in the West, not only earning substantial incomes but also wielding significant social influence.

Therefore, as long as their children show even a little athletic talent, parents are willing to support them to become professional athletes.

But in China, the situation is completely different.

If parents were asked to choose between Tsinghua University's sports students and students from other departments, even if all other factors were equalized, probably very few would choose the sports students.

In most people's eyes, sports students seem to be synonymous with poor grades and less secure future development than those in other majors.

"So you mean you want to do business with the rich?" Ernst immediately grasped the key point.

Ralph quickly nodded. "That's right! My plan is to first acquire a few clubs, then invest in some promising sports brands, and finally establish a professional training base."

"First, use the influence of star athletes to expand the brand awareness and sales of sports brands. After these stars retire, invite them to the training base as coaches. In this way, we can raise the fees of the training base and reap wealth from the rich."

"This is just one main axis. Once development stabilizes, we can expand into sports real estate, health products, and other projects as needed, thus connecting the entire sports industry chain."

Ernst thought Ralph's idea was very feasible.

He understood the future development trend of the sports economy better than anyone else, knowing that it was definitely a promising industry that could sustain him for at least twenty years.

However, it is clear that Jane Fraser has a different opinion, otherwise Ralph would not have approached him seeking his support.

"Please prepare a detailed feasibility report first. Let me know when the report is ready, and then we can have a meeting to discuss the specifics of how to proceed."

Ernst stood up, intending to leave.

The game was over, and he had two pretty girls waiting for him that evening, so he didn't want to waste his precious time on these two grown men.