$GME: The Impact On Sports Ownership

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Friends,

You thought 2020 was wild?

Get this…

In 2021, a guy in his basement goes by Roaring Kitty & DeepF**kingValue, controls billions of dollars of capital, and keeps the most powerful hedge fund managers in the world up at night.

Now that’s wild.

What am I talking about?

GameStop.

In case you haven’t been on the internet in a week, GameStop, the brick and mortar video game retailer that you used to visit as a kid, has had an interesting week — to say the least.

But the real question is, what does this have to do with sports?

Today, we’ll check it out.

First, some background.

In late 2020, a group of anonymous posters on Reddit called “WallStreetBets” — a community with over 8 million members — realized through SEC filings that hedge fund Melvin Capital had a significant short position in GameStop.

What’s a short position?

In the simplest terms, they were betting that the brick-and-mortar video game retailer's stock price would continue to decline, as it has for most of the last decade.

Knowing that Melvin Capital would be forced to cover their short position if the stock price increased, a large group of retail traders piled into the stock.

The result?

A short squeeze, which is when traders who bet the stock price would decline, are forced to buy back into their positions to avoid even greater loss, sending the stock even higher as a result.

Since the beginning of 2021, GameStop shares have gone from about $18 to $345 and now sit around $225.

Check out this chart — it’s amazing.

Cool, but again, what does this have to do with sports?

Here’s how…

Melvin Capital founder Gabe Plotkin used to work for Steve Cohen, the owner of the New York Mets and founder of Point72 Asset Management.

Trusting the talent of his protégé, Cohen had already invested $1 billion of his money into the fund, but with Melvin Capital losing 30% in January alone, Cohen and another hedge fund billionaire invested an additional $2.75 billion to bail them out.

The interesting part?

A significant portion of it appears to be gone already.

In turn, Mets fans are freaking out.

Why?

Well, they have some bad memories.

For those who aren’t aware, the Wilpon family — previous owners of the NY Mets — had about $500M of the Mets money invested with Bernie Madoff in 2008 when he was arrested and found guilty of operating a multi-decade Ponzi scheme.

The result?

While teams like the NY Yankees and LA Dodgers spent whatever it took to win World Series Championships, the NY Mets saw their payroll handcuffed for much of the last decade.

With Steve Cohen — the wealthiest owner in all of baseball — that was supposed to change.

My take?

It doesn’t really matter.

Steve Cohen and his firm Point72 Asset Management have had a tough start to 2021, but even if he were to lose every dollar of the ~$2B+ he invested with Melvin Capital, which is unlikely, he would still be fine.

For example, if we subtract $2 billion from his $14.6 billion net worth, he’s still the wealthiest MLB owner — by a mile.

Here are the Top 10:

With a net worth of almost $15 billion, Steve Cohen is not only the wealthiest owner in baseball, but he’s also one of the wealthiest people in America.

In 2020, Forbes ranked Steve Cohen as the 30th wealthiest individual in the United States, which was ahead of fellow sports franchise owners like Jerry Jones, Stan Kroenke, Dan Gilbert, Robert Kraft, and Shahid Khan.

His art collection alone is worth more than $1 billion.

Bottom line, he has plenty of money.

Here’s what Cohen had to say about it:

Outside of Steve Cohen and the NY Mets, the Charlotte Hornets also appear to be involved — except it’s different.

Melvin Capital founder Gabe Plotkin and D1 Capital Partners founder Dan Sundheim teamed up to buy a minority stake in the Charlotte-based NBA franchise back in 2019.

While it’s true that the duo has collectively lost billions of dollars this year also, they are minority owners in the franchise — meaning it shouldn’t have any impact on team operations.

Here’s why (Source):

• Michael Jordan is the majority owner, meaning he has the final say on all day-to-day decisions.

• The NBA has approval power on all ownership sales, meaning Plotkin and Sundheim couldn’t just sell their ownership stake to anyone.

• The NBA prohibits team owners from using their equity ownership as collateral for other business ventures, meaning even if Plotkin and Sundheim ended up in personal financial trouble (they won’t), MJ and the hornets still have control over their equity stake.

In the end, the feud between Wall Street and retail traders on Reddit appears to have much to do about nothing when it comes to sports.

Regardless, it’s certainly been entertaining to watch.

Have a great day, and we’ll talk tomorrow.

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