How RedBird founder Gerry Cardinale built a star-studded empire
Since launching RedBird Capital Partners less than a decade ago, Gerry Cardinale has invested in and helped build high-profile media and sports brands including Fenway Sports, AC Milan,?Artists Equity with Ben Affleck and Matt Damon, and SpringHill with LeBron James. He speaks with On The Money about his approach to private equity and how all the properties fit together.?
Lydia: RedBird owns sports teams, media companies, even aviation businesses. How do these assets fit together?
Gerry: A lot of people talk about portfolio synergies, but we’re really seeing this take shape at RedBird.
Skydance Media in Hollywood is now doing everything from theatrical films to original sports content. That dovetails over to what LeBron James is doing at SpringHill production and even what Ben Affleck and Matt Damon are doing at Artists Equity — our first movie is the story of Air Jordan.
We have a data analytics business in sports rooted in baseball which we are now applying to European Football, so the connectivity is profound and is definitely accelerating.
Lydia: The price tags for professional sports teams seem to be going no direction but up.
Gerry: Our sports investments attract a lot of profile, but we’re pretty sober about the current environment and all the new money now chasing sports.
There’s always someone or some entity willing to pay the clearing price – but this can be a dangerous game, because at the end of the day people just hold their nose and jump in, relying on the precedent that things just keep going up. But any student of economic history knows that this is not sustainable – at least not at the current pace and trajectory.
I don’t think long term that sports is overvalued, but I think it’s overvalued relative to this current point in time. In between now and then, you could see some dislocations where money gets caught short and impaired.
Lydia: You have a propensity to bring in talented and big names — not only movie talent but executive talent.
Gerry: There are very few celebrities we’d do business with. But if you look at Dwayne Johnson, LeBron James, Ben Affleck, Matt Damon, Tom Cruise — they all come with a business mind and you can build businesses around them. I don’t believe that plugging a celebrity in will enhance the value of a business.
But when you find a Ben Affleck, who is one of the smartest people I’ve worked with and has been doing his craft for 30 years the way I’ve been doing my craft for 30 years, and you Venn Diagram the two of us, that’s really interesting to me. He sees the media industry in ways we could never see, and we can show him how to operationalize and monetize that.
Lydia: Your philosophy for private equity sounds a lot more like venture capital — investing in something for the long term — rather than simply trying to get a quick return and exit. But you also have a specific VC arm at RedBird. How do you think of those investments?
Gerry: I’m not bullish on how the venture industry has evolved. In too many cases, someone shows up for a Series B round and that Series B investor only cares about promoting Series C so they can crystallize their carry and establish theoretical “marks” to help raise their next fund. The approach we take in our venture business is consistent with how we invest in our later stage growth equity business – when we show up for Series B, the company is done – we will be there for all the successive rounds of capital raising which we will co-underwrite with the founders and management teams.
Lydia: Are there other sectors you would like to do more in?
Gerry: One of the mandates in our RedBird IMI venture is to do more in the news industry. When you look at news, there are really two book ends — you have digital news and you have the big guys — and both are challenged in terms of a trajectory of accelerating profits and cash flow. Digital media needs to be consolidated and on the other end the big guys have to innovate. We’re trying to figure that landscape out, and there are few people in the world that can navigate this better than our partner Jeff Zucker.
Lydia: Every PE firm has a strategy. What is yours?
Gerry: Everyone assumes I’m a private equity guy, but I’m really not. I use the skill sets and that’s my training, but the journey I’m on is something different. I can’t put my finger on it, but what we’re building is a hybrid of private equity, operating engagement and company building with a capital solutions mentality – we like bringing scalable capital to solve problems. Roughly 40% of the companies in our portfolio are companies that we started from scratch – and all are cash flow positive or breakeven from inception and are solving for a gap or dislocation in their respective industries.
If you look at private equity, there really has been no innovation in the last 40 years. And now the big guys who started 40 years ago are all public, and their metric for success is the denominator of their asset base. Most PE guys are in the business of raising funds and scaling asset bases. Our metric for success is building great companies that solve for needs or dislocations in their respective industries.
When I started out 30 years ago, showing up with money was a competitive advantage. Fast forward today and everyone has money — institutional asset managers, pension funds, endowments, even sovereign governments.
In a world where there’s way too much capital chasing too few deals and everyone is on top of each other chasing the elusive “alpha”, the supply-demand imbalance pretty much drives you to levered beta. So in this context, the world doesn’t need another middle market private equity fund. So it comes back to — what is your legitimate reason to exist?
