Patricof Co’s Vision for Athlete Investors
Mark Patricof has quite the story.
The founder of the athlete investment platform Patricof Co first got his idea for the investment vehicle while sitting on the set of Verizon’s Go90 streaming show “MVP” — think “Shark Tank” meets sports — alongside his co-star NFL tight end Rob Gronkowski.
But before we delve into how “MVP” spawned the idea for a full-service athlete investment platform, let’s talk background.
Patricof started his career at famed representation agency CAA then transitioned into the internet media business before founding a boutique media and entertainment and investment bank, Mesa Securities, in 2007.
Mesa, which would go on to represent clients ranging from Viacom to Discovery, was acquired by prominent investment bank Houlihan Lokey in 2015 to build out their Telecommunications, Media & Technology (“TMT”) group.
In 2018, Patricof launched Patricof Co.
The Genesis of the Platform
“MVP” was based around entrepreneurs pitching athletes for their endorsement of a product, not for their direct capital. While the endorsement route is tried and true, Patricof believed direct investment was an underutilized tool.
Patricof also noticed how engaged the athletes on the show were. Behind the scenes, there was constant conversation about investment theses, deal structuring, and a whole host of topics that extended beyond the regular purview of an endorsement deal.
That’s where Patricof saw an opportunity.
Simply put, if you pay an athlete for a few social media posts, they will fulfill their obligation and likely be done with the company. If you were to take that same check and have them invest in the company, the direct incentive alignment would cause them to commit to the best possible outcome for the company.
The Business Model
To best understand the way Patricof Co works, let’s explain what it’s not.
Patricof Co is not an athlete influencer fund. Athletes who sign on to the platform are fundamentally considered investors. Patricof Co is not a venture fund, either. Have you heard about any of the below athlete investments that received outsized coverage from the media?
• Kevin Durant’s investment in Coinbase
• Klay Thompson’s investment in fantasy sports startup Sleeper
• Travis Kelce’s investment in at-home rowing company Hydrow
All of these represent investments at the earliest stage of the capital allocation process. Venture deals tend to be longer-term investments with lower probabilities of successful outcomes, but when they hit, they hit big. While there are certainly merits to investing in venture-style deals, Patricof looks to create value for clients further down the investing timeline.
Why not venture? The thought for Patricof is that when athletes participate in later-stage investment deals, they are able to get some expedited wins relative to venture, collect deal proceeds, and then rinse and repeat. The key here is time to realize gains. For venture deals, that timeline can be as long as a decade. For private equity (“PE”) — half that timeframe.
Athletes are used to the venture model as it most aptly mirrors their own careers. Athletes invest physical and time capital and take on enormous risk in the hopes of realizing an outsized return on investment far down the road — making it professionally. Patricof looks to help them reframe that mindset when it comes to investing. According to Patricof, when the firm exited one of its initial investments, Cholula Hot Sauce, it was the first time some of his athlete investors had ever seen a return on investment.
Looking at the data, PE not only provides faster paybacks, but also can ultimately lead to better total outcomes.
Per research done by Cambridge Associates, annual PE returns over the 20-year period ended June 30, 2020 were 10.48%. During the same period, the S&P 500 produced annual returns of 5.91% while Cambridge’s U.S. Venture Capital Index returned 5.06%.
Private equity works, and Patricof Co is helping bring those returns to athletes.
A Full-Service Platform
Step one is convincing athletes that investing in PE deals ranging from trucking companies to eye-care and optometry practices will likely yield more favorable results than trying to pick the next large tech company in its infancy.
While the main selling point is participating in high-value PE deals, the plan for Patricof Co extends far beyond that.
As it currently stands, the company provides investment vehicles through PE and real estate. Investments range from low-profile businesses like the Car Wash Owners Network to Virgin Voyages and SpaceX. To date, the company has made 16 investments with two exits.
• Hot sauce maker Cholula was acquired by McCormick Co. for $803 million in late 2020.
• Online luxury goods marketplace The Real Real IPO’d in 2019 at a $2.32 billion valuation.
In addition to the PE deals, the company has also made a real estate investment in luxury condos in Jupiter, Florida. Real estate investing is the next immediate frontier for the platform. Similar to PE, real estate investing provides stable cash flows as opposed to lower probability lump sum returns.
The real estate fund is planned to be co-branded with the PE fund, giving athletes the opportunity to opt in to whatever investments fit their risk and capital profiles.
As the roster of 147 athletes grows and more investments are exited, Patricof sees the opportunity to eventually increase the product offering to include liquidity products such as hedge fund investments.
Coming from an investment banking background, Patricof understands the world of client service, as well. While deal execution is what gets all the glory in banking, a disproportionate amount of time is spent on client service activities.
Patricof has taken this same client-centric approach and applied it to his athletes.
Because the platform actively seeks out athletes who are interested in becoming better investors, education is core to the platform. When athletes are on the road, they receive custom booklets detailing company executives, potential meet-ups, and prominent investors that they can strategically engage with on-the-go.
The platform also provides athletes with access to exclusive dinners with top investors and executives, plus time with four Harvard career coaches and a stream of educational materials on various asset classes.
While Patricof Co provides a wide array of services, most of the service work is free of charge. The fund currently derives its fees largely from carried interest — a predetermined share of the profits received by the PE fund — which for Patricof and Co. is 22%.
The fund recently added a fee structure where athletes can commit to invest $1 million in a given year for a reduced carry of 17.5%. Patricof also invests personally in every investment.
Bringing It All Together
When asked how Patricof Co is different from what we see with investing duos like LeBron James and Maverick Carter or Kevin Durant and Rich Kleinman, Patricof’s answer was simple: Patricof Co is meant to be an athlete agnostic platform.
LeBron and KD have enjoyed immense financial success through customization and investment strategies crafted by their internal teams — but that’s not the case for most other athletes.
If Patricof is successful in building out the platform, it should become a plug-and-play strategy for any athlete. Whether you’re Patrick Mahomes or the second-string punter, building up an investment portfolio and increasing investment acumen can become automated.
With double the amount of capital deployed – $75 million – in 2021 as 2020, the fund is growing aggressively. We may soon see a new class of athlete investors stepping out of the venture game and into the worlds of KKR and Blackstone.
It’s early innings, but I look forward to more athletes becoming investors.