Letter #132: Jim Pallotta (2018)
Letter #132: Jim Pallotta (2018)
Founder of Raptor Group and Vice Chairman of Tudor Investment Corp | The Beautiful Game's Global Reach
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Today’s letter is the transcript of Jim Pallotta’s answers on the panel The Beautiful Game’s Global Reach at the 2018 MIT Sloan Sports Analytics Conference. In this discussion, Jim discusses how he learns about industries, the difficulties of implementing analytics in sports teams, identifying talent, what the MLS can learn from Europe, the importance of controlling your own narrative, talent development, building a global fanbase, buying AS Roma, building up Roma’s media businesses, having 1bn fans, dealing with traditional media, understanding your fans, digital efforts including a crowdsourced website and mobile app, a new stadium, and competing (or rather, not competing) with Barcelona.
Jim Pallotta is the Founder and Managing Partner of Raptor Group, a Boston-based investment management firm that is principally his family office. Prior to founding Raptor, Jim was the Vice Chairman of Tudor Investment Corporation, where he managed a ~$10bn equities portfolio. He initially joined the firm as the Managing Director of the US Equity group in 1993, became a member of the Management Committee in 1996, and was named Vice Chairman in 2005. He was also one of three members on Tudor Ventures’ Investment Committee. Upon joining Tudor, he launched Raptor Global Funds with $200mn and grew it to over $11bn before spinning out to start Raptor Group.
Apart from investing, Jim was the President and Chairman of AS Roma (football) from 2012-2020, a co-owner and executive board member of the Boston Celtics (basketball) from 2002-2020, and an investor in Fnatics (esports). He’s also on the Board of the Santa Fe Institute.
With regards to his ownership of AS Roma, Jim was part of a consortium of investors who purchased a majority stake in AS Roma from Unicredit in 2011 (Unicredit itself had acquired AS Roma in 2010 after a debt-equity swap with the Sensi Family who had €300m in bank debt and previously failed to sell the team to George Soros). The consortium purchased 67% of the team for ~$100mn in 2011, but when it came time for a capital injection in 2012, Jim assumed a controlling stake and became Roma’s President. His group reportedly spent ~$160mn to acquire its shares and pay off debt, contracts, and other legacy costs. In 2014, they purchased the remaining 33% for ~$44mn. All in, Jim acquired AS Roma for ~$200mn.
At the time of purchase, Roma had huge debts, low revenues, and was bankrupt. The stadium was old and breaking down, there was a lot of violence and racism in the stadiums, and families didn’t feel safe going to matches, which showed in declining attendances. But it wasn’t just Roma, Jim’s consortium was the first foreign investor in Italian football -- at the time, the league itself was struggling, and international television deals were “jokes.” So while Roma never won the Scudetto (no other team than Juventus won it during Jim’s tenure), they did finish in second place three times, third in two other seasons, and reached the Champions League semi-finals. Over an eight year period, Jim turned a struggling, bankrupt football team into the second best football team in Italy. He ultimately sold the team for ~$700mn in 2020.
Jim has a fascinating story that includes getting ice cream with Edwin Land and his dad secretly threatening to break a coworker’s legs and split his head open if he hired him (talk about the opposite of nepotism!, but that’s a story for another time -- DM or email me if you want to learn more about this lol), which ultimately led to Jim entering the world of finance and then sports. He’s taught me a tremendous amount about the business of sports, and we share a philosophy of bottoms-up top-down investing, so I hope you enjoy this transcript as much as I do!
(Transcript and any errors are mine.)
Relevant Resources
Santa Fe Institute
Letters
Compilations
Others (Sports, Analytics, Investing, etc)
Letters #51/52: Jackson Dahl (2021) - Reflections on Building 100 Thieves and The Big Wave
Letter #60: Paul Tudor Jones (2010) - Price Limits: A Return to Patience and Rationality in US Markets
Letter #91: Ray Iwanowski (2019) - Conversation with Dean Curnutt on Alpha Exchange
Letter #104: Sam Hinkie (2016) - Resignation Letter
Transcript
So I want to start with Jim, on the far end over there, the owner of AS Roma. And because this is an analytics and Technology Conference, I wanted to start by asking you about an interview that we had in November, for Sports Illustrated, and you told me, "We're going to go to the next level on analytics that we don't think has been done before with a couple of machine learning projects on it, end quote." Without giving away too many secrets, Jim, would it be possible to go into a little more detail about those analytics and machine learning projects that Roma is looking into?
Sure. So about 10 years ago, when I stopped trading in the stock market -- I was 50 years old -- and I started spending a lot of my time before we bought Roma five years ago, in the whole AI and machine learning world, which back then, there was no industry.
And I'm not sure there really is an industry now. But if you went and visited and wanted to learn about semiconductor companies, you'd visit 100 semiconductor companies. And you can figure out what's going on with DRAM or microprocessors, things like that. But if you wanted to learn about AI, or machine learning, really, more than anything else, you had to go to the colleges. And MIT being one of the best ones for machine learning.
KG Note: This is a very bottoms-up approach to top-down investing, and exactly the same process Stan Druckenmiller shared with me about how to learn about industries. It’s also one of the original inspirations behind this newsletter. Read more about it here.
So I've been on the board of like Brains, Minds and Machines Institute at MIT and complexity at Santa Fe, and I'd go to Oxford and Cambridge, and Toronto, that's where all the best people were. But a lot of the good ones were taught by Tomaso Poggio who's at MIT, for about 35 years. And from Italy, originally. And guys like Demis over a Deep Mind learned from him and then went over and sold his company out to Google, as an example. So you really had to get in with that crowd. There were no companies to talk to. So I was lucky by visiting those and getting on their boards.
KG Note: The Santa Fe Institute is home to some of the world’s most curious + interdisciplinary researchers, and has attracted titans of business, tech, investing. See this thread for a rundown of who’s on the board, what they've done, and an insight from each.
So Alex Zecca, who has been working with me for about 25 years or so, who was a football player, and played with Charley, I think for a while back in New Jersey -- [crosstalk]. We've been working for the last five years on analytics, a lot at Roma, and a lot of this stuff was... I think was basic based on what we were doing with the Celtics going back 15 years ago when we bought the team and Daryl Morey was working for us at the time, who put on this conference. And we progressed to different levels of it. And one of the toughest things actually is getting the coaches to actually listen to the stuff that we've been doing.
But about nine months ago, we decided that we were going to try to go to the next step. Because we're trying to identify players -- you want to identify the next Messi, if there is ever another Messi. Or you want to identify the next Ronaldo, or Totti, or somebody like that, from Roma. And it's really difficult to do that.
And you could look at 6000 players, and it came about because we are looking at 6000 players. But if you want to look at certain characteristics of a player, you're looking at hours and hours and hours of film on a particular player. So what we wanted to get to the point was simple things like, Okay, if these are the characteristics that we're looking for in a player, and I don't mean like number of tackles or things like that, but just other characteristics of play, acceleration, things like that, the only way we thought we could end up doing it was through machine learning.
And so we actually got lucky and we met a number of people, and a couple of women, that were -- one's at Carnegie Mellon, one was at the Santa Fe Institute, when I was at a board meeting, who played football in Italy. And one was an astrophysicist and the other master's or PhD in statistics. And that started the group that we've been building out on machine learning so that if somebody like Monchi, who was our football ops guys says, I would like to see this, this, this, this and that, we actually can start building a system that identifies those players, just to filter out the 6000 players.
That's what we're trying to do, is really just get a filtering system as much as anything else. Now you might think that's easy, but it's not, because the gating factor for us right now is really how much computing power you need for all the video that's out there. The data is somewhat out there, the video's out there, but it's a lot of computing power that's necessary, because of the vision aspect of it. We think we've found somebody that has solved that at another college, but that's kind of the direction that we'd like to be heading.
In what areas of soccer do you think MLS in particular can still learn from Europe? And are there any areas in which Europe might be able to learn from a few things being done in MLS in the US?
Yeah, we also, like, in Rome, there were nine radio stations, literally, that just talk, 24 hours a day, about Roma. So that was three, four years ago. We actually are the only team now in European football that started our own radio station, about two and a half years ago. We've bankrupted two of them, I think. We've got another seven to go. Because we need to create our own narrative.
But just one more thing on that history part of it. Look, we have 12 major academies in the United States that are Roma academies, that Alex and a group of people have put together over the last few years. And over 20,000 kids. And we're adding more academies that are coming into our system. And what we definitely find is that that at 12, 13, 14 and 15, a lot of the talent in kids in the US are equal to a lot of our kids that we have throughout our Italian system, which is, in the last few years, Roma has one of the top couple programs in all of Italy too. It tends to be when they start getting primavera age, and our kids are playing 60 games and playing every day, or when kids are going to college, Kasey, and they're getting redshirted and not playing at 18 and 19 years old. And we've got 18 and 19 year olds that are playing. Like this kid Ünder that we have that just turned 20 from Turkey, and he just scored five goals in the last four games. That kind of stuff. You're not getting that, and there's that gap period, it seems, where the kids just not playing as much in the US too, that I think hurts a lot.
And in the same way, you've got this cutthroat competition taking place between clubs every single day of the year on the field, but also in trying to get bigger off the field, get more fans, all that stuff. I wanted to ask Javier, and Jim, if you could talk a little bit about how you're trying to get bigger, to build your audience, and build your fan base around the world, and how that fits into your sort of your overall strategy of particular places you're trying to do that in.
So what we decided, the first couple of years -- we've had the team for a little over five years -- the first couple of years, we really had to actually clean up stuff with the banks. It was a distressed situation, but we saw Roma as the possibility to build a global sports brand because you've got Rome.
So after the first couple of years of cleaning that up, we knew from the background of myself and the other owners that we had a lot of experience in sports. I had 35 years experience in media and entertainment and 35 years as a technology investor. So sort of, we looked at it as that triangle that was a lot different than a lot of teams, certainly in Europe.
So, three or so, three and a half years ago, we built out Roma Studios. And we've got as good a set of studios for content that we're producing in Rome as any team in Europe. And then at the same time, we built Roma TV, which we now produce seven hours of original content per day, and with IMG distributing or starting to distribute that content around the rest of the world. At the same time, we built our own internal data systems that -- because we had no information on our fans, at all.
And by the way, most teams, if you talk to Man U, and you ask them who their fans are, they said to me, Well, we have 600mn fans. And when I asked them to name them, they said, What are you talking about? I said, Well, an email address or a phone number. And they said, Well, we don't have that. And I said, Well, we have a billion fans. And I'm like, What are you talking about? I said, Well, you made up a number, we made up a number. I mean, it makes no sense.
So we really, there's a lot of... there's still a lot to go in finding out who your fans are. So we did that with the TV, and then we bought, as I said, the Roma radio, to create our own narrative. Because we had to deal with nine radio stations in Rome, and if I listened to it every day, I'd jump off the Tobin bridge, because they just make up shit all day long about what we do and what I did, what Kasey went to the [inaudible], any of that stuff like that.
So then, about three years ago, Paul Rodgers, who came over from Liverpool, who I think is as good as anybody in the world in social media and digital stuff, Paul and I started working on what kind of website do we want to build, what's the presence on social.
And we didn't want to be a website where if you went on, it came up and it said 50% off of merchandise and those kinds of things like that. So we actually developed our website, and we actually have the first crowdsourced website in sports, where a lot of our fans, and believe me, we have created fans in Rome, around the world, will send in content, we'll curate it, and eventually we'll use that as a licensing model when we can print stuff on demand. And we'll get more information on our fans.
And then our mobile app came at the same time almost as that. And it really flows like an Instagram, which we thought was really, really a good model. And in fact, the website last year, got voted best website in sports. So kudos to what Paul Rogers built.
Now, in three years, we're hoping to have a stadium, and that's the key. Because we can't compete with Barcelona on a day to day basis by any means when they're gonna have a billion dollars in revenues in a year or two or three, and we're dealing with 220-240 million euros. And a big part of that is the history in winning. And we've been around since 1927.
But another part of it is, we're building a stadium on 200 acres in Rome, we've got approval, 54,000 people -- again, not as big as Barca's -- but 250,000 square feet of entertainment space around it. And so what we have is actually the stadium that will be the most used facility in all of Southern Europe.
You'll see college football games -- Michigan already asked us to open it up. BC and Notre Dame is what Charlie and I talked about opening it up as the holy war. And then if the pope flips the coin [crosstalk.] But we'll have all the major concerts, all the minor concerts flowing through Rome, UFC, etc, etc. And that information, we'll start getting more and more information. So you like this? Well, you might like this, that has to do with Roma.
So it just, it's taking us longer, we've been a little delayed in the stadium, final approval came about two months ago. And then we can start generating double and triple the revenues that we're dealing with now. But I don't have a lot of patience, and it takes a long time, but we'll get there.
And that's the answer -- Jim just gave the answer -- is what can the European teams learn from the US? They can learn that, because in the end, when you're the only sport in town, you treat everybody like you're the only sport in town. You love us, your great grandfather loved us. Your father loved us. You love us. So now we're basically going to treat you like we expect you to come to us regardless of what we do for you.
And then there's one other thing. Look, we know we're never going to get a Barcelona fan to switch to become a Roma. But our goal from day one is that we want to end up being -- if there's 3bn football fans in the world, and they throw out those numbers, our goal is, at the end of the day, to be everybody's second favorite team in the world. And so if I can get 1% of that 3bn, I've got 30mn, and if I get get those 30mn to spend, on average, just five euros, which isn't even a hat, then that's 150mn euros of incremental revenues. And that's a lot. It doesn't pay for Neymar, or Messi. But it may pay for their backup right back.
Wrap-up
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