John Henry’s Fenway Sports Group is having a moment.
Not only is the parent company of the Red Sox negotiating a deal that would put it on the New York Stock Exchange, just like Walmart or Warren Buffett’s Berkshire Hathaway, but “Moneyball” legend Billy Beane may leave the Oakland Athletics and Major League Baseball to join the FSG effort, according to The Wall Street Journal.
The complicated transaction would involve FSG selling a minority stake to a special purpose acquisition company, or SPAC, called RedBall Acquisition Corp., which Beane cochairs in addition to his current job as executive vice president of baseball operations and part owner of the A’s.
The talks may not end with a handshake. But the estimated $1.5 billion FSG would get from RedBall and other investors would give Henry (who also owns the Globe) the financial flexibility to expand the company, which includes its English gem, Premier League champion Liverpool Football Club.
There’s even a Yankees twist. (More on that later.)
Savvy investors may understand how the process of raising money and going public through a SPAC works, but the average Red Sox fan is likely to have questions, especially about the potential for them to buy stock in the team. We try to answer some of those questions here.
How would the deal work?
RedBall, a shell company with no operations, would acquire 20 percent to 25 percent of FSG using money it raised by selling stock in August. The investment would value FSG at $8 billion, as first reported by the WSJ. Henry and his partners in FSG would continue to control the company. RedBall’s investors are betting that FSG’s value will continue to rise as the company uses the cash to beef up its existing holdings and possibly buy more sports-related businesses.
By purchasing shares, does that mean a Red Sox fan could own stock in the team?
Indirectly, yes. If RedBall completes the transaction, the shares of FSG that are traded on the NYSE would represent a 20-plus percent slice of the Fenway Sports Group pie. Besides the Red Sox and Liverpool, FSG owns 80 percent of NESN, Roush Fenway Racing, part of the minor league Salem Red Sox team, and Fenway Sports Management.
Does that mean investors would have any kind of say in how the Red Sox run the team?
If only. But the answer’s no.
“If you were to buy shares in this SPAC, you wouldn’t have any control over what John Henry and Tom Werner do about players or renovating Fenway Park or anything like that but you would have a stake in the Red Sox indirectly,” said Andrew Zimbalist, professor of economics at Smith College. “So if the Red Sox did really well, made a profit and the SPAC made profits, or if John Henry and Tom Werner sold the Red Sox and they had a capital gain, then you as an owner of a piece of the team would be able to make some money off of it. In that way it might be fun.”
It might be fun, but it could also be risky, right?
Absolutely. SPACs are risky investment vehicles, and this is a volatile investment time. There is no guarantee that FSG’s stock price would only go up. In April, DraftKings, the Boston sports-betting company, became publicly traded after it was acquired by a SPAC and merged with a gaming technology firm called SBTech. DraftKings stock has performed well, rising from just under $20 a share on its first day to just over $50 a share on Monday. But plenty of SPAC deals have foundered over the years.
How does this potential deal between FSG and RedBall affect Henry’s ownership of the Globe?
The deal is not expected to have a direct impact on Boston Globe Media Partners, which Henry owns independently from FSG. Henry is the principal owner of FSG, with approximately a 40 percent stake.
Don’t John Henry and Billy Beane have a history?
They sure do. Brad Pitt fans will recall that the actor played Beane in the 2011 “Moneyball” movie, which included a scene filmed in Fenway Park’s press box featuring Henry wooing the then Oakland A’s GM in an attempt to get him to join the Red Sox. Henry, an analytics devotee, found a kindred spirit in Beane’s value- and numbers-driven methods in small-market Oakland. In the fall of 2002, after Henry’s first full season as Red Sox owner, he offered Beane a five-year, $12.5 million deal to run the Red Sox. Beane turned it down, citing his desire not to uproot his then-teenage daughter from the San Francisco Bay Area.
Spurned by Beane, Henry turned to Theo Epstein instead.
Now, 18 years after his first try, Henry appears to have finally succeeded in bringing in Beane.
Would Beane help run the Red Sox if this deal comes through?
Not if he still owned a piece of the A’s ― it would be an obvious conflict ― but Monday’s Wall Street Journal reported that Beane was ready to break away from all his baseball ties and join Henry in building FSG’s portfolio with a focus on European soccer, which Beane is passionate about.
The Oakland A’s did not respond immediately to a request for comment from Beane.
How does a SPAC work?
Special purpose acquisition companies are set up to raise money from public-market investors and then look for businesses to buy, either in part or outright. It’s a way to take a company public without going through a traditional initial public offering, or IPO.
What about this SPAC specifically?
RedBall is the first SPAC geared only toward investments in the sports industry. It was founded by Beane and Gerry Cardinale, the CEO of private equity firm RedBird Capital Partners. It raised $575 million in August and is said to be looking to raise $1 billion more to make the FSG deal happen. RedBall is valuing FSG at approximately $8 billion, a bullish bet on both FSG and the recovery of the global sports industry from the devastating impact of the pandemic. Last December, Forbes valued FSG at $6.6 billion, the third-largest sports conglomerate in the world. In its most recent valuations, Forbes pegged the Red Sox at $3.3 billion and Liverpool at $2.2 billion.
With new funding, would the Red Sox be able to spend more on talent?
Thanks for your question, Scott Boras.
The answer is technically a “yes,” but it’s hard to imagine the club reversing course immediately on its recent payroll-shedding behavior that resulted in it resetting its luxury tax for next season. The new capital from RedBall would allow FSG more flexibility and choices when it comes to directing those funds to current and future needs of its subsidiaries such as the Red Sox and Liverpool, but that’s a far cry from saying the Red Sox will revert to their payroll-topping habits from the last few years.
What’s the Yankees angle?
Cardinale is an investment banker who has equity in the New York Yankees' YES Network and sits on the board of Yankee Global Enterprises, the corporate holding company of the Yankees.
MLB, which did not wish to comment on the RedBall-FSG story, has strict rules forbidding an individual to possess ownership stakes, even passive ones, in more than one team.
When will we know if this deal’s going to happen?
Word is before the end of the year.