Pivot #22: The NHL Player Road Map

I think a lot about how hockey players can 1) Build enduring streams of income outside of playing contracts and 2) Build worthwhile life pursuits that make transition from hockey easier. A simple mission, but a challenging feat nonetheless. 

If I were advising an NHL client, this is a potential roadmap I would lay out for them to build a private investment portfolio that accomplishes both of the stated goals. An NHL player can most often bring three value-adds to situations, name / image / likeness (NIL), capital, and a network of contacts. The player’s NIL is the primary means of monetization because it most directly translates to dollars for the business benefiting from the player’s NIL. For decades, Tiger Woods wore a Nike swoosh on the golf course, so millions of Tiger fans around the globe bought Nike golf apparel, directly contributing to Nike’s bottom line. Pretty simple concept, but instructive because it starts limiting the investment universe to B2C businesses or any consumer facing businesses. 

In athlete / business partnerships, there’s really three main variations. There are definitely more categories, but these are the three main buckets I think about:

1. Athlete / Brand Partnership - This is when an athlete signs some sort of agreement or sponsorship deal with a brand. The brand’s business is typically adjacent to their sport and often an apparel business. For hockey players, think Sidney Crosby and Reebok. This is the Tiger Woods example from above. Any NHL player that gets a check for wearing a particular brand of gear fits in this category. I’d even throw in commercials like Patrick Mahomes and State Farm. For most hockey players the check for the gear sponsorship pays for their vacation at All Star Break. It’s not truly economically meaningful unless you are a top player. Usually, these business transactions don’t solve for life after sport either. 
2. Small Business Advertising - This is the mom and pop business that writes a check to an athlete to plug its business. These are TV commercials you see on local television of your favorite home team NHLer plugging a business. Businesses participating in this sort of marketing are often car dealerships, bars, restaurants, things like that. It’s an easy check for the hockey player. The problem is this is not a long lasting income stream and it’s mostly a one shot deal. Sometimes athletes are only compensated with a free car to drive around. It provides little benefit for life after hockey. You’ll see some retired athletes keep on this track, but it mostly comes across as cheesy, and you become a slave to a dollar because you have to keep plugging anything that comes across your desk to make a buck.
3. Venture - This is when you read an article of the athlete that was an early investor in the next big thing. Think of LeBron James and Whoop, Serena Williams and Tonal, or Roger Federer and On running shoes. These scenarios are when athletes write a check (and sometimes lend their NIL) during an early round of funding for a business in exchange for equity. If that business becomes a unicorn, the athlete makes a pile of cash. Great gig if you can get it. Strict limiting factors though. These opportunities are reserved for top-of-the-pyramid athletes, require capital, and a well-connected network. 

My strategy combines features of all three of the buckets described, namely the sophistication and creativity of brand partnerships, the local awareness of the athlete’s NIL, and equity compensation. The strategy aims to find profitable lower middle market B2C companies with operations located in areas the athlete’s NIL is most leverageable. Geographies where the NIL is monetized best is likely the market the NHL player plays in or their hometown. The athlete exchanges their NIL for a moderate amount, call it 1-2%, of equity compensation in the business.

Most athletes want the next high-flying business. When others zig, we want to zag. We want boring, stable, preferably consumer non-discretionary businesses. Things like home services, including HVAC, roofing, plumbing, pest control, or even auto repair, physical therapy centers, and accounting services. There is no shortage of possibilities.   

Example: St. Louis Blues hockey player partners with a local/regional HVAC company in St. Louis. The company does $40 million of revenue a year with 25% earnings margin, pulling $10 million to the bottom line. The player negotiates what equates to a 2% equity interest in the company, in exchange for being a long term owner, partner and ambassador of the company. In year 1, that’s a $200k dividend the player earns. 

Hypothetically, the player and his business team can rinse and repeat that 5 times. The player has a portfolio of five lower middle market B2C companies, earning $200 million in revenue, $50 million in net income that spits out a 2% annual dividend of $1 million. Say the player can build that portfolio by the end of his playing career at 35 years old. If the companies can grow 7% annually, that dividend becomes over $3.6 million in 20 years. Hypothetically, at 55 years old, the player could opt to exit the portfolio at an 8x multiple, exposing himself to nearly a $30 million windfall. 

I’m going to get ahead of the boo birds here. This is certainly easier said than done. I absolutely picked some nice round numbers for the sake of math in my example. Half my assumptions; I don't care. It’s still a nice outcome. It’s a challenging endeavor, for sure, but it may be easier than we think. I can totally envision a scenario where a CEO of a company wants to bring an NHL player into the company just because he/she is a hockey fan. Do not underestimate our culture’s affinity for athletes. Being associated with a professional hockey player carries weight. Leverage that wisely. 

Most importantly, this leads to an incredible education and post-playing career. For this to be successful, most importantly for the company, the player needs to “buy-in” as an owner and ambassador of the company. Instead of the cheesy local tv commercial, there is opportunity for creative marketing, if the right people are at the table. Sticking with our HVAC example, the company and player could run behind the scenes video features on YouTube of the player attending board meetings, meeting with managers, observing HVAC technicians training, riding along on field calls to customer homes, meet and greet events, etc. I truly think this sort of venture is untapped at the local/regional level between business and athletes. I’m not even the marketing expert and I see the potential.

The player would be getting a real-time MBA. Actual hands on learning that impacts the dollars in their pocket. Think of all the reps the player exposes himself to learning and understanding different business models. How is an HVAC business different from an auto mechanic? Whenever their hockey career is over, they know immediately how they will spend their time. They’re on a mission to help grow their portfolio of businesses and continue adding to their portfolio. 

Endeavoring to build a portfolio of businesses accomplishes the two main criteria mentioned at the beginning of the newsletter: 1) Build enduring streams of income outside of playing contracts and 2) Build worthwhile life pursuits that make transition from hockey easier. There’s additional benefits to this approach too, I believe. One, it can require minimal or no starting capital. Many times a player’s NIL is a large enough investment. Two, I believe this approach scales to any level of player. I think a top scorer or a third-pair defenseman could use this as a roadmap successfully. Three, I even think something like this could scale to minor pro, college, and junior hockey depending on the situation. Four, there’s way less competition among athletes in this space. The lower middle market is ripe with opportunity and the companies more often than not are thrilled to have the hockey player on their side.      

Game Notes

• A real life 'Succession'-esque board fight at Disney - CNBC
• The College Basketball Team That Unleashed the Real March Madness: Unionization - WSJ
• Authentic Brands Group Initially Agrees to Buy Champion From Hanes Brands Inc. - Yahoo
• Fed officials see three rate cuts 'reasonable' this year - Reuters
• Missouri voters reject stadium tax for Royals and Chiefs - ESPN
• Iowa-LSU sets women's NCAA hoops ratings record with 12.3M viewers - ESPN
• This School Didn’t Want Caitlin Clark. Now It Has to Face Her - WSJ
• 7 ways to climb the corporate ladder - X
• The Oakland A's are moving to Sacramento (for 3 seasons) - AP

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