Icon: Could Soros’ New Investment Model Be A “Home-Run” With Impact Investors?
The last name Soros has long been synonymous with finance, but Jonathan Soros is on a mission to realign it with mission based investing, starting with sports and entertainment. Recently formed Athletes Unlimited aims to put the ball back in the players court through its innovative structure and best-in-class business policies. It also works to unlock impact investing at scale for another group: investors. Soros encourages investors to cap returns for the sake of public benefit. Skeptical? The results may speak for themselves. Read on to see how the model centers on investor freedom and outcomes, not regulation or altruism.
Brendan Doherty: Welcome to Icons of Impact! You’ve spent a significant amount of your career investing in mission equity and trying to unlock a model to maximize it. Explain what mission equity is and why it interests you.
Jonathan Soros: My why starts with my own perspective as an investor. The entire structure of the current investment ecosystem is centered around profit maximization and duty to shareholders, an idea popularized by Milton Friedman. The structure is meant to deliver as much financial value to investors as possible, and only after maximizing profit should they then focus their attention elsewhere. The problem with this is twofold. The first is that businesses are uniquely positioned to do things in the world more optimally than they could be done outside of the business structure. The second issue is that it requires me as an individual to not fully represent myself – to limit myself to only caring about one thing, which is how many dollars I can extract from the business. As a society, we’ve led ourselves down a path where we believe there’s virtue in that system. We believe that somehow that system is so powerfully efficient, that the non-financial values can be left on the sidelines. But in truth, we all care about more than just money in almost every single aspect of our lives.
Doherty: What role, if any, do you think government plays in impact investing, or should play in regulating the behavior of companies?
Soros: There’s a fair amount of impact investing done at scale by governments through subsidies, tax subsidies, grants, low-interest loans, development finance – I don’t want to ignore that. However, almost all of these methods involve a substantial subsidy to other owners of capital, and most private investors don’t want to do that. The question that forms is: how do we empower private capital to emulate this and “give up” some financial benefit for public goods, and do that at scale?
Doherty: What’s the best way?
Soros: I am a strong believer in the power of people to make their own decisions about how they run their lives and interact with each other. But something about the way we’ve told that story, in the US in particular, has implied that the opportunity to engage in your self interest in the marketplace requires you to be selfish. And that’s the part I disagree with. I’m quite committed to freedom. But I’m also committed to the idea that one has the freedom not to be selfish. Those things are not the same.There’s an important role for regulation. But I’m much more interested in the ways that people can make better choices on their own without regulatory intervention.
Doherty: When you looked across what was happening in this space, what were the most glaring issues holding back the opportunity to scale reformation into a mission equity structure?
Soros: It is absolutely fantastic when businesses are driven to do better of their own accord; it creates better practices which in turn are more profitable for the business. While this is great, and we should encourage more, there is an important space beyond that. In this space, businesses willingly make trade offs in terms of financial value. Economic value is intentionally redistributed from the firm, away from shareholders, to some other benefit. When there is an affirmative trade off and someone is bearing the cost in some way – that is true mission based impact investing to me. There are lots of examples of people doing this on an ad hoc basis. There is a space that, currently, wealthy individuals, and foundations, can occupy which is to drive businesses that may have a double bottom line or are not focused solely on profit maximization.
Doherty: So next is, how do we get to scale?
Soros: The missing link is the mechanism for every investor to be able to do that. A lot of companies place public benefit somewhere in their core values, but then rely on consumers to pay the extra freight. Employees also pay impact costs – they choose one career versus another because they get more personal satisfaction, even though it’s not a profit maximizing choice. Anybody who teaches or works for the government does this. There are these huge swaths of people who don’t maximize their financial returns for the sake of the public benefit. We don’t have the mechanism for investors to do that same thing. Creating this model allows investors the freedom to make better choices that benefit everyone in the long term.
Doherty: That’s a great segue. You recently co-founded Athletes Unlimited. As you were creating the vision for this league, what were some of the things you saw as first principles?
Soros: In some ways, Athletes Unlimited is an experiment around mission equity. Athletes Unlimited is a next generation of professional sports leagues. My co-founder, Jon Patricof, and I were enthralled by the rise of women’s sports and saw a huge business opportunity. We saw underserved athletes and underserved fans who demanded, and deserved, more. As we looked at the marketplace, it made us ask, “Why should we follow the same model that’s existed for 100 years? Why not start from scratch and be really intentional about building a new league?”
Doherty: What makes Athletes Unlimited different from traditional sports leagues?
Soros: Some elements are traditional and some are entirely different. For example, we actually run four different sports in the same company; these leagues include softball, indoor volleyball, lacrosse and basketball. Each of their seasons are condensed and short; similar to a traditional playoff season. The four teams of athletes go to one location and they play a five week season. But on the competitive side, we build a leaderboard that is individual, rather than team league standings. The individual athletes get points based on how their team does in the game, how they do individually – their own statistical performance – and then there is also a MVP vote that the other athletes vote on. This creates a leaderboard that looks more like NASCAR, Formula One, or golf than it does the NFL or the NBA. Modern fans increasingly follow athletes, not teams; so we decided to lean into where the fans are going, not where they’ve been.
Doherty: Any key differences off the field?
Soros: We’ve been intentional in our business practices focusing on best in class pregnancy leave policies, best in class childcare policies, and we’re the first US league to commit to being carbon neutral. What has been truly transformative, relative to other professional sports, is that each one of our leagues has a player executive committee that consults in almost every aspect of the league. This includes who is going to be invited to play, the design of the uniforms, the training schedule – it’s an enormous amount of collaboration that is unparalleled. From the beginning, we wanted to be a business that was really intentional about producing public benefit and public value in the way that we do our business.
Doherty: You mentioned early in the conversation that one piece of the puzzle is the opening up of this secondary market for public benefit; explain how Athletes Unlimited fits that?
Soros: The core of the model is that each investor, as they’re coming into the company, signals the amount of return that will satisfy them as a return on their investment. It flips Milton Friedman’s argument on its head because instead of profit maximization being the goal, and ethics and public benefit being an afterthought, here the investor says, “Knowing what you’re doing with the remainder of this money that is going towards the mission related elements of this business, I am willingly giving up excess beyond the amount of return that I will receive.” That is the centerpiece of this model, each investor is voluntarily saying if they get “x” they will be satisfied, and they don’t need more than “x.”
Doherty: What are some of the challenges of converting investors to this mission-based model?
Soros: A marketplace works with signaling. The massive efficiency of our current financial markets is that you only need one signal – price. That singular signal allows many disparate people, with different points of view, to come together and find an exchange around that price. That gets a lot harder when you’re talking about mission related elements,
First, no one is going to pay someone else solely for the positive public benefits that they have created. If I go and do something valuable that has no impact on the financial prospects of the company, no one will pay me for having done that. They are still only going to pay me for the financial value – that is just the nature of how people transact; we don’t transact kudos.
Also, everyone has a different point of view on what’s valuable. There are now metrics to evaluate specific outcomes for companies in terms of ESG, which is a good thing, but we cannot put a price around a specific metric because not everyone will agree on the value of that metric. Not everyone is going to agree that having board diversity is more important than being carbon neutral. People need fluidity and flexibility to be able to express different points of view – that is what the return cap is meant to do. It’s meant to provide a secondary signal that says, “I, as an investor, value the thing that you are doing on the mission side, and so I’m going to take less return and give up this definable amount to the mission. And how much I’m willing to give up is a direct measure of how valuable I think that mission is.”
Doherty: The decision is in the investor’s court. Tell me how that translates to the revenue side of the company for Athletes Unlimited?
Soros: That doesn’t show up directly on the revenue side so much. This is a sports business; its core revenue, over time, is sponsorship, media rights, and revenue from fans (it’s less about ticketing than it is about a membership program and merchandise for us). We happen to run an incredibly efficient model relative to every other sports league, because it only takes four teams worth of athletes to produce this incredibly dynamic and intensely competitive structure. The teams change every week and are redrafted in this model where individuals are the leaders. Because of that, you get this constant refresh and newness of the competition in a way you would not if you just had four teams playing each other over and over again. A traditional league needs upwards of 12, 16, or 20 teams to produce something that is interesting to the fans for the duration of the season. We don’t need to do that – we have a consistent and defined cost structure and a growing revenue side that includes those three elements. What is essential to remember is that the impact doesn’t exist unless we create an awesome business that thrives. We have a lot of confidence in the sports and entertainment business that we’re building. At the same time, we know that over time, our public value will be far greater because of the mission equity construct at the core.
Doherty: Tell me a story from your younger life that influences you today.
Soros: That is always hard. I would say that at a young age, I learned that it takes an insubstantial amount of capital, relative to what people think when they hear the last name Soros, to feel like I have more than enough.
I approached my career from the beginning, spending the last 20 years in finance, from the perspective of public interest. I have always acted from a perspective of, “How is this actually producing public benefit?” Not, “Is this making me better off?”
Doherty: A re-centering of capitalism is what we need. Thanks for the conversation, Jonathan.
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