GameStop: a very NBA billionaire battle
Michael Jordan and a battle between investors in Hornets, Warriors
| Jan 29 | 3 |
BY TOM HABERSTROH
Short-sellers in GameStop have lost a reported $5 billion in recent days owing to an unusual stock-buying spree cooked up largely on Reddit.
A surprise: it’s a very NBA battle.
The star victim, hedge fund wunderkind Gabe Plotkin, is Michael Jordan’s partner in the Charlotte Hornets. There are many ways this could affect the Hornets and Jordan.
A key deep-pocketed player on the other side of the bet is Golden State Warriors investor Chamath Palihapitiya—as cheered on by Mavericks billionaire Mark Cuban and one of his team’s executives, Haralabos Voulgaris.
In 2010, Michael Jordan replaced Bob Johnson as the only Black majority owner in the four major sports, purchasing a reported 97 percent of the Charlotte Hornets. In 2019, he sold a chunk of the team to two Wall Street investors: Gabe Plotkin of Melvin Capital and Daniel Sundheim of D1 Capital.
In the NBA world the announcement generated little buzz—the tweet from the team announcing the investment generated nine total retweets in over a year. But there are clues Plotkin and Sundheim had made a significant commitment. Not only was Jordan quoted at some length in a press release announcing the transaction, but in it he clarified that he would remain in charge of basketball operations, and that his new investors shared Jordan’s “commitment to Charlotte and the Carolinas.” Only massive investors get to influence things like who runs the team, or where it’s located.
In Wall Street circles, the investment was huge news, and not only because Plotkin and Sundheim were doing business with Michael Jordan. Wall Street sources tell TrueHoop it’s not a total surprise that Jordan picked Plotkin and Sundheim as partners. “Gabe, he’s the golden boy,” said one hedge fund manager by phone on Wednesday.
The New York Mets are now run by celebrity billionaire Steven A. Cohen, on whom the TV show Billions is said to be based. Plotkin was one of the top performing portfolio managers at Cohen’s SAC Capital Advisors. It was one of the world’s most successful hedge funds until a 2010 SEC investigation blossomed into indictments from the Department of Justice for insider trading. The firm itself pled guilty and paid almost $2 billion in fines. SAC is out of business, but a new family office, Point72 Asset Management, emerged from the wreckage, and is a major investor of Plotkin’s current venture, Melvin Capital.
One hedge fund manager tells TrueHoop the losses have already been “catastrophic” for Jordan’s business partners. Melvin has already needed $2.75 billion in rescue capital, while Sundheim’s D1 fund reportedly hemorrhaged $4 billion in less than a month.
The New York Times reports that Point 72, said to be worth $19 billion, has lost 15 percent of its value this year, largely due to its investment in Melvin.
A spokesperson for Plotkin’s firm told Reuters on Wednesday that the firm has closed all of his short positions in GameStop, but at a steep price. Reuters says the $12 billion hedge fund Melvin Capital was down almost 30 percent over the course of the first three weeks of January. Industry sources say the losses have gotten far worse this week.
The smoke has yet to clear. Unlike mutual funds, ETFs or publicly traded stocks, hedge funds like Melvin and D1 are black boxes. The funds’ holdings aren’t transparent. Only limited partners are privy to which stocks are picked or picked against, or how leveraged their positions are. Hovering over this frenzy is this: What else is Melvin short? And are vultures going after Melvin’s other positions, not just GameStop?
Before this episode, there had been chatter that Plotkin or Sundheim could become the next Ryan Smith—the 42-year-old, Utah-based tech giant who bought his favorite team, the Utah Jazz, for $1.66 billion about a month ago. A common reason to purchase a stake in an NBA team is to get on a “path to control”—to be first in line to one day take over. Jordan himself walked that path to become the owner of then-Bobcats, now Hornets.
Forbes pegs the Hornets’ current valuation at $1.5 billion. If Jordan had visions of eventually selling to Plotkin or Sundheim outright … can they still afford to take over? That’s one of many questions raised by TrueHoop sources in the hedge fund business:
2020 was a historically bad year for NBA finances, thanks to the pandemic shutdown, absent ticket revenue, and a hit to the NBA’s China business. If cash is tight, can Jordan still count on Plotkin or Sundheim?
Will Plotkin or Sundheim be liquidating assets in the fallout of the GameStop episode? Could that include their stakes in the Hornets? (One potential buyer is legendary hedge fund manager David Tepper, who bought the Carolina Panthers at an NFL-record price. In 2019, he brought the MLS to Charlotte reportedly for a cool $300 million.)
And … did Jordan invest his own money with Melvin Capital or D1 Capital?
The Warriors executive board features several titans of Venture Capital. (One Warriors investor—Mark Stevens of Sequoia Capital—angered Kyle Lowry, Draymond Green, and others by shoving and shouting at Lowry courtside in the 2019 NBA Finals.) Chamath Palihapitiya of Social Capital had a reputation as one of Silicon Valley’s most outspoken figures even before announcing earlier this week that he’s running for governor, starting an insurance company, and taking positions to crush short sellers in GameStop.
In 2017, Social Capital “burned down,” angering investors, sending key executives fleeing, and ending partnerships. A lot of the trouble reportedly stemmed from Palihapitiya’s being absent much of the time. In 2018, Palihapitiya explained his career turn in a legendary episode of the RECODE/DECODE podcast hosted by Kara Swisher and Teddy Schleifer. Palihapitiya blamed a personal “identity crisis.”
I had been exploring why, after the accumulation of all of these things—more companies invested in, more funds raised, more notoriety, more television appearances, more this, more that, more everything—why am I not more happy? In fact, I’m less happy. And in fact, I think that I’ve actually really bastardized some core relationships in my life where I’ve created hyper-transactional relationships in many areas of my life.
Then came Palihapitiya’s most explosive comments, which included Michael Jordan:
To all the people that worked for me and whose money I took, you’re fucking welcome. We did the job we were asked to do. But just like Michael Jordan had a decision to retire and go play baseball, I chose to retire and go play baseball. Now, I may come back to basketball, but this is my decision. I am not your slave. I just want to be clear. My skin color 200 years ago may have gotten you confused, but I am not your slave.
Now Warriors investor Palihapitiya has not only invested against Plotkin and Schliefer’s position, but has been a vocal leader.
“What you’re seeing,” Palihapitiya told CNBC, “is a pushback against the establishment in a really important way.” He explains that he spent the night studying the Reddit posts that drove the GameStop maneuvers, and sees a bigger market shift underway. He says the conversation is driven by fundamental research that rivals the work done at hedge funds—and a sense of restorative justice after institutions were bailed out after the 2008 Wall Street crash, but regular people were not. He says some of the people posting on Reddit were schoolchildren at the time, and lost their homes.
Matt Phillips and Taylor Lorenz in The New York Times:
On Wall Street, individual investors are often derided as “dumb money,” destined to lose against the highly compensated analysts and traders who buy and sell stocks for a living. But in recent days, individual investors—many of them followers of a popular, juvenile, foul-mouthed Reddit page called Wall Street Bets—have upended that narrative by banding together to put the squeeze on at least two hedge funds that had bet that GameStop’s shares would fall. ...
Justin Speak, 27, an evangelical pastor in California, and his wife, who recently left her job to raise their children, have made $1,700 off GameStop in the past week. Mr. Speak said that so far they had mainly put the money toward a new bed. He described a sense of frustration at how well those in the financial sector have done since the financial crisis of 2008.
“There’s a catharsis to actually making money off their pain a little bit,” he said of his modest earnings from GameStop. His wife put it more bluntly: “Eat the rich.”
Neither the NBA nor the Hornets immediately responded to requests for comment.
Palihapitiya tells CNBC that Plotkin is “one of the giants of our era,” who is widely admired and mimicked in the market. And he wonders what the future will be like for hedge funds. There are sufficient retail investors in the market to permanently upend old ways of doing business: “In a world of zero interest rates and quantitative easing,” he says, “I don’t know how you can run a typical hedge fund strategy and make money anymore.”
On Monday evening, Palihapitiya posted a Wall Street Journal article about Plotkin’s Melvin Capital needing an emergency injection of nearly $3 billion from hedge fund giants Steve Cohen and Ken Griffin (who is a fascinating character in this). Not long after, Palihapitiya announced he would be running for California governor.
Palihapitiya is a poker player who has competed in the World Series of Poker, as has famed NBA bettor and current Mavericks Director of Quantitative Research and Development, Haralabos Voulgaris.
Voulgaris’s boss, billionaire Shark Tank investor and Dallas Mavericks billionaire Mark Cuban, also chimed in on Wednesday night, saying even his daughter was profiting off a market shift that was hammering Hornets investors.
There are also grave questions about the bigger market. “What happens in situations of stress is that people are forced to raise funds and that often means selling your winners,” Steve Sosnick, chief strategist at Interactive Brokers tells The New York Times. “How does it end? Badly. Eventually, the bigger the balloon, the louder the pop.”
On Thursday morning ahead of the stock market’s morning bell, Cuban joined CNBC’s Squawk Box. “With all this stuff,” host Joe Kernen asked Cuban, “SPACs, IPOs, GameStop going up, whatever, I’ve lost track … 4,000 percent—does any of this have you worried about the Fed or the overall environment that we’re in right now?”
Cuban responded, half-giggling at GameStop’s share price: “Of course! I hedged the heck out of my portfolio. Absolutely it has me worried.”
Competing against Michael Jordan’s team has been, for a certain generation, the stuff of NBA dreams. Few got the opportunity on the court. Whether they know it or not, now there’s a chance to beat his team in a new arena. Many of the world’s most competitive people are delighted to join the fight.
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