Brookfield Asset Management (TSX:BAM) subsidiary Oaktree Capital is now involved in Italian soccer. How did this happen, and what does it mean for Brookfield?
In this five-minute video, Motley Fool Canada analysts break it all down. (Prefer to read? There’s a transcript below.)
Transcript
I’m Motley Fool Canada senior analyst Nick Sciple, and this is the “Five-Minute Major,” here to make you a smarter investor in about five minutes. Today we’re discussing Brookfield subsidiary Oaktree Capital getting involved in Italian soccer. My guest today is Hidden Gems Canada lead advisor, Jim Gillies. Jim, thanks for joining me.
Jim Gillies: Thanks for the invite, Nick.
Nick Sciple: Excited to to be here with you. We’ve got a fun story today. As I mentioned off the top, Brookfield subsidiary Oaktree Capital. Brookfield owns just under two-thirds of Oaktree Capital stock. It took control of renowned Italian soccer club Inter Milan. Jim, how does this company find itself tangled up with soccer? We’ve got hydro dams in South America; now we’ve got soccer clubs in Italy.
Brookfield’s acquisition of Oaktree Capital
Jim Gillies: Well, Brookfield acquired a majority stake, 62% of Howard Marks’s Oaktree in, I believe, May of 2019. So right there — 62% — they do have majority stake, but they’ve largely allowed Oaktree to kind of run as it was being run. So it’s more of an exit strategy for the folks at Oaktree. Starting in 2022, Brookfield was allowed to buy shares of departing or retiring members of Oaktree, so it’s likely that they own more than 62%. Now, we have no idea what the number is. Sure, it’s buried in some of some of Brookfield’s filings, but I’m not gonna go looking for it there. But there is a plan as they retire, as they liquidate their stakes, Brookfield is the buyer. The earliest that Brookfield could own 100% of Oaktree is 2029. We’re about halfway there from the original deal. So you know, it’s somewhere between 62% and 100% is what they own. That’s how Brookfield got involved in owning an Italian
premier soccer club. It’s kind of fun, actually.
What the asset means for the futures of Oaktree and Brookfield
Nick Sciple: Oaktree specializes in distressed debt. The Chinese owners of the company found themselves in hot water, and the distressed debt-holders ended up owning the club. Now, today, Jim, what do you make of the long-term prospects for this investment that Oaktree now has in a controlling stake of Inter Milan?
Jim Gillies: This is like the famous saying, “Too much leverage in too short a time horizon is a fuse.” I believe it’s Tom Gaynor from Markel who said that. That’s basically what happened here. They took on a 275 million Euro loan from Oaktree in 2021 to fund payroll and operations, and they did it where the interest essentially accrued. So they weren’t even paying interest. They couldn’t bend the cash flow for that. So the natural thing happened when you take on distressed financing. They couldn’t finance, they couldn’t refinance, they couldn’t do anything with it. So Oaktree wins, and some people call this a “loan-to-own” strategy. I think it’s pretty great, and we know that across all kinds of sports, whether the NFL, Major League Baseball, the NHL, premier soccer, European soccer, these are incredibly valuable assets. People are paying record prices for them pretty much across the sporting spectrum.
So frankly, I think that’s pretty good deal for Oaktree, and they got it by being basically a lender of last resort. I think it’s pretty good in the context of Brookfield overall and Oaktree overall. It’s actually pretty small potatoes, which sounds kinda weird. But given the billions of dollars of assets you’ve already alluded to that Brookfield owns a wide spectrum of, you know real assets and hard assets, this is relatively small. But it’s still a very distinctive asset. It’s an asset that you really can’t replicate. I can’t go start a rival club in Milan. There’s already one there, AC Milan, I suppose. But there won’t be a third team coming in here, just like there won’t be a fourth team in the New York area for the NHL. There won’t be a new Major League Baseball franchise popping up in Columbus, Ohio, anytime soon. These are very distinct, unique, largely protected assets. And now Brookfield/Oaktree owns pretty a good one.
How long will this last?
Nick Sciple: Yeah, they own them for now. We’ll see how long that remains on their books! I don’t think Brookfield or Oaktree, for that matter, want to get involved in the pro sports ownership business for the long term. Leave that to John Malone and Liberty Media. But it’s certainly an interesting story and one we will continue to follow. That’s all the time we have for this edition of the “Five-Minute Major.” Thank you, everyone, for joining us, and we’ll see you next time.
