Podcast Summary: The David Weisburd Podcast – Episode E113: Christopher Zook

Release Date: November 19, 2024

In Episode E113 of The David Weisburd Podcast, host David Weisburd engages in a deep and insightful conversation with Christopher Zook, exploring his strategic approach to scaling CAZ Investments to $8 billion and fostering a robust organizational culture. The episode delves into various aspects of investment strategies, risk management, and the importance of culture in building successful enterprises.

1. Introduction to Christopher Zook and Investment in Sports Franchises

The episode kicks off with David Weisburd inquiring about Christopher Zook’s investments in high-profile sports franchises, including the Los Angeles Dodgers, Golden State Warriors, and Liverpool.

Notable Quote:

"If you want a live event that’s sports, the only way to do that currently is through professional sports." (00:07)

Key Points:

• Strategic Investment in Sports: Zook explains that investing in professional sports is driven by a thematic focus on changing consumer behavior, particularly the shift from traditional cable broadcasting to streaming services.
• Advertising Revenue Stability: Owning a fractional stake in sports teams ensures consistent revenue from league distributions, which remains stable regardless of individual team performance.
• Content Control: Those owning sports content can effectively set advertising rates, capitalizing on the undivided attention that live sports garner.

2. Underwriting Sports Investments and Addressing Skepticism

Weisburd addresses the skepticism surrounding investments in sports franchises, often criticized as relying on the "greater fool" theory.

Notable Quote:

"Most of these businesses are underwritten like any other. What is their growth rate? What is their durability?" (03:59)

Key Points:

• Evolving Business Models: Zook highlights that sports franchises have transformed from mere trophy assets to profitable ventures with durable and consistent revenue streams.
• Revenue Diversification: Income sources include league distributions, sponsorships, and fan experiences, all contributing to financial resilience.
• Tax Benefits: Ownership can offer tax advantages through real estate appreciation and amortization of goodwill.
• Fan Engagement: Innovations in fan experiences, such as personalized merchandise, enhance engagement and create unique, non-replicable content.

3. The Holy Grail of Investing and Common Themes Among Top Investors

Zook discusses insights from his book, "The Holy Grail of Investing," co-authored with Tony Robbins, focusing on common traits among leading investors.

Notable Quote:

"These are people that are focused on adding value... how can they grow businesses, grow jobs, increase the value of these companies." (08:12)

Key Points:

• Value Creation: Top investors prioritize adding value to the businesses they invest in, fostering growth and enhancing societal benefits.
• Consistent Playbooks: Successful investors have repeatable and differentiated strategies that offer unique value propositions.
• Culture and Team Development: Emphasis on building strong, cohesive teams with a focus on sustained cultural excellence across generations.

4. High Hit Rate and Risk Management: The Big Short Trade

A significant portion of the discussion centers on CAZ Investments’ impressive investment success rate and their strategic approach to risk management, exemplified by their involvement in John Paulson’s Big Short.

Notable Quote:

"Most of the time, if we feel like we got 20 to 50% downside, we want to make sure that we're at least five times that." (17:55)

Key Points:

• Downside Focus: CAZ Investments emphasizes understanding and mitigating potential risks, ensuring that the upside significantly outweighs the downside.
• The Big Short Example: Zook recounts partnering with John Paulson to short the housing market before the 2008 financial crisis, highlighting their disciplined approach to risk and reward.
• Positive Asymmetry: The firm seeks investments where the potential returns are substantially higher than the possible losses, ensuring a high batting average of successful investments.

5. Current Investment Themes

Zook shares the current thematic areas CAZ Investments is excited about, which are not yet fully appreciated by the broader market.

Notable Quote:

"The theme that I think people do understand that they don't appreciate enough is professional sports." (27:01)

Key Points:

• Professional Sports and Cord Cutting: Continued focus on sports as premier live events, capitalizing on advertising opportunities amidst the trend of cord cutting.
• Growth of Private Assets: Significant growth potential in private alternative investments, with low current exposure among high-net-worth individuals compared to institutions.
• Military Readiness and Technology: Investments in advanced military technologies, emphasizing the integration of AI, machine learning, and autonomous systems to enhance defense capabilities.

6. Building and Enforcing a Winning Culture

A core segment of the episode explores how CAZ Investments cultivates a strong, performance-driven culture within the organization.

Notable Quote:

"We are going to be the very best that we can be, and we're not going to ever just accept mediocrity." (30:03)

Key Points:

• Core Promises: The firm upholds promises to put partners first, make investors raving fans, and uphold a high standard of work ethic.
• Cultural Practices:
  • Cass University: A training program for new employees to immerse themselves in the company's principles before engaging in their roles.
  • Peer Accountability: Encouraging team members to hold each other accountable, fostering an environment of continuous improvement.
  • Regular Reviews: Implementing quarterly reviews to provide timely feedback and address issues promptly, avoiding the pitfalls of annual evaluations.
• Coaching vs. Managing: Distinguishing between management (ensuring tasks are completed) and coaching (actively developing team members to excel).

7. Expanding Access to Alternative Investments

Zook discusses CAZ Investments’ efforts to democratize access to alternative investments through legislative advocacy.

Notable Quote:

"The SEC would create the test and then if they pass that test, they can become an accredited investor that enables them to have access to things that they currently are not allowed to invest in." (49:01)

Key Points:

• Legislative Initiatives: Supporting legislation to allow a broader range of investors to become accredited by passing a competency test, removing arbitrary financial thresholds.
• Benefits of Wider Access: Enabling more individuals to participate in alternative investments, potentially increasing returns and diversifying their portfolios.
• Advocacy with Influencers: Collaborating with figures like Tony Robbins to lobby Congress for legislative changes that expand investment opportunities.

8. Conclusion and Further Resources

As the conversation wraps up, Zook provides information on how listeners can stay connected and learn more about CAZ Investments.

Notable Quote:

"We wrote it intentionally to where people that are very, very sophisticated will get a lot out of it and those that are brand new." (52:08)

Key Points:

• Book Promotion: Highlighting the accessibility and depth of his book, which caters to both seasoned investors and newcomers.
• Contact Information: Encouraging listeners to visit CasInvestments.com, and follow CAZ Investments on LinkedIn and Twitter for updates and insights.
• Endorsements: Mentioning endorsements from industry leaders like Ray Dalio and Carl Icahn, showcasing the book's credibility and value.

Notable Quotes with Timestamps

• [00:07] "If you want a live event that’s sports, the only way to do that currently is through professional sports." – Christopher Zook
• [03:59] "Most of these businesses are underwritten like any other. What is their growth rate? What is their durability?" – Christopher Zook
• [08:12] "These are people that are focused on adding value... how can they grow businesses, grow jobs, increase the value of these companies." – Christopher Zook
• [17:55] "Most of the time, if we feel like we got 20 to 50% downside, we want to make sure that we're at least five times that." – Christopher Zook
• [27:01] "The theme that I think people do understand that they don't appreciate enough is professional sports." – Christopher Zook
• [30:03] "We are going to be the very best that we can be, and we're not going to ever just accept mediocrity." – Christopher Zook
• [49:01] "The SEC would create the test and then if they pass that test, they can become an accredited investor that enables them to have access to things that they currently are not allowed to invest in." – Christopher Zook
• [52:08] "We wrote it intentionally to where people that are very, very sophisticated will get a lot out of it and those that are brand new." – Christopher Zook

Key Takeaways

• Strategic Thematic Investments: Focusing on sectors experiencing significant shifts, such as professional sports in the era of cord cutting.
• Robust Risk Management: Prioritizing downside protection to ensure favorable risk-reward ratios in investments.
• Cultivating a High-Performance Culture: Emphasizing continuous improvement, peer accountability, and strong organizational values to drive success.
• Advocacy for Investment Accessibility: Striving to broaden access to alternative investments through legislative changes, promoting financial freedom and diversification.
• Educational Outreach: Providing resources and literature that cater to a wide audience, enhancing financial literacy and investment acumen.

For more insights and to connect with Christopher Zook and CAZ Investments, visit CasInvestments.com or follow them on LinkedIn and Twitter. To deepen your understanding of investment strategies and culture building, consider reading "The Holy Grail of Investing" co-authored by Christopher Zook and Tony Robbins.