I don’t know why we’re going down this rabbit hole about owners not being able to pledge their team as collateral. if it is something you’re interested in, I’d encourage you to read the Athletic article. Almost all sports teams are leveraged I’d imagine, most leagues have arranged league level debt through private placements to assist with teams financing and liquidity. All the major leagues have credit ratings of at least A minus.
Let’s not lose sight of the question. Do owners benefit from a rise in franchise value without resorting to selling the team? The answer is yes of course, many ways for them to transform that rise in value to liquid worth. How they capitalize their team is not really the point.
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Yes, we are getting far afield from the original, albeit silly, premise. I guess for me the bottom line is that talk of the value of teams increasing as a factor is pretty minor. Year to year profits are a much bigger one, and making the POs (and thereby profiting in those years) versus rebuilding and spending years outside (and perhaps losing money) is probably a bigger consideration for owners to the extent they are “greedy”.
If I said that I was being a smart ass and referring to that moment in time. It was stated as some sort of a maxim that owners could lever their ownership stake because “that’s how the rich get richer”. And then for some reason Musk’s Twitter acquisition was used as the example.
Yes, you can eventually get more wealthy if you borrow and your investment using borrowed money pays off. It happens some of the time. But the moment you borrow you aren’t richer. You’ve taken on debt. Hopefully you’ve acquired assets equal to that debt using the money. But it happens a lot less than people think, even for “the rich”. And the richest people, like Edwards, generally don’t take on secured debt - they issue unsecured notes etc. that’s what CNRL does.
The richest people use borrowed money to get richer, it's the norm.
Secured debt, unsecured debt, makes no difference. It's still debt. If it doesn't get paid, they come after your assets.
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It's eye opening to me this isn't really more common knowledge.
It's not that it isn't common knowledge, it's that leverage is a simple financial tool that is available to all - it isn't a secret weapon of the rich. Nor is it the free panacea you make it out to be - debt comes with risk, and risk and return are related.
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It's not that it isn't common knowledge, it's that leverage is a simple financial tool that is available to all - it isn't a secret weapon of the rich. Nor is it the free panacea you make it out to be - debt comes with risk, and risk and return are related.
And "all debt" is not considered leverage. I borrow $100 from a buddy - I've leveraged nothing. It's only secured debt that's considered leverage. NHL team owners cannot easily leverage their ownership to borrow money, if at all.
And "all debt" is not considered leverage. I borrow $100 from a buddy - I've leveraged nothing. It's only secured debt that's considered leverage.
Leverage has nothing to do with whether it is secured. Leverage refers to the fact that you have risked more then your investment. If I buy a $100 stock with cash and it goes bankrupt I lose my original investment of $100. I cannot lose more (no leverage). if I buy a stock with $50 cash and $50 debt and it goes bankrupt I lose $100 on my initial investment of $50. On the other hand, if it goes up to $200 I have 3x my money instead of 2x (Ignoring interest I get $150 on my $50 investment after paying back the loan) which is why people use leverage.
Secured" or "unsecured" simply refers to the lenders place in line on specific assets if they don't pay. lenders like secured debt because it reduces the risk of not getting paid back since you are at the front of the line on the underlying asset that secured the debt. The value of secured debt to a lendee is that, because there is improved expected recovery in the case of default lenders will typically offer better rates (think a mortgage and how you can get a lower interest rate if you put down less then 20% because you have CMHC insurance), not because it changes whether or not you are levered.
If you borrowed money from your buddy for an investment you are absolutely levered if there is actually a requirement to pay them back even if the loan is not specifically secured because you are still leveraging your "wealth".
Last edited by pokerNhockey; 11-10-2023 at 11:18 AM.
Reason: clarity4
Seems like Whiteout watched a Trevor Noah clip and came here trying to apply it to the Flames.
No, I never said it applied to the Flames, or any specific NHL owner. Someone asked a question on how an owner can possibly make money on a teams valuation before its sold, and I informed them of one process.
Leverage has nothing to do with whether it is secured. Leverage refers to the fact that you have risked more then your investment. If I buy a $100 stock with cash and it goes bankrupt I lose my original investment of $100. I cannot lose more (no leverage). if I buy a stock with $50 cash and $50 debt and it goes bankrupt I lose $100 on my initial investment of $50. On the other hand, if it goes up to $200 I have 3x my money instead of 2x (Ignoring interest I get $150 on my $50 investment after paying back the loan) which is why people use leverage.
Secured" or "unsecured" simply refers to the lenders place in line on specific assets if they don't pay. lenders like secured debt because it reduces the risk of not getting paid back since you are at the front of the line on the underlying asset that secured the debt. The value of secured debt to a lendee is that, because there is improved expected recovery in the case of default lenders will typically offer better rates (think a mortgage and how you can get a lower interest rate if you put down less then 20% because you have CMHC insurance), not because it changes whether or not you are levered.
If you borrowed money from your buddy for an investment you are absolutely levered if there is actually a requirement to pay them back even if the loan is not specifically secured because you are still leveraging your "wealth".
[sigh] That's not what was being discussed as leverage. What was being discussed was using one asset as collateral to borrow for other purposes. In other words "leveraging" the ownership in the team.
Definition:
lev·er·age
/ˈlev(ə)rij,ˈlēv(ə)rij/
FINANCE
verb
1.
use borrowed capital for (an investment), expecting the profits made to be greater than the interest payable. "without clear legal title to their assets, they own property that cannot be leveraged as collateral for loans"
Wall Street Prep https://www.wallstreetprep.com › knowledge › ultimat...
Leveraged loans are usually secured by the company's collateral and occupy the safest space for a lender in the company's capital structure. Bonds from ..
But thanks for the lesson on how secured debt works.
[sigh] That's not what was being discussed as leverage. What was being discussed was using one asset as collateral to borrow for other purposes. In other words "leveraging" the ownership in the team.
Definition:
lev·er·age
/ˈlev(ə)rij,ˈlēv(ə)rij/
FINANCE
verb
1.
use borrowed capital for (an investment), expecting the profits made to be greater than the interest payable. "without clear legal title to their assets, they own property that cannot be leveraged as collateral for loans"
Wall Street Prep https://www.wallstreetprep.com › knowledge › ultimat...
Leveraged loans are usually secured by the company's collateral and occupy the safest space for a lender in the company's capital structure. Bonds from ..
But thanks for the lesson on how secured debt works.
You made the comment that unsecured debt is not leverage and that is 100% incorrect.
Companies that are able to borrower on large unsecured lines are able to do so because they have huge asset holdings which have no security against them . And you'd expect that those companies would have many covenants that restrict their borrowings and giving security.
Your comment above even proves that by saying "usually". Which means that leveraged loans can be unsecured.
You made the comment that unsecured debt is not leverage and that is 100% incorrect.
Companies that are able to borrower on large unsecured lines are able to do so because they have huge asset holdings which have no security against them . And you'd expect that those companies would have many covenants that restrict their borrowings and giving security.
Your comment above even proves that by saying "usually". Which means that leveraged loans can be unsecured.
I believe you've been "lawyered" by a layman.
We were talking about "leveraging assets". Thius almost always means using assets as collateral.
No one in the lending business calls unsecured loans leveraged loans. Eg:
The industry defines leveraged loans as secured loans where the borrower is sub-investment-grade or the spread at issuance is higher than a certain threshold. https://www.ecb.europa.eu/pub/financ...x201805_05.pdf
Keep swinging though.
EDIT: On second thought, don't - this is a thread derail and I'm not participating any more.
And "all debt" is not considered leverage. I borrow $100 from a buddy - I've leveraged nothing. It's only secured debt that's considered leverage. NHL team owners cannot easily leverage their ownership to borrow money, if at all.
That's why you know of no owner who's done it.
This just isn’t very accurate. Sports teams are leveraged which allow owners to preserve liquidity for other uses. Simple as that really.
