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Wall Street Oasis » Blogs » 21 Lives's blog
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The Money Leagues (Part 1)
 

21 Lives's picture
21 Lives
     
 
(Orangutan, 266
 
Points)
 on 7/9/12 at 6:30pm
football money

It is hard to find anyone who doesn't enjoy watching some form of professional sports. Be it Football, Hockey, Baseball, Basketball, Soccer, or Cricket (thanks to India, cricket just might be the world's 2nd most popular sport), millions of people in the US, and billions of people worldwide identify with a specific team.

These fans drive revenue. This revenue ends up paying the best players millions of dollars per year (and the "worst" $350,000, in the NFL). Despite the enormous salaries earned by players, the owners of teams reap benefits worth even more. The most valuable teams are worth billions of dollars. This series of posts will attempt to explain why. By the end of this series, I hope you can all answer questions like the ones below.

What is the most valuable sports team in the world?
What range of valuation multiples do teams typically see?
How do teams generate revenue?
Why are the Cleveland Browns worth $1 Billion if they can't even maintain positive EBITDA?

For this post, we will explore revenue sources and team valuations.

Lets start with revenue sources. Teams earn money from seemingly unlimited ways, from that $25 dollar hot dog to your $100 parking pass, but they can be divided into three broad categories.

  • Commercial Revenue
  • Broadcasting Revenue
  • Matchday Revenue

These categories are pretty simple, and I'd like to thank the great people at the Deloitte Sports Business Group for publishing the Football Money League Report, which breakdowns the worlds most valuable soccer teams revenue into these three categories. Don't worry, international soccer isn't that much different than professional sports in the US. Why don't we break down these even furthur, so you can see what it means for teams.

Commercial Revenue
Commercial revenue is the reason why Nike is suing Reebok. Nike reportedly paid $1.1 Billion for its 5-year apparel contract, but many think the deal will pay off.

Team's earn money through League wide contracts, such as the Nike deal or Bud Light's "official beer of the NFL," and they also earn money through team sponsorships. The logos we see wrapping around fields, courts, and rinks are a mix of league contracts and individual team sponsors. The biggest moneymaker for individual teams is stadium naming rights. Dan Snyder's deal with FedEx for rights to the Redskin's field set off a money making trend. Team's can expect to earn hundreds of millions of dollars over the life of a contract for the naming right to fields. This is money that goes to the team, not the league, making stadiums a big revenue source for any team.

In Europe, it works a little bit different. While leagues do sell league sponsorships, they have not developed the collective bargaining American leagues have. This ends up hurting the worst teams (who wants to sponsor a perpetual loser?) and benefitting the best. Because of this, team contracts can be extremely lucrative. A well known lacrosse and hockey outfitter, Warrior Sports, entered a $200 million contract with Liverpool to pave their entry into the international soccer market. We will see if their bet pays off, I think it will (Liverpool is a top apparel seller).

Commercial revenue includes the sale of branded products such as apparel, and also includes revenue earned by vendors during games. The NY Yankees, Dallas Cowboys, and Goldman Sachs recently hired a private equity executive to lead their joint venture, Legends Hospitality Management, focusing on stadium development, food and beverage services, and merchandising.

Broadcasting Revenue
This one is easy, TV, TV, TV, but don't forget radio (many MLB markets earn significant radio revenue). The NFL recently negotiated a new TV contract with FOx, NBC, and CBS, worth about $3 Billion per year. This is great news for owners, and not so great news for players (who lost a significant chunk of change under the new collective bargaining agreement). How is the NFL able to negotiate such a huge contract? Because they sell the entire league. Unlike in many European countries, US professional leagues sell leagu-wide broadcasting rights. In Europe, many teams must sell their own broadcasting rights. In Spain, this creates the problem of figuring out which channel the Barca game is on. Barcelona has four or five channels that play its game, and if you wanted to purchase these channels for your home television, you would spend close to 1000 euros a year.

To put it simply, a contract for every game by every team, is worth more than the contracts for individual teams. The value of the whole > the sum of the parts. Indvidual teams can also capitalize on broadcast revenue, this is a primary reason the LA Dodgers were sold for $2 Billion.

In case you are itching for more, I will go deeper into this subject in a future post.

Matchday Revenue
My favorite! Ticket sales, parking passes, and premium seating. The driver behind strong matchday revenue, is an amazing stadium. VIP Boxes and premium seating are the cash kings. Boxes can go for hundreds of thousands of dollars per season, and premium seats go for hundreds of dollars per game. When teams build new stadiums and arenas, you can be sure that they were designed to maximise matchday revenue. I'm going to cut this one a little short as well, to save some goodies for a future post on stadiums (don't worry, it will be worth the wait).

Team Valuations
For a more complete report of team valuations, see the links at the bottom of this post. I will just highlight some of the things I found interesting.

  • No NBA team is worth more than $1 Billion. The most valuable team is the Laker's, at $900 Million (and a stunning 37.5 EBITDA multiple).
  • The most valuable team in the world is Manchester United, worth $2.4 Billion and listing on the NYSE.
  • The average value of an NFL franchise is $1 Billion, on average EBITDA of $30.6 Million (for a multiple of 32.7). The NFL is headlined by the Dallas Cowboys and Washington Redskins, worth $1.85 and $1.55 Billion respectively.
  • Only two hockey teams are worth more than $500 million, the Toronto Maple Leafs and New York Rangers, at $521 and $507 Million respectively.
  • The New York Yankee's are worth $1.85 Billion, as much as the Dallas Cowboys, yet only had $10 million in EBITDA, for a whopping multiple of 185 times EBITDA.

Yes, I know you are jealous of those multiples, when that TMT company you just sold barely got 13 times. But hey, it is sports, and people will do crazy things for the teams they love.

Topics for future posts in this series include Fans, Stadiums, and Players (the three revenue drivers), sports accounting (great invention), and the "other" billion dollar sport, Cricket. Let me know what you guys want to see for next week.

And don't forget to start reading.

  • NBA Valuations
  • NFL Valutions
  • MLB Valuations
  • NHL Valuations
My WSO Blog "Unbelievably Believable" -- RG3
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Tags:
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  • Sports Business
  • NHL
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Comments

Virginia Tech 4ever's picture

Top sports franchise

Virginia Tech 4ever
      EN
 
 
(Neanderthal, 2,319
 
Points)
 on 7/9/12 at 7:04pm

Top sports franchise valuations are like super luxury real estate--their paper valuations rarely match their actual sales prices (sales prices are typically higher) because usually the person purchasing the property or franchise has more money than they know what to do with and it's a matter of obtaining something they really, REALLY want. You probably couldn't buy the Redskins or Cowboys for less than $2.5 or $3 billion (this isn't based on anything other than knowing these owners would never give up their babies).

It's also interesting to note that on the surface U.S. leagues are run somewhat socialistically, but when you break it down it's pure capitalism if the sum of the parts > the parts sold separately. Yeah, maybe the Jacksonville Jaguars don't pull their full weight in the NFL, but everyone is better off when selling in a total package.

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goodL1fe's picture

I'm looking forward to future

goodL1fe
     
 
(Senior Orangutan, 447
 
Points)
 on 7/9/12 at 8:33pm

I'm looking forward to future installments especially the installment about how the Dodgers were sold for $2 billion. Keep it up and SB for you!

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

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accountingbyday's picture

I LOVE this. I've always had

accountingbyday
      CF
 
 
(Senior Gorilla, 820
 
Points)
 on 7/9/12 at 9:22pm

I LOVE this. I've always had the outside goal of somehow getting into the business of sports. As I don't think getting a full-time mba, taking huge career risks or taking salary cuts are in my blood anymore I'm sure this won't happen (Note to younger guys - chase your dreams).

21- Do you mind sharing a brief background on yourself? You've probably done it before, but it'd be nice to see.

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BCbanker's picture

sports purchase multiples are

BCbanker
      IB
 
 
(Gorilla, 633
 
Points)
 on 7/9/12 at 9:49pm

sports purchase multiples are unreal. they are def factoring in the "happiness dividend," that awesome street cred you get from owning a professional sports team.

I use the same rationalization for my boat.

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historiclegend's picture

To 21: what's great about

historiclegend
     
 
(Baboon, 111
 
Points)
 on 7/9/12 at 9:54pm

To 21: what's great about sports accounting?

To BC: what kind of boat?

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WalMartShopper's picture

any idea about motorsports,

WalMartShopper
     
 
(Senior Gorilla, 897
 
Points)
 on 7/9/12 at 10:05pm

any idea about motorsports, like formula 1 or motogp? i heard f1 drivers are paid handsomely and also seem to huge sponsors (barclays lol, credit suisse, etc)

If the glove don't fit, you must acquit!

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Chicken Dinner's picture

Just a side thought here.

Chicken Dinner
      ER
 
(Chimp, 13
 
Points)
 on 7/9/12 at 10:15pm

Just a side thought here. Growing up, I was a big wwe fan, and I really can't imagne why the company is worth so little. They have a couple things that should cause a depressed stock price ( terrible corporate governance, poor investments in tough to quantify movies, declining sales in the toy and video game space, along with maybe some additional competition from UFC... Sort of).

But when you think about it... If the dodgers are worth 2.2 billion with roughly similar revenues... Wouldn't you rather own the wwe... More internatinal, control a seemingly infinite amount of content, and have much more flexible sg&a because all wrestlers are independent contractors signed to short term deals. Why is that only worth 4 times ev/ ebitda?

Also, they are working on a new tv network, the raw tv deal expires in 2013 and they still haven't released 2q which has positive upside potential from rock v cena wrestlemania... Seems pretty crazy to me

Winner Winner

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21 Lives's picture

Virginia Tech 4ever: Top

21 Lives
     
 
(Orangutan, 266
 
Points)
 on 7/9/12 at 10:23pm
Virginia Tech 4ever:

Top sports franchise valuations are like super luxury real estate--their paper valuations rarely match their actual sales prices (sales prices are typically higher) because usually the person purchasing the property or franchise has more money than they know what to do with and it's a matter of obtaining something they really, REALLY want. You probably couldn't buy the Redskins or Cowboys for less than $2.5 or $3 billion (this isn't based on anything other than knowing these owners would never give up their babies).

It's also interesting to note that on the surface U.S. leagues are run somewhat socialistically, but when you break it down it's pure capitalism if the sum of the parts > the parts sold separately. Yeah, maybe the Jacksonville Jaguars don't pull their full weight in the NFL, but everyone is better off when selling in a total package.

Great points. The future post on stadiums will help explain why people will pay more than the "value" of a team. Hint, think networking.

Leagues in the US operate as a cartel, and they are much more effective than cartels like OPEC. I'm thinking of doing a US vs. Europe post about how leagues are structured and what that means for fans and owners. Let me know if this is something you'd be interested in.

accountingbyday:

I LOVE this. I've always had the outside goal of somehow getting into the business of sports. As I don't think getting a full-time mba, taking huge career risks or taking salary cuts are in my blood anymore I'm sure this won't happen (Note to younger guys - chase your dreams).

21- Do you mind sharing a brief background on yourself? You've probably done it before, but it'd be nice to see.

Thanks a lot, glad this is something people are interested in. Are you in banking? There are a few investment banks that deal primarily in the sports industry.

Background: Graduating from PSU this December. Lifelong athlete, currently swimming, water polo, off road triathlon, snowboarding, and longboarding (skateboard not surf). The ideas behind this series of posts come from two classes I've taken: Sports Economics (PSU), and The Business of Sport in Europe (study abroad). It worked out really well, sports econ had a US focus, and BSE had a Europe/global focus. It's nice to be able to compare the differences of US vs. international (hopefully that will be a future post in this series). I've contacted my professors, so I might be able to get some quotes/opinions from them for certain posts in this series.

After graduating, I'm looking for a sports related career. Either sports banking, working for an agency, sports focused consultancy, or in the snow sports industry. I'm trying to network this summer and through my last semester at school, so I hope there will be an update on my plans sometime in the next several months.

historiclegend:

To 21: what's great about sports accounting?

Since you asked this, I think I have to make a post about it. Here's a teaser just to get you started, teams are allowed to depreciate player salaries. And that's just the tip of the iceberg.

WalMartShopper:

any idea about motorsports, like formula 1 or motogp? i heard f1 drivers are paid handsomely and also seem to huge sponsors (barclays lol, credit suisse, etc)

I've learned a bit about F1 and NASCAR, but next to nothing about motogp, probably enough for just a single blog post if this is something people are interested in. Like you said, sponsorship is huge. In F1 sponsorship is not only about advertising, but also about prestige. You can bet Renault loves having its engines in Red Bull Racing's cars. You can also bet that Vettel and Webber are going to make a run at 1st place, and that RBR will win the constructors cup. The Vettel/Webber duo is one of the strongest pairings seen in a long time, and i think they will be at the top of the F1 circuit for the next several years.

F1 races are more of an event than just a race. There are parties, car shows, good food, the girls who stand next to the cars, etc. I can definitely see this turning into a future post, stay tuned.

My WSO Blog

"Unbelievably Believable" -- RG3

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historiclegend's picture

Looks like it will be a great

historiclegend
     
 
(Baboon, 111
 
Points)
 on 7/9/12 at 10:29pm

Looks like it will be a great series.

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Saul_Villa's picture

BCbanker: sports purchase

Saul_Villa
     
 
(Senior Monkey, 68
 
Points)
 on 7/9/12 at 11:46pm
BCbanker:

sports purchase multiples are unreal. they are def factoring in the "happiness dividend," that awesome street cred you get from owning a professional sports team.

I use the same rationalization for my boat.

Really depend on what sport you're buying, when you buy and where you buy. If you buy a team in the USA when the sport is taking off, such as in basketball, hockey, and to a lesser extent soccer, you're looking at a pretty good ROI in the future. If you're buying a soccer team in Europe you're looking to spend your fortune to keep up with the Joneses.

Personal wealth is not how much you have in the bank or the worth of your portfolio. But, rather how you've used the wealth to make your life and those around you better.

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AlphaGeneration's picture

Ebitda multiples aren't

AlphaGeneration
      IB
 
(Orangutan, 363
 
Points)
 on 7/10/12 at 6:33am

Ebitda multiples aren't useful in sports vs. other industries, primarily because player expense (#1 cost) is the key driver to high or low ebitda. Revenues is the better multiple (industry standard).

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21 Lives's picture

AlphaGeneration: Ebitda

21 Lives
     
 
(Orangutan, 266
 
Points)
 on 7/10/12 at 11:34am
AlphaGeneration:

Ebitda multiples aren't useful in sports vs. other industries, primarily because player expense (#1 cost) is the key driver to high or low ebitda. Revenues is the better multiple (industry standard).

I used EBITDA just to show what some teams are coming up with for cash flows using GAAP. Revenue can be just as misleading as EBITDA. Owners have numerous ways to change their stated revenue. Stay tuned for the post on sports accounting to find out how.

My WSO Blog

"Unbelievably Believable" -- RG3

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West Coast Analyst's picture

awesome and fascinating

West Coast Analyst
      CF
 
(Orangutan, 304
 
Points)
 on 7/10/12 at 11:47am

awesome and fascinating stuff. +1 SB for ya. Like accountingbay, I've always wanted to work in sports. I mean, I gotta be better than how some of the GMs in sports right?! (I am looking at you, dudes from Cleveland Browns, Charlotte Bobcats, Washington Wizards)

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You agree to defend, indemnify, and hold harmless the Company, its officers, directors, employees and agents, from and against any claims, actions or demands, including without limitation reasonable legal and accounting fees, alleging or resulting from your use of the Material or your breach of the terms of these Terms and Conditions. The Company shall provide notice to you promptly of any such claim, suit, or proceeding and shall assist you, at your expense, in defending any such claim, suit or proceeding.

General.

The Company makes no claims that the Materials may be lawfully viewed or downloaded outside of the United States. Access to the Materials may not be legal by certain persons or in certain countries. If you access the Web Site from outside of the United States, you do so at your own risk and are responsible for compliance with the laws of your jurisdiction. These Terms and conditions are governed by the internal substantive laws of the State of New York, without respect to its conflict of laws principles. Jurisdiction for any claims arising under this agreement shall lie exclusively with the state or federal courts within New York, New York. If any provision of these Terms and Conditions are found to be invalid by any court having competent jurisdiction, the invalidity of such provision shall not affect the validity of the remaining provisions of these Terms and Conditions, which shall remain in full force and effect. No waiver of any term of these Terms and Conditions shall be deemed a further or continuing waiver of such term or any other term. Except as expressly provided in additional terms of use for areas of the Web Site a particular "Legal Notice," or Software License or Material on particular Web pages, these Terms and Conditions constitute the entire agreement between you and the Company with respect to the use of Web Site. No changes to these Terms and Conditions shall be made except by a revised posting on this page.

PRIVACY POLICY

The Company recognizes that you are concerned about privacy. We are committed to preserving your privacy and safeguarding your sensitive information. The following statement describes the general information-gathering and usage practices of our sites.

Our staff, contractors, Internet service providers and others involved in this site follow this policy or similarly strict policies regarding your Information.

Disclosure

The Company is committed to fully disclosing our policies regarding the collection, use, maintenance, disclosure and security of personal information obtained from users of our site. The term "personal information" includes a name, address, email address, or any other information which could be used to contact you directly or to identify you personally.

Use and Disclosure Limitations

The Company only uses personal information about its Web site users for specific purposes. We do not share user information with third parties except when we have told users about the disclosures, when we have prior consent, or when required by law.

Use Policy: When the Company gathers personal information from users, we ask for permission first. We also disclose, at the time of collection, how the information will be used by us. Personal information is used for activities such as auto-completion of commonly-used forms and helping us contact you when you solicit information from us.

Disclosure Policy: We do not normally disclose personal information to anyone outside of the Company unless we have previously informed users about the disclosures. However, some data may be used from time to time by outside contractors, including auditors or consultants, to assist us in carrying out necessary financial or operational activities. These uses will be consistent with this privacy policy and all contractors using this potential personal information must agree to safeguard it, to use it only for the authorized purpose, and to return it or destroy it upon completion of the activity.

The Company might be required to disclose personal information in response to a valid legal process such as a subpoena, search warrant or court order.

Although unlikely, it is possible that we may have to make certain disclosures to ensure the security of our Web site, to protect its integrity, or to take precautions against potential liability. In any of these situations, we will take any reasonable steps to limit the scope of the data disclosed.

Web Logs: The Company maintains standard Web logs that record basic information about visitors to our Web site. These logs contain: * The Internet domain from which you came to our Web site. * Your IP address. An IP address is a series of numbers which uniquely identifies your connection to the Internet. Although it is possible in some instances, certain types of IP addresses may be used by interested persons to identify users but we do not attempt to identify users in this way. * The type of browser (e.g., Internet Explorer or Netscape) and operating system (e.g., Windows 98) you use. * The date and time you visited the site, and the pages you saw.

We use Web log information to design our Web site, identify popular features, and in similar ways. We do not try to identify individuals from Web logs or to link Web logs to other user information. However, if someone tries to damage our Web site or use it in an unauthorized or illegal way, we may share Web log information with law enforcement agencies. The Company may provide aggregate information such as the number of users who visit particular pages of the site, or the number of people who link to certain external sites from our site, to other parties.

Changes to Privacy Policy

The Company's features and services will change over time and our information-gathering practices and policies may also change.

While our philosophy of protecting user information from inappropriate uses and disclosures will not change, this policy will be updated occasionally to include any change that materially affects the collection, maintenance, use, or disclosure of personal information.

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    What did you learn first
  • Pretty slow with it being the Friday of a long weekend, wanted to know if you guys had anything interesting going this weekend? I'm hitting a concert tonight (Juicy J) then doing some sailing on Sat....
    Long Weekend Plans
  • Hello WSO! I am starting in July as a first-year IB analyst at MM IB. I am excited and nervous at the same time: not sure about group placement and the office dynamic and exit opps etc. I am curious that if there is anything that experienced bankers would like to share here? things that you...
    Share with an incoming first-year analyst?
  • Sports is a fascinating business to me. It is truly amazing how quickly sports have grown into billion dollar franchises with top end players making up to $30 million a year. Baffling. On top of it, the numbers for broadcasting rights keep climbing right along with them and frankly seem to be...
    ESPN and the Business of Sports
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  • Starting my MBA at Purdue in the fall (I know not an elite program but I got almost a full ride and they seem to place the best of the non-elite Midwest schools). I am looking to get into oil and gas post MBA (focusing in corp finance). I am currently 33, my original undergrad is in criminal...
    looking to break into oil & gas post mba
  • Hi everyone, I have an upcoming first round phone interview with Susquehanna International Group for an entry level equity research position and I was hoping for some idea of what to expect. I have used the search function, and no one seemed to answer the question of the interview process...
    SIG Equity research interview
  • Hi...
    Investment banking in London / Europe is a complete waste of time
  • 1) <strong>Bloomberg Best (and Worst)</strong> (<a href="http://www.bloomberg.com/visual-data/best-and-worst/s">Bloomberg</a>) - Awesome new research tool from Bloomberg. This is seriously cool and very comprehensive. Going to help a lot of us find a jumping off...
    Bonus Bananas May 24, 2013
  • looking on linkedin it appears that many HInes analysts end up going to b-school and then back to hines. I was curious to know if they pay for it? ...
    does Hines pay/sponsor your MBA??
  • I was curious to know about Lazard's private funds group....is this the equivalent to a sponsors group at a BB? Are the hours & intensity equivalent as well? or do the projects have a more long term focus since they are raising funds which can take considerable amounts of...
    lazard private funds group? - good training? exit opps?
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I was writing an email to a fellow monkey who is about to start as a banking analyst in the summer. It's been a little over 5 yrs now since I was a wee young first-year analyst in restructuring for one of the Moelis/Houlihan/Evercore type firms (I call them the firms where most people will...
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This is the reaction any analyst who has ever worked in banking has when you say you want to leave banking for business school then come back as a post b school associate... <img src="http://epicpinterestfail.com/wp-content/uploads/2012/11/how-i-met-your-mother-barney-why.gif"...
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I get a ton of emails and answer a ton of posts asking similar questions so I thought I would answer the most common ones I get here and allow others to post their questions so everyone can see them and the subsequent answers. Hope this helps. <strong>Summer Analyst...
MSF Question and Answer
I work as a currency volatility trader and manage one of the bigger G10 blocs in London. I've been lucky enough to get responsibility early in my career. I started off managing a single currency book a few months into the job, and have steadily been granted more responsibility to where I am...
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Beginners Guide to Valuation and Metrics By Sector
I'm currently a Private Equity Analyst in Shanghai, China. Academically, I graduated from a target school majoring in Economics and Chinese. I also spent my time at college as the president of an on-campus student organization related to Finance and Economics and a volunteer for a local...
Ask me anything… I'm a Private Equity Analyst in Shanghai
For better or for worse, there’s a very unique feeling when everything goes completely according to plan yet nobody seems to care or notice. Such is the case with our favorite company of the moment, Tesla Motors. For those unaware, TSLA has rocketed upwards since its Q1 earnings release,...
A Perfect Storm
I work as a long/short equity analyst at a large hedge fund. I've been lucky enough to be more than just a model monkey early on in my career, but have also been exposed to the stress of being measured on returns. I primarily cover consumer and TMT names. I went the typical path (target...
I'm a Hedge Fund Analyst - Ask Me Anything
Fellow Primates, We are looking for 1-2 students on each campus to help WSO in its sales efforts to student clubs/career centers, and overall promotion at your school both online and on the ground. Below is a description of the position and benefits...thanks in advance for your help! <a...
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<em>Mod note: Best of Bankerella - this was originally posted 10/1/12</em> I occasionally get PMed by people at colleges I’ve never heard of before, asking if they have a shot at IBD. Folks, why IBD? The finance world is broad and varied, and there are a million ways to...
My Biggest Career Mistake to Date: Prestige
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