When Jeff Vinik makes a bet, it’s usually a big one, be it on the stock market, professional sports, or real estate.
A protégé of the legendary Peter Lynch, Vinik instantly became one of the world’s most famous money managers in 1992, when he took over as head of Fidelity Magellan, then the largest mutual fund in the U.S. Over the next four years, Vinik produced 17% annual returns, a record marred only by his controversial decision to sell some tech stocks and move a hefty portion of the fund’s assets into bonds, just before their prices were slammed by rising interest rates. After leaving Fidelity in 1996, he and some partners hung their own shingle in Boston, founding a hedge fund that attracted a clientele passionate about Vinik’s aggressive investing style.
An ardent sports fan, the then-investment manager bought a minority stake in Fenway Sports Group, parent of the Boston Red Sox. But since his youth, when he stayed up to watch New York Rangers’ games on TV in his family’s New Jersey home, his true passion had been to own a hockey team. The financial crisis produced an opportunity. In 2010, he quit the money-management business and bought the Tampa Bay Lightning, then in distress, as well as a swath of cheap Tampa real estate not far from the arena in which the team plays. Since then, the Lightning has been rejuvenated, both financially and on the ice. Attendance has boomed, and the team advanced to the Stanley Cup playoffs in 2015, before losing in the finals. At the same time, Vinik has embarked on a $3 billion redevelopment aimed at revitalizing a big chunk of downtown Tampa.
In a phone interview from Tampa last week, Vinik, 58, who also owns the Arena Football League’s Tampa Bay Storm, talked about the building plans and Florida’s surging growth. Oh, and we asked him about the stock market, too.
Barron’s: You’re said to have the knack of knowing when markets will roll over. You made big market calls at Fidelity and then at your hedge fund. Would you buy or short stocks today?
Vinik: Stocks are fine today. We can achieve mid- to upper-single digit returns over the long term. No question, valuations of most assets are very high, in historical terms. Low interest rates have an awful lot to do with that. But look at what’s really going on in the U.S., and worldwide. We’re dealing with some of the best economic conditions we’ve had in many, many decades. We have good growth and low inflation. That’s why interest rates are so low, and that’s why valuations are so high.
Over the long term, I see continued good economic growth and low inflation. Maybe we are in a period analogous to the late 1880s, after the railroads came into this country. It was a long prosperous period with corrections along the way, good economic gains, and very low inflation. And the disruption occurring in so many industries that are driven by technology maybe [puts us] at the beginning of one of those very long periods of prosperity.
What causes the next bear market?
Historically, the cause of bear markets has been higher interest rates. With highly valued markets like we have now, you become more vulnerable to exogenous shocks that can cause 20% to 30% declines, perhaps a protectionist or geopolitical factor or rates getting hysterical. While I believe we’re in for a long period of relatively low rates, it doesn’t mean they won’t pop up cyclically every five to seven years and cause us some cyclical bear markets along the way.
After the last big tech and growth bull market, in 1999, we had a massive correction and then a great period for basic industry and resources. Do you see the same thing happening, or will Amazon.com grow to the sky?
In the past, I’ve said that, if you can get the major economic trend of the decade right, you just buy those stocks. In the 1970s, it was commodities and inflation. In the ’80s, it was consumer stocks and retail stocks. In the ’90s, it was technology. In the 2000s, it was commodities and emerging markets. For the past five to 10 years, we haven’t really had a driver, or we are just coming into one.
Now we’re in the beginning to middle stages of a new long-term leadership of the world economy from technology that may have legs for many, many years. The new innovative companies are more in the private markets than the public markets now.
Which sectors look good to you?
I am positive on semiconductors. We’re in an age of disruption that is potentially revolutionary and definitely disinflationary, which is a great backdrop for standards of living to rise for decades.
In health care, there’s a ton of disruption related to wearable devices and electronic records. Media is being disrupted by low-cost digital distribution. Autonomous cars will give people a ton of time back that goes into quality of life. Blockchain, which I’m frankly just starting to learn about, seems potentially disruptive. I have not made any blockchain investments because I know just enough to be dangerous, and I’m literally just starting to think about this. I don’t know enough to say whether Bitcoin or some of the initial coin offerings should be purchased here. But the underlying technology of blockchain is very real.
What do you own?
In the public markets, not a lot, and those investments I’ll keep to myself. I don’t have time to do a really good job at it. I’ve been investing in some growth companies and ventures in private markets. I’m invested in Longford Capital Management, a private-equity fund dedicated to litigation finance, and some other funds. I have private investments in companies like Delos, a New York wellness firm; aXiomatic, an e-sports and gaming company; Homee, a facilities management firm; a film production company called Mandalay Endurance Media Ventures; and Dreamit, which invests in start-ups that are building the cities of tomorrow.
What do you say to people who are buying index funds at currently elevated valuations?
Long-term returns are going to be good. I’m not bearish. In a good economic environment, all asset classes are going to continue to do well. The markets are so competitive these days that it’s really hard to pick managers that outperform. So, I am a supporter of index funds. For the average person, a diversified portfolio of index funds is a good way to go. Earnings go up over time, stocks follow earnings, and we’re in for a sustained period of high valuations given that inflation and interest rates are likely to stay low. I wouldn’t say we have the bargains of a lifetime, but I wouldn’t shy away from stocks because the valuations are high.
OK, let’s switch to one of your passions: investing in sports teams. What’s the rationale?
I’ve been a growth at a reasonable price—GARP—investor my whole life. I love sports and wanted to own a franchise. Some of my partners at the Red Sox were surprised that I love hockey. Growing up in New Jersey, I used to watch New York Rangers games on a tiny little TV up in my bedroom, when my parents thought I was reading. You use the word “investing.” In terms of a team, that word was never part of my vocabulary.
Nevertheless, it has been a good investment. You paid $93 million for the Lightning, and the team is worth $305 million today, according to Forbes. One of the things that doesn’t get talked about with sports teams is the value of the tax advantages of owning them.
We certainly want our values to be as high as they can be. As for the tax advantages, they aren’t significant over the life of owning a team. Most teams are roughly break-even, plus or minus, and you hope for long-term value creation in terms of the value of the franchise. We’ve invested quite heavily in the Tampa Bay Lightning over a long period—in our building, in a practice facility, in coaches and trainers and player development. Sometimes, the public is awed by the appreciation in the value of sports teams, not fully realizing the investments we make and, in some cases, the losses we suffer along the way. I love hockey. I have no desire to sell my team; so it’s a moot point.
You’ve also embarked on a major redevelopment of Tampa, which we hadn’t realized was a hockey town.
I bought the Tampa Bay Lightning for three major reasons. One, I was living in Boston at the time, and knew Tampa had a nice climate. Two, I recognized that the demographic tailwinds for Florida and Tampa, specifically population growth of 1.5% to 2% a year, were a very powerful compounder of demand. Three, I really like the people here. When I bought the team, I saw a lot of vacant land surrounding the arena. Tampa and Tampa Bay are great values. The cost of land, the cost of living in Tampa, is 50 cents on the dollar versus many major cities in this country. We’ll stay at a discount, but given how beautiful it is down here, how great the weather is, how much there is to do, it’s a complete mispricing. We have a lot of fans who are very loyal. In our hockey program, we sold out 111 games in a row.
Please talk about the redevelopment project a little.
Water Street Tampa, as the project is called, is a mixed-use, amenity-rich environment. We bought 50 acres of mostly parking lots surrounding our arena in the southern end of downtown Tampa. We also bought the Marriott Waterside, a 719-room hotel, and formed a partnership with Bill Gates’ investment company, Cascade Investment, three years ago. We are in the groundbreaking stage of a $3 billion, nine-million-square-foot mixed-use development. Over the next several years, we will build three office buildings, five to seven residential towers, two hotels, two museums, a theater, and hundreds of thousands of square feet of great restaurants and entertainment and public art and parks. In addition, the University of South Florida College of Medicine is moving downtown into our district.
Hillsborough County [which includes Tampa] has almost a million and a half people, but no urban gathering spot like the one that we’re creating. We are creating more than 10,000 jobs. The Tampa Bay region, perhaps all the way to Orlando, will be a superregion that will grow at twice the rate of the rest of the country over the next 10 to 20 years. Our audience is Generation Y—people in their 20s and 30s—and empty nesters who are selling their homes. They want to take mass transit or walk to the grocery store, restaurant, and movie theater.
By adding so much space, isn’t there a risk that rents will decline?
In certain categories, there will be a leveling off. Multifamily will level off in Tampa. But in office, there has been no Class A office building built in the past 25 years, so I’m quite bullish.
What rate of return do you expect?
I’m not going there. We know what current market rents are, and we’ll get good rates of return. Full value will be realized over 10-plus years. This city hasn’t dreamed high enough in the past. There’s an opportunity to change an area and deliver good investment returns at the same time, and duplicate that process in other cities.
Could you have created this value without the sports team?
Yes. We are not an arena district. We are building a downtown urban mixed-use district. Water Street Tampa will help the arena’s activities.
Tampa, scientists say, is more vulnerable to storm surge than any other major city in America. How do you factor in the possibility of an increase in hurricanes like Irma?
In the vast majority of our district, the ground floors are 15% to 20% above sea level. All mechanical equipment and electrical equipment will be above street level. We are landscaping to block water from coming in. It would have to be a greater than a once-every-100-years storm to actually cause significant damage.
What’s the outlook for sports media rights, which some sports-business analysts think account for a third of the value of a franchise, after ticket sales and sponsorships?
They’ve driven up the value of sports franchises. We’re coming into an interesting five to 10 years. Sports continues to be the only content that people really have to watch live. That gives it the ability to be commercially sponsored in ways no other media can. Obviously, people are watching less traditional TV and watching through other media like laptops or smartphones or tablets, and more is being watched digitally. The delivery mechanism is changing. It’s not only major networks bidding on sports rights. Now, Amazon is a distributor of NFL Thursday Night Football in the country. There’s potentially a great new source of demand for sports media. It’s tough to handicap: I’m bullish, though I don’t want to be pinned down to a specific number [on how much the value of sports media rights could rise].
Jeff Vinik will be speaking at the CRE and Urban Tech Summit on December 5. Learn more and register here.