Over the last 10 years, Goldman Sachs (NYSE:GS) has helped professional sports teams structure, negotiate, and build over 30 different stadiums. It has worked with the New York Yankees and the San Francisco 49ers, and is currently working jointly with the San Diego Chargers and Oakland Raiders on what could be the most expensive stadium in the U.S.
Goldman has perfected a strategy in these stadium deals based on a few powerful philosophies. Those philosophies can -- and should -- be applied to your investing as well.
1. Minimize your taxes
The proposed new stadium will be built and owned by a newly formed public authority. This structure is a tax-exempt entity, meaning it would have to pay neither income taxes on the revenue the stadium derives nor property taxes on the land on which it sits.
The teams will pay rent to use the stadium since it will be owned by the public entity, but that rent will be at a favorable market price and will also be tax deductible for the teams.
Minimizing taxes is a core tenet of this deal's structure, just as it should be in your investing plan. The best way to do that is to use a tax-advantaged account such as an IRA or a company 401(k).
For investing outside of that account, buying and holding a stock for at least a year can cut your capital gains taxes by nearly 50%, depending on your ordinary income tax bracket. Capital gains from stocks bought and sold in less than a year are taxed at your ordinary income tax rate; long-term capital gains are taxed at just 20%.
Over the long term, the savings in taxes via your retirement account and a buy and hold strategy can add up to hundreds of thousands of dollars, if not more.
2. Protect your capital
Another cornerstone of Goldman's plan for the Chargers and Raiders is that neither team will be required to put up large sums of cash for the new stadium. Typically, sports stadiums require huge amounts of up-front capital and sometimes even new taxes on the public to help pay the bill. That puts a big burden on the team and the city, as well as placing huge sums of money at risk.
In this deal, Goldman will raise cash from private investors to fund a construction loan and then use a bond sale to finance the deal over the long term. Those bonds, by the way, would be structured as public agency bonds, meaning they too would be tax free for investors. In doing so, neither team will put much capital at risk.
Protecting your capital is paramount if you want to beat the market in the long run. It's a core lesson in Warren Buffett and Benjamin Graham's "margin of safety" concept.
Margin of safety means you should only buys stocks at a discount to their real value. If a stock trades for $15 a share but you calculate its intrinsic value to be $30, then you have a strong margin of safety. A discounted stock represents the most upside, but it also represents a stock with limited downside.
In the same way, diversifying your entire portfolio across a number of industries builds a margin of safety. This portfolio construction protects you from a particularly bad run in any one sector that costs you an outsized loss.
Remember, a stock that declines 25% must then rise 33% to return to breakeven. Not losing money is a critical component to successfully making money.
3. Profit at every turn
Goldman has its hands on virtually every aspect of this stadium deal, and others. In doing so, the bank ensures it will get paid over and over again throughout the process.
There will be advisory fees for its role in negotiating and structuring the deal. The construction loan to build the stadium will have its own fees, of which Goldman will get its fair share. Goldman will manage the bond sale, again cashing in more fees for the bank.
While you can't charge fees like a Wall Street investment bank, you can select stocks that pay you at every turn. Stocks can appreciate, obviously, which over the long term will generate significant wealth. But don't forget that companies can also pay dividends and buy back stock.
A company with strong fundamentals, a healthy dividend, and a steady share buyback program will effectively pay you at every turn. When the company's earnings rise over time, so will its share price. Every quarter, when the company pays a dividend, you'll collect a check. Every time the company buys back shares, your percentage of ownership in the company will increase in step.
You don't have to be a Wall Street bank to invest like Goldman Sachs
Sure, the numbers are much larger and the deal structure is far more complex in a Goldman Sachs-led effort to finance an NFL stadium than in your own IRA, but at their core both scenarios adhere to the same basic philosophies.
Best of all, you don't have to be a Goldman Sachs hot shot or billionaire NFL owner to take advantage them.