About the Benjamins
We hear it all of the time in our line of work. That something – a deal, a contract, a decision – is “not about the money.” Sometimes that’s ironic because in the context of it not being “about the money,” someone is asking us to solve a problem with money (ours, not theirs). In the past, I’ve called money an interesting way of keeping score. And it is. But money can also be a tool or a weapon because with enough money, anything can be about the money.
The latest outfit to learn this lesson was the PGA Tour, which found itself forced into a merger with Saudi-backed LIV Golf despite shouting on high that it would never do so. The reason, commissioner Jay Monahan finally conceded, was that the PGA could not compete with “unlimited money.”
The plain truth is that you can have every other advantage on your side, but if the other side has unlimited money, there is no way to win. It’s like that old up up down down left right left right b a start Konami cheat code that would give you unlimited video game lives. If you have that, you’re going to beat the game no matter how many mistakes you make along the way because your ability to keep playing the game can never be exhausted.
There’s a saying in investing that the stock market can stay irrational longer than one can stay solvent. This is a nod to the reality that unless you have unlimited resources, betting against momentum is a dangerous game. And it is, which is among the reasons why I’d buy put options before I’d ever short a stock. The latter strategy puts you in a position of open-ended liability, whereas in the former you can only lose what you staked.
Facing LIV, the PGA found itself in a position of open-ended liability against an adversary with a balance sheet that was orders of magnitude bigger. That’s an unwinnable game. And if you agree with that, then it leads to a very interesting conclusion. Namely, that the greatest competitive advantage of them all, is the ability to raise money. Here’s what I mean…
Tesla went public on June 29, 2010, at a split-adjusted price of a little more than $1 per share and finished that year with about $170 million on its balance sheet. Over the next 10 years the company burned through almost $7 billion of cash and should have been long since bankrupt when 2020 rolled around.
Instead, the stock had increased over 70 times in value. The reason? People couldn’t stop giving the company money. In fact, over that decade, the company put more than $25 billion into its coffers
As someone who at one point owned Tesla puts on the belief that the company would run out of money, I under-appreciated Elon Musk’s showmanship. This ability to get people to stroke him a check meant that Tesla could never go out of business. And for a long time it was a better capital raising vehicle than it was a carmaker (and might still be).
So if the ability to raise capital is the ultimate competitive advantage, why don’t more people press it? The US government, for example, is resisting calls to mint “the coin.” Institutional investors shudder when GPs raise too much. And companies that are constantly selling stock are viewed as dilutive and shareholder unfriendly.
I’m not sure of the answer here, but I think it has to do with a general feeling that money is a crass advantage to play. That it’s somehow not fair to be better resourced than your competitor. Or that having money might make you reckless in other aspects of your life and business. And perhaps that’s all true. But it’s worth remembering that if you ever have a problem money can solve, you don’t really have a problem, unless you can’t or won’t get the money.
– By Tim Hanson
