Welcome the Money in Wealth with John Hob Bryant, a production of the Black Effect Podcast Network and iHeartRadio. This is John Hope Bryant and this is Money and Wealth, and I'm honored to be here with a new friend, Alex Rodriguez. Men he would know him as a Rod. Let me give you the part that's easy for all the baseball fans. You may or may not know that he came from the Dominican Republic. His family were immigrants. Victor Rodriguez's father and Lord is Nellie Nevado Mellow. I
hope I said that right his mother. They came from Well, he came. It was born in nineteen seventy five in Washington Heights section of Manhattan and came to this country with a dream. He was raised alongside his siblings Joe and Susie, and achieved incredible things in his professional career that started, as you know, playing twenty two seasons in Major League Baseball. That's the Seattle Mariners, the Texas Rangers, the New York Yankees, and of course later as chairman
CEO of a Rod. But we're going to get into that because it actually wasn't later. It was actually almost right away. But I'm getting ahead of myself. And he has been passionate about business and sports and community. And I will say, from my own perspective, I would say the maximization and unleashing of untapped human potential at scale. We'll talk about a little bit about that about with regard to how he treats his employees. Alex and I spent some time in the community a few months ago
here in Atlanta at Clark Atlanta University. He showed up very simply for no compensation, because he was asked to. And so this is an important conversation about things that matter most at a time where everything matters. And I'm honored to be with my new friend Alex Rodriguez John.
Great to be here, man. We've been looking forward to doing this together.
We have. We have, And the story of your sports success is a topic of obvious legend. And I don't know if you get tired of talking about it or not, but I want to talk about your sports success from a different window, a different vantage point. I want to understand. Was this always about you aspiring to do more? My guess is initially you were passionate, absolutely passionate about baseball, that was when you were in the Dominican Republic. That was something that you obsessed on, Is that right?
Yeah? Look, ever since you know, I was born in New York. I was born in the shadows of Yeshiba University right around one eighty third, nineteen seventy five, very close to Yankee Stadium. My father owned a shoe store in our apartment. And very much like my father, ever since I was ten years old, I've always wanted to be a baseball player and a businessman, and I was
fairly good with numbers. My father was too, and I had a passion for it, and ever since I was a rookie and I got drafted in nineteen ninety three by the Seattle Mariners with the one pick overall in the first round, I was thinking about life after baseball because I've seen enough examples of players that have gone like me, from rags to riches back to rags, and I didn't want to be an addition to that, you know,
unfortunate number or statistic. So that was my passion early on, was to have a path to have a good life post baseball.
You were inspired by that balance initially from your day, Is that right? Yep? Yeah, and mom is where you got the self esteem. She poured the love in you and said, you can do anything.
Is that right? Yeah? You know. My father he passed some years ago, and he left us when he was ten. And I never saw in those ten years my father raise his voice once. Even though he was an alcoholic. He would drink twenty twenty four beer cans a day, Budweiser I'll never forget, and two packs of cigarettes a day. So my mind is a ten year old John. I thought my father's going to be dead by the age of thirty. There's no way that anyone can live this
type of lifestyle. But never saw him drunk, even though I'm sure he was. But he was an acting alcoholic and very functional. And amount of cigarettes he was smoking my house was like intoxicating. But my mother. I got my toughness and my grit and my work ethic from her. She worked at General Mortars for over twenty years and then when dad left, she had to pivot. Once we arrived in Miami at the age of nine, and I
joined the Boys and Girls Club. She was a secretary of the morning and surf table at night, and I remember her coming home after twelve hours of working around midnight, sometimes eleven o'clock at night, and I would just be watching finishing, watching the Mets game, watching Kinner's corner, and I would give her a big hug, and I would take her pouch where she had her tip money, and
I would start counting that money. And you know, on Thursdays and Mondays, Tuesdays it was thirty two twenty eight dollars twenty nine thirty. But Friday and Saturdays with the big ticket nights, and she would come home sometimes with fifty eight fifty nine sixty bucks. I said, boy, we're richer than Warren Buffet. We made it big. But then John, she did something interesting. She would then take that pouch and put that money out and put it in an envelope yep. And then she would say, son, help me
pick up the mattress. And I remember, like an eleven year old boy, like everyone's yesterday, she would take that envelope and put it right under that mattress. And I said, Mom, but wait a minute, there's banks all around our neighborhood. Why don't you go put the money there? And being an immigrant mother and not trusting banks, she goes, Son, we don't trust banks, we trust cash, and we trust
our mattress. So that was the start for me where I said, financial literacy is going to unlock my future and hopefully get me out of this neighborhood.
You and I have a lot in common. The more I hear about your story, the more we relate to mine. My mom told me she loved me every day in my life, just like your mother told you. She worked as a seamstress. My dad was a business owner and had issues. He had other problems, was an alcohol but had other challenges that but deubled him. I could relate, and I'm very proud of how you have how you circumnavigated that entire situation and found always that sweet spot
of what was most important. And so now I'm going to pivot back to something I said earlier, which is, yes, you're passionate about baseball. Killed it for twenty two seasons, became a legend in baseball. I'm sure lived your dream made everybody proud, both in New York and in the Dominican Republic, maybe even all of Latin America. But you're dreaming also parallel about business, and I understand it your first at the time, you're the largest contract of anybody
who signed a baseball contract. There was over two hundred million dollars at the time. As I understand it, your first call was to Warren Buffett.
Yeah, but you know, one hundred percent right with one edition. Pre setting that big deal, I didn't have a lot of capital. I was just a young kid that I entered the big leagues at eighteen, and somewhere on twenty
one or twenty two. Before I got paid, I made my first investment and that was a duplex and that duplex was about two hundred and fifty thousand dollars right around Miami Arena, right there on fis Gain and I had a forty eight thousand dollars down payment and that was the start of basically what is now called a Rod Corp. And once I got my contract with the Texas Rangers, I was naive enough to think, well, if Warren Buffett, who ensured my contract, and that got back
to me, I said, well, now we're partners, so let me call him and make sure that I'm going to let him know his money is safe with me because I don't plan on getting injured. And of course I send an email. I thought I would never get an email back, and he sure responded about you an hour later and I said, if you're ever available, will love down to come down to Omaha and have lunch with you. And he said, how's October And I said, well, we're
not going to the playoffs, I'm totally free. And that started a series of about five to seven years of me going there every year postseason one to make sure that the insurance money was good because I was looking healthy and good. And second he became a mentor where he would basically look at all my businesses and give me great advice.
He ensured your contract through one of the businesses that he has.
Is that right, yeah? Or I mean he probably did it from his balance sheet, right. It was he was trying to get the We were trying to share the last third of it of a ten year contract because it was such a new thing of a contract that long. There wasn't any precedent, right, So we got the first seven years insured, but the last three were having a hard time because it was hard to forecast that far out.
But one basically said, yeah, if you sent me this check, I'm sure the last three years and that was the end of it. And thank goodness, we cement to the deal.
So I don't think, and I don't want to presume or assume, Alice, that the audience understood what we just said. They just see you playing baseball, They see their favorite athletes just doing what they do, and they just assume that the check, you know, is coming in the mail, and like they get the check to their employer. Now you just unpacked the whole other situation, as they say in my neighborhood, where a contract is underwritten for insurance.
Can you explain that just a little bit before we go first.
Sure. Essentially, John, let's just say that, you know, I give you a one hundred million dollar contract and it's ten years, and it's ten million dollars a year. Right, it's one hundred I'm going to have to go ensure that contract, meaning that if in year three John breaks his knee injures himself, well he can no longer play for the rest of his career. I'm still, as the
owner on the hook for seventy million dollars. I have an insurance policy that, let's just say I paid two million dollars for that premium, would essentially take care of the seventy million dollars and now I'm off the hook. John has paid his balance of seventy million dollars and the insurance takes it on the chin. But in most cases, John is going to remain healthy and that two million dollars premium basically goes to the wayside on my end.
But you and I can sleep at night because the contract is insured and the insurance wins in this case.
So before I ask you the question about who paid the premium, there's an interesting take on it, whether you as a contractor or the owner of the team. But for the audience, what do you just describe? Think about an insurance premium for your house. Think about an insurance premium for a life insurance policy are your card. That premium is a small fraction of the value of the insurer. They hope that they you never call them with a claim. And this is how people not all claims. Is how
the insurance company makes a profit. And you want the insurance company to make a profit in this that's way capitalism works. And there's too many claims. Of course, they could go out of business. Uh So, in this particular case,
there was a premium. Alex Is, the corporation this is this is this is separate from a rod This is Alex Rodriguez, the professional athlete, has got a two hundred million dollars contract, and he is the product and is a premium for the underwriting of insurance for that contract. Now else who paid? But I hope not getting into your business. Now, let me put it another way. Was this sponsored by the owners of the team?
Yeah, so it is the responsibility of the owner to ensure the contract because obviously, as I just explained, if you have one hundred million dollar contract and things go the wrong way and you get injured, I, as the owner, don't want to be on the hook for that seventy million dollars because John's not available to play. So the owner in this case. In this case it was Tom Hiks who was the owner of the Texas Rangers. He wires the money to warm buffet.
Right. The reason I asked the question is, you know you could, as entrepreneurial as you are in your mind if the owner said, look, I'm going to do five years of this or three or five years of this contract, I'm not going to ensure ten years of it. I'm thinking the entrepreneurial Alex and I know would say, well, let me go to Lloyd's of London. Let me go someplace and see if I get the back end insured myself.
I'll write the premium check and there's a small price to pay to know I've got the guarantee of all the money. So there's a number of ways to cut this. But in this particular case, they felt so strongly about you, and of course you were such a wonderful negotiating position that you got the entire contract he is guaranteed. Is that right?
Yeah, you're spot on, John, So let me add to that. So a lot of times and I did this exactly what you just described, that the team is trying to ensure that contract for protection of a downside event of an injury the player, me or you. In this case, you can go to Lloyd's of London and say, look, if I'm supposed to be playing for fifteen years, but I get hurt and I'm only allowed to play for five years, then Lloyd's of London will give you an
additional check to John. Now, assuming that you play those ten years injury free, the John insurance that you paid to Lloyds to London that goes away. You lost that money, but you made the hundred and the team is very happy to lose two million because John played incredibly well. So double ways of insurance and by the way, you can also ensure your house a couple different ways than just one.
And for those we unpack everything on this podcast. We make things simple so you understand it. But nobody ever talked to you financial literacy like Alex mother and my mother taught me in the beggar of my classroom. So we want to there's no silly questions. There's nothing that is that is off limits. By the way, doctor King in the middle of the civil rights movement try to get his life insurance and try to get a million
dollars of insurance for his family. And Andrew Young pastor Andrew Young as we know now and him went to London, literally going to London. It ran around. No one would insure him Alex. They thought he was just too much of a risk, and he was only you know, he was thirty something years old. They just figured, you know, the chance of something happened to you is extremely high. He's a guy about to get the Nobel Peace Price. They finally got one of the million dollars they finally
got one hundred thousand dollars. Premium was very high because the perception of risk was very high. Just because you're on the front page of the newspaper doesn't mean that you automatically get a yes to your answer. But underneath a lot of these things are insurance policies, and older you get the most expensive that policy gets. If you're getting a life insurance policy, it's very cheap to get
one at twenty thirty years old. Try to get into life insurance policy at seventy years old for your life, the premium is going to be astronomical. And you can't be mad at the companies. If you want to distribute money like a socialist, you got a first collected like a capitalist. So we want companies to find a way reasonably to make a profit so they can afford to get back and reinvest and take care of their employees.
And on the topic of taking care of his employees, I want to gut into that in a minute, but I want to commend you also, Alex. I don't know that if anybody set this to you in this way, but my sense is that you're the only or the first Latino billionaire entrepreneur from professional sports in America. I don't think there's anybody else who has that Moniker. First of all, I don't know another Latino a billionaire in America. I'm sure they exist, but one that came from sports
to business. There's no question in my mind that you check that box. And I think you just got into the billionaires club late lash year. So assuming I'm correct of all that, on all that, congratulations.
Well thank you John. And you know what, again, I started from literally like ground zero. I'll never forget John, And I think I told you this when we had dinner. You know, I was twelve years old, and you know, Dad had left a couple of years ago, and we were at Publics, a supermarket down in Miami, and I'm with my mom on one of the rare nights that she didn't work. It was probably like a Sunday night
or something. And as we're trying to pay for the bill, the bill might have been like seventy five bucks or something. We had like a couple of cars of food and cereal and all of that, and as she's kind of shuffling through her purse, some funny money comes out and I said, Mom, that money's read, well, it looked like monopoly money. What is that? And she was very embarrassed and ashamed and kind of looked down, and she goes, well, you know, the government's given us some help. And my
heart stopped. You know, even as a twelve year old, my instincts were too, very very protective of my mother. And to be where I am today, play for almost twenty five years and be very fortunate to be part of an ownership group. You also have to commend, you know, Adam Silver in the NBA that he's opened up the floodgates to have folks like you and I sit at the very top of the chain as governors. It's extraordinary.
And I know that Adam and the NBA has great ambitions to continue to promote diversity and more folks like us, people of color to the owners group.
No doubt. And I'm an owner of part of Centennial Yards, which is right across from State Farm Arena, as a partner with Tony Wrestler who owns Atlanta Hawks, and Tony is a big who accommodations definitely, the Adam Silver who's a part of financial literacy for all, Tony is a big booster that civil rights. Modern civil rights is in the suites, not the streets, and the color is green. It's about education, access the capital, low cost capital, an
opportunity for all. It's Michael mill And would say, this is where we I think we originally where we physically met our friend Michael. Intelligence is equally distributed, but opportunity is not. And so we are at these tables and we should not take it for granted. And thank you for doing this podcast to help to spread the message of unpacking the memo. We unpacked a little bit about insurance and about how you underwrite a long term professional contract.
I'm sure the audience didn't know that we're going to get into it. Well, here's another get. There is no billionaire who came from professional sports or entertainment who's a person of color, who didn't go over the bridge of business, particularly corporate. I'll say that again. There is no professional athlete that you're listening that you're thinking about right now. Our entertainer, think jay Z, think whoever you like who went from performing, playing whatever into the boardroom and became
a billionaire without coming into corporate. So this is a pathway that everybody needs to understand. We've got to go from the streets to the suites, from protesting to prosperity, and there needs to be a business plan for that. So your obsession, your dual obsession with being smart at the baseball diamond, then smart as a diamond in your brain, and then getting into real estate, which was a really smart move, biggest business in the world. What was your
motivation there? And then treating your employees your second biggest asset the right way is I understand it. You make employees shareholders in your dream as well, because nobody washes rental cars. What's your mindset there? And I'm now getting into the most valuable thing we have, Alex. It's not the money, it's not the assets, it's not the real estate. It's our mindset and our relationship capital. The way we treated each other, way you and I treated each other
when we first met set the stage for everything. I asked you to come to Atlanta originally your office set. You didn't have time, and you didn't and I said this was for the people. Now, only one would know this unless I said this is for the people. This is no commercial there's no commercial anything in this. And you just said, yes, I'll do it. And you came here at your own expense and spent several days with us,
pouring into the people. And I think that's going to pay dividends, not only in Heaven, it's gonna pay dividends here because whatever it goes around comes around. But that's mindset, that's character, that's integrity, that's how you treat people, treat them how you want to be treated, and that carries over how you treat your employees. Talk to me about your mindset to win and why you think it's important to bring others with you.
Yeah, great question. And we had a phenomenal time and boy was at an impactful day when we were at that university and talking about some of the history around some of the Black college and the history of of what has done for so many people. And very proud to be there and thank you for that invite. Look, John, the way I look at this is like financial freedom comes from two things. It comes from knowledge and the power of knowledge, and equity and ownership. And it's kind
of what the rich that poor dad teaches, Right. I get excited when I get to invest into equity, and I think most people get scared. And the truth is if you're scared and you don't know, it's probably better to have fear right rather than than jump in and do something that's wrong with well, not the right leadership group around you. I've often said that the three things that could take a man down or people down in the world of business are the three l's, liquor, ladies,
and leverage. So you got to watch those things. But to me, John, it's really about simplicity and sticking to your circle of confidence, which I learned this over two decades ago from Warren Buffett. And the reason why I started with multifamily apartments and a small little duplex is because I understood it because we were never We never had enough money to buy anything. So I remember as a ten twelve year old boy, I went down to my knees and I said, Dear God, if I can
ever trade places with the landlord. And about a decade later I had an opportunity to be a landlord, even though it was a small landlord of two apartments a little duplex. I bought that, and all I was really doing was I knew that at some point my ability to make money from the Yankees was going to come down. But if I had assets that would hedge my bet, and as my earning power came down, my assets would appreciate. Now I knew that I didn't need a lot of
cash flow, so I was able. My strategy was simple, If I can play for ten more years and I buy one asset per year, appreciate in value and in cash flow. By the time I was done, those ten assets would be my insurance policy for never going broke. And that was it. It was nothing from Einstein. It was nothing. I'm not that smart, but you try to be clever and try to be smart and work as hard as you can with your competitive advantage. And I thought that was mine.
So audience, you just heard and Alice says, I I know this about me. We exactly the same philosophy. I had this nonprofit it was draining me dry, not really, not literally, but I mean it was nonprofits are hungry. And Alice, by the way, volunteers at the Boys and Girls Club as well, and mentors. And I didn't want to go beg in anybody. I wanted to be my
own resource. And so I went and start buying single family residential homes and he started buying multifamily homes and we are both together two of the artist people of color who own both. I think as an afric American close to seven hundred single families, and he's got an incredible portfolio of like mostly multifamily Why because you make money during the day, you build wealth in your sleep. The contract that Alex got, that was the grease on
the gears. You can get rich, but you can also go broke because the cash flow stops and you go broke, but your expenses have not. Please listen now what he said he said to you said it very eloquently. The cash flows coming in, your expenses are now rising the mediate standard of living. Your cash flow of the contract's going to end because seventy percent of all those in professional sports, unfortunately will file bankruptcy within five years. You've
got to have something to augment that. And he did that through capital gains and capital asset well, capital appreciation of capital assets asset accumulation through real estate, which gave him both appreciating assets and income that replaced the income he has as a player. They get that, right, Alex.
That's exactly right. And even to simplify it and just make it even more simple, because I know this is what the mission of this podcast is is to educate and inspire and to teach people how to have a better life. If he or she is listening right now and you know that you're making one hundred thousand a year, but that's going to stop in ten years, then you
better start hustling today for what's gonna happen in year eleven. So, in very simple terms, if that is your life, that is the life of an athlete, just add a couple of zeros to it. But nevertheless, you have a partner, and if you're in La or New York, that partner is going to take sixty percent of it between taxes, agents and managers and john People ask me is all the time, how in the world does an athlete make over one hundred million dollars and, like you mentioned so eloquently,
can go bankrupt. Well, let me give you an example. If athlete name Chris makes one hundred million dollars a year, one hundred million dollars in their career, and they're playing for the Yankees, or they're playing for the Lakers, or they're playing for the Dodgers, fifty five percent goes to the government. So now you're down to forty five million, ten percent goes to your manager. Now you're down to thirty five million, five percent to your agent. Now you're
inside thirty million dollars. You haven't about a house, you haven't bought a car yet, and you haven't even been divorced for the first time.
Well paid alimony for all those kids.
All of that, So it goes quickly. It goes quickly.
So what we're saying to you audience is anybody can be an Alex or John financially. Just take away a couple of the zeros. Start simple. He made it. He had an income that allowed him to provide for his lifestyle and make an investment. I want you to have a good income. Think about a house in the hood, the worst house in the best block, by it, rebit or a duplex, buy it, rehabit, rent it. I would say hold it, Alex may say sell it. I don't.
But you know everybody's economics are different. Do that two or three times and you create a generational wealth and Alex it's just as Alex has paid it, poured into his own community and doubling and invested back in with his employees. Still want to hear that story? I want you to think about hiring local talent from the community. Is plumbers, electrician lighting, roofing, landscaping, painting. Now you're creating
local jobs, reinvesting. That's your philanthropy. Magic Johnson is one of your mentors that helped you to navigate what you've done. Really good guy. What was the influence on you to double down on this and go large? And again, I want you to touch very specifically about how you're helping your employees that I really was touched by how you're doing that just not what you're doing because you back them,
you backstop them. And before we finish, I really want to get into when you hit your head against the wall, when you stubbed your toe, it's all has not been a bed of roses, like because you had to take no for vitamins. Everybody's not just saying yesterday because you're Alexe Rodriguez, Like, hey man, you're a baseball player. Go go ad over there. You know you had to you had to earn your CD at the table.
Yeah, yeah, great, great question. So, first of all, Magic Johnson was my my my kind of my beacon of inspiration. I mean, he gave me an opportunity to say he gave me a role model. And Magic. Johnthan is such an incredible person. You know, he's he's one of the greatest basketball players of all time, one of the goats, right, five time world champion, MVPs, you know, a gazillion dollar smile.
But when you meet Magic, he's even more inspirational. And he's such a good man that he sat down with me for three hours and basically gave me a roadmap. And I had nine pages of notes. And I said, Magic, we were supposed to meet years later for thirty minutes. Why did you give me three hours and cancel dinner with Cookie? He said, you know what, because you're one of the first athletes, if not the only one that
came with a notebook. You came on time, you were asking good questions, and you had like ten pages of notes. And I thought that was interesting. But because he's a man of color, I saw a path and an inspiration of someone who could be a Hall of fame basketball player and then be a hall of fame businessman in the boardroom. So that was a pathway. When you look at a Rod Corp. We have over five hundred employees.
We call them team members. Eighty five percent of those are minorities, men of color, black skin, brown skin, women. And I was inspired by my mother because my mother never had an opportunity to invest with Warren Buffett or Blackstone or KKR Goldman Sachs and JP Moorean wouldn't even
take her calls. So as I think about our investment, if we make an investment of ten million dollars into a company, every person on my team has an opportunity even if it's two thousand dollars to invest with me pro rata, with me side by side, right and my value, no promote, no fees, because I want everybody on my team to have a path to have in a better life. And the way you have a better life, as we talked about, is by having more assets and less liabilities.
A liability is a car, an asset is a house is a multifamily is part of a business that generates cash flow. Another way of saying it, john for your audience, is what is the difference between a liability and an asset. Liability takes money out of your pocket every month like your home, and an asset puts money in your pocket every month like a multifamily. Apartment. Okay, So it always bothered me that only the rich people, at least it felt from my prism when I was really young, had
the opportunity to invest with the Warren Buffetts like. And today my mission is to work on financial literacy for my community and secondly to give people an olive branch and an opportunity to invest. Side side.
That's right, even.
If it's two thousand dollars. That never made any sense to me that only rich people get to invest in assets. How about the poor people? Okay? That was me. That's my mom, right, So that's one. And if you don't have the money, John, what I'll do is as an example, and I did this with one of our team members. They didn't have the money. It took fifty thousand dollars. I fronted the fifty for them. Yeah, became five hundred thousand.
They paid back my fifty with an eight percent coupon, and then they kept about four hundred thousand dollars profit and they put down zero. So now the next investment, they're putting down two hundred thousand and have two hundred in the bank. And that brings a lot of joy to me as a leader of my company.
My friends have told me, Alex, to slow yourself down, stop talking so loud, long and fast, and explain this to me. You mentioned word coupon. You mentioned the word promote. Can you get so promote is something that Alex and I love. Think about a license anyway, explain to them in your words promote and coupon all we love both of those phrases. But watch explain that, Alix in your word.
So if I lend John, my friend here, one hundred thousand dollars and he pays me eight percent, I'm so glad you said that, John, because all these fancy terms and accurate, they're just there to confuse people, right, our people in our community. So that's a great question. We take it for granted sometimes because that's the way you and I talk when we're in your office or my office. So I lend John one hundred thousand dollars, he pays
me eight percent. So essentially he's paying me eight thousand dollars a year on that hundred right, And that's called the coupon. Right, And if that coupon is out for three years, eight thousand times three, he owes me twenty four thousand dollars. Essentially, right now, if John and I are partners and we buy a business for one hundred thousand dollars and five years later we sell that business for a million one, essentially there's a million dollars of profit.
And because John and I are the code GPS on that million dollars of profit, once they get their money back our investors plus an eight percent coupon or return, then there's about plus or minus a million dollars of profit, which twenty percent of that goes to John and I. And that's two hundred thousand dollars that John and I get for putting the deal together, underwriting it, managing it, sourcing it, and essentially bringing value to it. So John
and I walk away with two hundred thousand dollars. So our partners are super happy because they got them a ten X, and John and I are happy because we were able to promote a great deal and then we're off to the next one.
So you might have been thinking about it. People might be hearing like a concert promoter, right, I guess you know can generally get your hands around it. But it's a deal promoters, it's an investment promoter. So the promote is the percentage of the profit that the developer gets by bringing the deal to market successfully, and they value added on top of the cost and agreed coupon. He said it much better than I I did.
Te let me add one, thanks for our listeners and our viewers listening in. John and I only make that promote if we make money for investors. He very very important. We have complete alignment. If that's a donut and we don't make any money, John and I are out. We don't make any money. We only make money once the investor gets their money back plus an eight percent coupon
right return on their investment. Then after that waterfall, which is called the waterfall, once we do all of that at and we have a million dollars left in profits, then John and I split that eighty twenty eighty goes to the investor and that twenty percent goes to John and I as code general partners.
The first time I might mention the word waterfall to me, I was actually looking for where we're going on vacation, like, what's the waterfall? So for the listeners, the waterfall is the way in which the transaction breaks out. How's that dollar split up? What's the waterfall, who gets the well, who gets what first right? And what's the priority of the distribution I'm playing, I'm saying this in plain English.
That's what we call a financial waterfall. I want you guys to become an experts and all this stuff so no one can uh. As Malcolm Mick said, we've been bamboozo We've been tricked, We've been fooled. I don't wantybody to fool you anymore. I want you to be financially literate, because it's not what you're not dumb and you're not stupid. It's what you don't know that you don't know that is killing you. But you think you know because no one ever taught you.
I agree with that, and I think sometimes he's acronym. Sometimes are made to keep our people out of the room and keep them not smart, and really our listeners are very, very smart. We just have to have better teachers that are willing to teach and bring people along like you and I are trying to do. But we do have a lot of resistance because I do feel there's a lot of people that are trying to keep the people down, and I think you're really doing God's
work and helping educate people and teach people. And there's no greater gift than teaching someone how to fish versus just giving them a fish.
Financial literacy is the civil rights issue of this generation in my opinion. When you know better, you do better. We don't have much time left in this incredible podcast we've had together. This has been rich. I do want to cover a couple more things before we exit here. As you were talking about the waterfall and the coupon and all that, don't get a chance off enough to
thank people who got helped to get us here. Magic Johnson would talk about all the people he'd leave a game, a basketball game and ask for the people would send those front benches for their cards, and he goes visit with them and use his credibility to get in their offices and just listen, right, And a lot of those guys end up doing deals with And basically you've just said the same thing. You're giving Warren Buffett some credit.
Thanks for saying that. I woult to give Tony Wrestler two hundreds, which is man in the world, credit for doing a deal with me, and I own you know, at the end of that deal, all of the company. He just wanted a coupon. He just wanted a seven percent return on his money. Him and Michael Arraghetty. Everything else paying other than paying my debt, debt and preferred equity, I owned the rest, and we shouldn't. We should all be grateful and gracious about spreading the credit when we
actually succeed. Is there somebody that you want to mention that helps you get here? Alex? And also, I didn't want to end with this, you know, rainbows after ms. The mistakes you made is something you kicked yourself about. Why did I do this stupid thing? Something you're not you know, that's a lesson now for the audience.
Yeah, So I'll keep it to finances and mistakes that I've made there because we don't have enough documentary all my mistakes. So I'm gonna try to keep this tight. My good friend Grant Harrell once gave me great advice. He always talk about the five bes and he said, be brief, brother, be brief. So I'm going to take Grant's advice on that. So, first of all, I shout out to Tony Wrestler, who's my partner at the NBA.
He's one of the coolest people that I've met, but also very generous, and he is someone that really believes in bringing people, all people in the room with him and give him an opportunity, as you will eloquently just described in your partnership with Tony and his partner and your other partner. As far as mistakes, I'll I go to two thousand and eight, because it was a really,
really tough time with the financial meltdown. I bought a piece of property, five hundred units right around George Steinbern a field in Tampa where we held sprint training. And my thesis was it it's good enough for George Steinburn and the Yankees, it's got to be good for my apartments. So I basically bought five hundred units for about sixty thousand per door. Okay, I had twenty thousand of equity per door, and I had the loan for forty thousand.
What happened was from a Monday to a Thursday when everything went upside down and we had the financial crisis in eight oh nine, my properties, my units were now worth thirty eight thousand, but I owed forty thousand. So basically that's what they call you're underwater, right, And unfortunately I was young and not experienced, and I had what is called the PG, which PG stands for personal guarantee.
Oh yes, which if you're listening and you don't really remember anything else, John and I said, please remember this part. Never sign personal guarantees it unless it's your home. Now. I was fortunate enough to have some liquidity, and I negotiated.
Everybody means cash cash.
I was fortunate to have to have cash, and I was able to negotiate with the banks a very clever deal in which they had like a fifty million dollar write down in exchange for a four million dollar check. And then we said to the bank, look, you're not in the business of managing these assets, meaning multifamily apartments, we are, so why don't we give you a four
million dollar check. You write down fifty million dollars. Immediately from losing two hundred thousand dollars a year in that portfolio, we started making two hundred thousand dollars a year because we owed less and we put more equity in. And then we said to the bank, when we sell and the next five years will give you another fifteen percent of the ups Wow. Eventually, right, thinking outside the box.
John.
Wow, the bank became a promoter on our deal. Yeah, that was what we call a win win win alignment structure, and we sold it for a big number. We gave the bank another few million dollars on the ups and to this day that's still my bank. And we did the right thing at the toughest time, and people and partners will never ever forget that because that builds your reputation in the business community.
I'm so glad that you added that, Alex, because that is probably one of the best lessons anybody's going to get from this. There's something called non recourse debt. We don't have time to get into it now. It's the best kind of it's the most appropriate type of debt for the type of large scale transactions that Alex and I did. Either personal residence. It's nothing wrong with a personal guarantee. You know, I have a personal guarantee in
our home, right, that's right. But you when you're doing business deals, should try to let the assets speak for themselves. But what he did structurally was brilliant. And when you're being run out of town, get in front of the crowd and make like a parade and I had followed him. I sort of knew. I thought I knew where he was going. But that last piece was very creative. He turned his banker into a venture capitalist, into a joint
venture partner. It was really quite quite clever. And you turn a negative cash flow into a positive cash flow overnight through structure. Listen, everybody, there's a crisis coming in some parts of the economy. Commercial real estate. It's got a trillion dollars of refinancing they gotta do. In the next year or two. There may be properties that become available. Real estate has never gone down the history of the world, I mean in America rather over time. Think about some
of this. It's not a problem, but as Alis just said, in your neighborhood, maybe some of this is an opportunity for you to reposit that asset, help the bank, the lender, help yourself, help your community, and create a little generational wealth. Alex, you are walking generational wealth. You're a walking in tech gritty. You're a good guy. And you know, we're all angels with dirty faces. You know, a saint is a centerlar got up. So none of us are perfect. But I
like your imperfection. I like the way you roll and I appreciate you coming on this podcast and being so transparent. Charlemagne, myself, all of the friends of this podcast, thank you for just being you.
John, thank you very much for having me. I consider your dear friend, and we're going to do a lot of great things together for the community and maybe even in business. But just one last message for your great audience, and again I want to just say how important it is that they know that they are smart, they are capable, they are enough. We just got to do a better job us as leaders to educate them and bring them along. And don't forget that. Remember this, remember this. A champion
is a loser that tried one more time. Hmm. Don't give up and just keep on trying. You can do this. And John and I believe in you.
Yeah, Alex believes in you. That's why he's pouring into you because he sees you in himself. He sees you as the little boy, the young person who is trying struggling. He sees his mother in the single parent households. He sees the young black men trying to make it as a parent, he sees his father there. He can relate to you because he was you, So go out there and kill it and then help somebody come up behind you. This is John O'Brien. This is Money and Wealth, and this is my man, Hey Rod.
John, my man, Thank you so much for having me.
Money and Wealth with John O'Brien is a production of the Black Effect Podcast Network. For more podcasts from the Black Effect Podcast Network, visit the iHeartRadio app, Apple Podcasts, or wherever you listen to your favorite shows.