Think in the Next
Letter from the Dean
TED Week 2013: Seeding New Thought Leaders
Kentucky Bourbon Feature
Sports vs. Community Feature
Building a Better Brand
Dollar Shave Club Dept.
Choice Architecture Dept.
Military Vets Dept.
Startup Chile Dept.
End Quote: Lonnie Ali
Letter from Eric Mokover
The Business Of Sports: It’s Not Just A Game
How Sports Franchises Balance Pulling Profits and Pleasing Fans
In October of 1957, Brooklyn Dodgers owner Walter O'Malley announced that he was moving the storied franchise to Los Angeles. Historians have since debated O'Malley's motives–including his frustration over not being able to build a new stadium–but no one disputes that the decision caused extreme reactions.
Brooklynites vilified O'Malley and decried the loss of Da Bums, a beacon of civic pride from the moment they began play as the "Trolley Dodgers" at the dawn of the 20th century.
Some 3,000 miles away, Southern Californians hailed O'Malley's visionary decision. Many believed that the Dodgers' westward move burnished Los Angeles' reputation as a major-league city.
Such is the emotional dynamic surrounding professional sports franchises. The business of owning pro teams extends well beyond line-item entries of season ticket and merchandizing sales, TV contracts and stadium leases. Indeed, as a quartet of UCLA Anderson School of Management graduates and instructors who have personal experience as owners can attest, the relationship between sports teams as a for-profit enterprise and as an inestimable community resource is unique.
"Fans think they own their team," says UCLA Anderson distinguished visiting professor Peter Guber, a partner in the ownership group that purchased the Dodgers last year for a reported $2.1 billion. "They think they make a difference in the outcome of the game. So, when you own a sports franchise, you're building a relationship, not a transaction, with your audience. You enhance that by aiming not at their wallets, but at their hearts. You always want to be audience-centric–what's in it for them?–because they don't want to be passengers in this interactive world. They want to be participants."
Guber is also owner and co-executive chairman of the Golden State Warriors basketball team, in addition to his role as chairman of Mandalay Baseball Properties, which owns and operates a large collection of minor league baseball franchises and stadiums across the country. The differences between the sports matter little, he says, because "All sports have one similarity, they're in the business of putting butts in seats, in the most fundamental terms." To truly connect with fans, teams must "render the [game] experience to their audiences in memorable and resonant ways. If you can create these long-lasting experiences, you can turn them into viable advocates for your proposition to move other folks to join the audience."
Since taking control of the Dodgers, Guber and the new owners have invested heavily in player acquisition and stadium enhancements while negotiating a lucrative TV deal. In the transition period, when you buy a franchise, he says, "You look at where you are and what was operating well and what was operating badly. The idea is, not so much what did they do wrong, but what do we do right now that it's our time at-bat. You want to provide a competitive advantage for yourself, not just in baseball, but in the designs and plans of management and ownership."
UCLA Anderson distinguished visiting professor Jeff Moorad (UCLA '78) started his business career as a players' agent, representing star athletes like former UCLA quarterback Troy Aikman and former UCLA first baseman Eric Karros. He then switched to the other side of the bargaining table, becoming part of two ownership groups in Major League Baseball: the Arizona Diamondbacks (2005-2009) and the San Diego Padres (2009-2012).
Moorad ran his teams with a simple mantra, "Our approach was, it's not impossible to run a business in baseball on a break-even basis," he said. "That was our goal. Always, I was reminded by friends who run businesses in other industries how truly bizarre it is to have as a goal to operate on a break-even basis."
Fans often measure the commitment of team owners to how much they're willing to spend on player salaries. Moorad points out that player payroll is "no more than a third to a half of the overall expenses incurred by an organization," which also includes the cost of hosting 81 baseball games during the season, as well supporting a 200 to 300 person front office staff, travel costs and security logistics, medical and insurance expenses, the investment in the farm system and spring training facilities.
Owners must balance financial constraints, Moorad says, with the unpredictability of sports. "When you're planning [the budget] for the following year, you don't know how many fans will make it through the turnstiles, or how many corporate sponsors will step up, or how many suite-holders will buy suites," he says. "It's a bit of an art to balance those challenges and to do it on a projecting basis."
Moorad notes, "The obligation of ownership creates more of a public trust feeling than running any other business. The ownership group has the responsibility for the long-term viability of the franchise. It has to make bottom-line decisions that are best for them. But the last thing the fans care about is a discussion about profitability. They only want to win."
For Emilio Butragueño (UCLA Anderson '98), winning is beyond important. Butragueño is the institutional relations manager for Real Madrid. He also played for the fabled Spanish club during the 1980s–the Hall of Fame striker was nicknamed El Buitre ("The Vulture")–and has watched the team claim every important soccer prize in the Spanish professional league, as well as in European club competition.
"Here in Spain, fútbol (soccer) is like a religion," he says. "When Real Madrid plays a game, Real Madrid has to win," he says. "There is no other option in our minds. This is part of representing our shirt, our emblem. When our players walk on the pitch, they know the only result is victory."
That mentality, Butragueño says, comes from Real Madrid's ownership structure. Club members known as socios, who number around 90,000 strong and pay annual dues, own the team. Every four years they elect one person to run Real Madrid's operations.
That tradition has lasted for generations, Butragueño says. He notes that his father, at age 88, is still a club member–as are he and his children. "Fútbol, family-wise, is very important here," he says. "Real Madrid has an entire social aspect related to our history. You become so identified with your club. It provides for social bonds, for life, with members of the family."
Butragueño notes that Real Madrid has adapted to the changing times.
Every match is televised around the world and, with behemoth marketing and communications departments, the team's annual budget is over 500 million euros, Butragueño says. The money is "Spent to win. We are able to invest in the club to improve our facilities–the stadium, the training grounds–and at the same time to bring in new players to strengthen the team. Because the main goal of the organization is to win titles like the Yankees, the Lakers and the Dodgers do. We don't have to give dividends."
Real Madrid's ownership model may be hyper-local, but that doesn't prevent the team from thinking globally. The club has organized annual summer training camps in Westwood, on the campus of UCLA, to expand the brand globally. The strategy seems to be working: Forbes ranks Real Madrid as the fifth most valuable sports franchise in the world.
The owners of the Vancouver Canucks faced a different challenge this winter. With the 2012-13 season shortened because of the lockout imposed by the National Hockey League, they apologized directly to their fan-base. They also re-doubled their efforts with team-operated charities in the community, donating $5 million to a children's hospital.
"It's critical for teams to reach out to their fans," explains Francesco Aquilini (UCLA Anderson '94), "because a sports team is almost like a public trust. The team could not exist without being part of the community and being connected to the community. Once you connect with the community, what happens is that people get interested."
Aquilini himself grew up in Vancouver, where his father started a successful construction and real estate development company. When the family assumed ownership of the Canucks in 2004, the purchase was a personal milestone. "I was a rink rat," Aquilini explains. "I've been going to Canucks games since I was 10. I've always loved the team and the passion this city has for the team."
The synergy between the company's twin businesses was apparent when the team recently announced plans to build an office tower next to the arena. "When [previous owner] John McCaw decided to sell the team, we thought it would be great for the community and a great investment," he said. "We thought of it as something that could fit into our business model."
Aquilini points out that the Canucks have registered 414 consecutive sellouts at Rogers Arena (through games played until February 12, 2013). Still, he doesn't take this success for granted. The key is to "Get support even when you're not winning because winning is not going to happen all the time," he says. "Sports teams go through cycles. Right now, we're on a winning cycle, with key players at their peak. We have a window of opportunity to win. That's not always going to be the case."
The Canucks made it to the N.H.L. Finals in 2011, but the team has never hoisted Lord Stanley's cup. To accomplish that, Aquilini has sought out experts to give the team an edge, however slight.
"That's what it's all about–to win the Stanley Cup," he says. "It's one of the hardest things to do, but you shouldn't own a sports team if you don't want to win."