Cover Story

Why most
New Team
Owners
Struggle
to Win
Titles

A NEW GENERATION OF

PRO SPORTS-TEAM OWNERS

IS FINDING OUT YOU CAN’T

ALWAYS BUY CHAMPIONSHIPS.

 ON LY A FEW
months into the new National

Basketball Association (NBA)

season, but it doesn’t take a

genius fan to know that one team

will be playing for the league

championship in June: the Golden

State Warriors. After all, the

team has made it to the last three

NBA championships, winning

two of them and setting a record

for most wins in a season.

They’re such a sure bet that

Vegas oddsmakers have placed

a negative money line on the

Warriors winning it all—bettors

picking them have to put up more

money than they would win.

27
 By Peter Lauria

W
inning and the Warriors weren’t always synonymous.
Before 2013, the franchise only made the playoffs six times
since 1980, and lost in the early rounds each time. But new
ownership this decade—led by venture capitalist Joe Lacob and
movie producer Peter Guber—has managed to turn the team
not only into a perennial powerhouse, but also a well-known
global brand. Based in Silicon Valley, and armed with poster
star Stephen Curry, this is the team whose success is often
associated with the rise of neighboring tech giants like Apple The Problem
and Google. Feel like going to a game? Not a chance—the New sports owners
­Warriors have sold out more than 230 consecutive games. are spending
This kind of success, of course, is rare in any professional millions buying
sport. But it turns out, it has become so rare that few can teams to win titles.
seem to replicate it—or know how. The major professional And surprisingly
sports leagues have worked hard in recent years to create few even get close.
“parity.” They balanced divisions, changed schedules,
increased opportunities for players to switch teams. And yet Why Worry?
the data paints a dismal picture of how badly new owners The reasons may
who spend billions of dollars trying to win championships differ, but business
are doing. leaders are facing
Over the last 10 years, there have been 36 new sports- similar issues trying
team owners—roughly 30 percent of all franchises across to “win” in today’s
the National Football League (NFL), Major League Baseball global economy.
(MLB), the National Hockey League (NHL) and the NBA. Of
those, only the Warriors and the 2016 Chicago Cubs have The Solution
won a championship. (As of press time, baseball’s World A handful of teams
Series was about to produce a third.) Forget championships, have discovered that
though—most new owners rarely have a winning record alignment through
or reach the playoffs. Steve Ross, the billionaire real estate an entire operation
developer, bought the NFL’s Miami Dolphins for $1.1 billion can be a game
in 2008, only to watch the team post a losing or .500 record changer.
in all but one season through last year.
Similarly, baseball’s San Diego Padres have been a below
.500 team in all five seasons since an investor group bought
it for $800 million in 2012. The Dallas Stars of the NHL
have made the playoffs in two of the six seasons under owner Tom Gaglardi, a
Canadian business executive, but his $240 million purchase-price investment has
reached no farther than the second round.
A Korn Ferry analysis of the championship competitors across the five major pro-
fessional sports in the US over the last decade shows that fewer than half of all teams

28
—ARTHUR BLANK Owner, Atlanta Falcons
in every sport except soccer ever get the chance to play for a title. In the NBA, only
30 percent, or nine of the 30 teams, have made it to the championship round, while
pro baseball and hockey aren’t much better, with 43 percent having been to the final
dance. And in the NFL—which has gone through painstaking schedule shuffling and
other parity efforts—only 13 of 32 teams have played for a title since 2007.
“Turning a losing franchise into a championship team is like trying to turn
around a bankrupt company,” says Jed Hughes, Korn Ferry’s vice chairman and
global sector leader of sports. “You have to get the culture, strategy and leadership
exactly right to make it a place where talent wants to go. But that is extremely
hard to do in a supercompetitive, constantly changing landscape.”
For their part, owners and other observers say the difficulties of reaching
the pinnacle of their business—which would frustrate virtually any CEO or
entrepreneur—are a sign of the times, with free agency and rising player salaries
reducing the odds of winning every year. Certainly, with multimillion-dollar TV
contracts, the pressure to build new stadiums, and an entirely new world of digital
technology affecting sports and sports viewing, running a sports franchise has
never been harder. And with the leagues doing little to nothing to onboard new
owners, the playbook for ever winning a title becomes more elusive for all but a few.
Just ask Arthur Blank, whose Atlanta Falcons were edged by the New England
Patriots in last year’s Super Bowl. “The days of operating one of these franchises
as a hobby are long over,” he says. “They are very complex today, and they are
growing tremendously on the business and marketing side.”

That complexity
and the costs of running a sports franchise today are directly responsible
for the seismic changes in the nature of ownership taking place. Sports franchise
ownership used to be a family affair, with teams passed down from one generation
to the next. Or owners were superfans who wanted to live out their boyhood dreams
vicariously from a luxury suite. (Ownership was, and still is, male-dominated.)
Briefly, media conglomerates News Corp. and Time Warner jumped onto the field,
believing that combining team ownership with television distribution assets would
add synergistic value to both—but they eventually ditched the business.
Today, a new breed has stepped in. The rise of the global billionaire class,
coupled with the soaring worth of sports franchises, make owning a team a great
investment for the buyer and a lucrative exit for many of the families that own
teams. This new generation of owners—comprised of leaders such as former
Microsoft CEO Steve Ballmer, entrepreneur Mark Cuban and investment banker
Tom Ricketts, among others—made their names and fortunes in technology,
finance, real estate and elsewhere.
“Asset values are going up across the board,” says Sal Galatioto, whose firm
Galatioto Sports Partners advised on the sales of both the Warriors and the
Cubs, among others. “Sports is the most valuable media content, and digital
technology is allowing franchises and leagues to maximize how it is distributed
because they own the rights.”

31
 Buying ... But Winning?
The selling of sports franchises continues to be hot, but new
team owners struggle to win any titles. Here are the numbers:

NFL NBA MLB NHL

Average Franchise Sale Price

$
1 billion $
702.6 million $
883.8 million $
251.5 million
Number of Franchises Sold

5 12 6 13
Percentage of League Franchises Sold

14% 33% 17% 36%

Percentage of Teams with Appearance in League Finals

40% 30% 43% 43%

Source: Korn Ferry for the National Football League, the National Basketball Association, Major League Baseball and the National Hockey League

Our What really works off the field to win on it?

Playbook
Former coach and longtime sports expert
GETTING Jed Hughes, vice chairman and head of Korn
Ferry’s Global Sports practice, interviewed
TO THE TOP more than a dozen sports owners across four
leagues and found four key steps:
1 2 3 4
Pick up
the phone.
Professional sports-team
owners are part of an elite,
exclusive club; there are
only 122 in the US. Find
fellow owners and peers
that you can trust to be
confidantes.
Consistency
is key.
Owners that determine
their roles early on and set
the strategies and values
that form their culture often
succeed—if they stick to
them. Inconsistency off the
field is often worse than it is
on the field.
Invest
beyond players.
Focus on building out the
business side of the fran-
chise to provide the fan base
and resources necessary to
support the sports side and
enhance the experience
beyond the game.
Connect with
the community.
Technically, the owner
“owns” the team. But, as
Dallas Mavericks owner
Mark Cuban notes, it really
belongs to the community.
Recognize the importance of
community involvement to
the team’s overall success.
 —JED HUGHES
Vice Chairman and Global Sector Leader of Sports, Korn Ferry

Media rights are just one avenue new sports-team owners can mine for growth.
International expansion, so-called e-sports, hospitality, fantasy sports, gam-
bling, branding, licensing, stadium and sponsorship partnerships, virtual reality,
artificial intelligence and a host of other emerging technologies all present signifi-
cant additional revenue streams. According to one report, combined pro-sports
revenue will reach nearly $73.5 billion by 2019, up from $60.5 billion in 2014, an
annual growth rate of 4.8 percent. In conjunction with the growth in revenue has
been a sharp increase in team valuations. According to Forbes, the top 50 pro-
sports teams globally were worth an average of $2.2 billion each, a more than
25 percent increase in valuation from the $1.75 billion average a year prior.
Small wonder then that since 2000, the top eight US team sales were at prices
in excess of $1 billion, and three of them have been for above $2 billion—including
the sale of the NBA’s Houston Rockets for $2.2 billion in September, the highest
price ever paid for a sports franchise. The new owner: Tilman Fertitta, a billion-
aire restaurant-and-casino mogul. And the high-priced buying isn’t limited to the
US, with Malcolm Glazer, the head of a commercial real estate empire, as perhaps
the most famous example. Though he passed away in 2014, his family estate
controls Britain’s Manchester United, the soccer equivalent of the Yankees or
Cowboys, which Glazer had bought nine years earlier for a cool $1.4 billion.
But while many teams have found ways to generate record revenues and
profits from ticket sales and TV rights, most of the new owners have had remark-
ably limited success on the field. In many ways, it’s the leagues that have made
this harder. Hoping to make all games on the schedules more interesting, many
have juggled schedules so strong teams don’t constantly get to play against
weaker opponents, while also imposing salary caps or so-called “luxury taxes” on
teams that overspend on players to discourage sports dynasties.
New owners quickly discover that the skills and experience that made them
successful in another industry aren’t always transferable. They aren’t immune
from the same mistakes new CEOs make, such as making high-profile leadership
changes that overlook day-to-day operational challenges, or not doing enough
due diligence on the organization’s strategy, culture and talent. Falcons owner
Blank says the biggest mistake he sees new owners make is thinking that power
translates into sports knowledge. It doesn’t. But when has that ever stopped an
owner from thinking they know better than the general manager or coaches
about what’s best for the team and its players?
It doesn’t help that none of the major sports leagues offer a formal mentor-
ship or initiation program for new owners. “The league never did one thing for
me to help,” says Houston Texans owner Bob McNair. “I didn’t even know what
resources were available.” In simpler times, few owners would have expected or

34
needed such help—but new owners are coming into a sporting world that was
unimaginable a decade ago, with the fan base alone so greatly affected by every-
thing from globalization to the digital media.
“We no longer have the luxury of every household having a team they love,”
says Dallas Mavericks owner Mark Cuban. “Kids focus on their devices. We only
have 10 years of experience with smartphones as a primary entertainment alter-
native. We have to learn how to get kids who are growing up on Minecraft and
other games to learn to love our teams or we will have challenges in the future.”

Still,
the success of the Warriors and the Cubs—
as well as Cuban’s Mavericks, for that matter—
suggests that there is a playbook to build and
sustain a championship-caliber operation. For Lacob and Guber, it was developed
early when they drew firm boundaries around their roles as equal owners. Lacob,
who had a feel for the culture of the NBA as minority owner of the Boston Celtics,
took control of the basketball side of the operation. Given his Hollywood back-
ground and experience with Mandalay Entertainment, Guber assumed leadership
of the operation’s business side.
It sounds simple, but one of the biggest challenges owners face is deciding
what role to play in the organization. Or, as Korn Ferry’s Hughes puts it: “Are you
going to make day-to-day decisions? Are you going to be in charge? Are you going
to let the coach and GM be in charge? How public do you want to be?” A surprising
number of new owners never figure out the answers to these questions.
When the Ricketts family bought the Cubs, they inherited a popular but
financially struggling team battling with its home city. During the first several
years of ownership, Tom Ricketts focused on renovating the iconic Wrigley Field
and restoring the team’s relationship with the community. The family then hired
Theo Epstein as general manager and gave him the freedom, time and money
to build the baseball side of the franchise. That kind of front-office respect for
the community and trust in its leaders creates a culture of shared values where
everyone in the organization thinks team first, self second.
“Culture feeds from the front office right through to the players,” says Mike
Ozanian, who puts together the widely read and respected lists of the “most
valuable” franchises in each sport for Forbes. “Some owners [like the Ricketts]
really seem to have the pulse of the team, fans and city. Other owners are more
disconnected.”
In the end, experts say, the cliché that a winning attitude wins may be the
biggest key to success. Many owners, for example, tend to use all their leagues’
efforts to level the playing field as an excuse not to try hard to compete. But Cuban
noticed that none of these rules prevented him from investing millions of dollars
to upgrade training facilities and to hire extra coaching and front-office firepower.
After taking over the Mavericks, he hired twice the number of assistant coaches
as other NBA teams, and at higher salaries—ultimately turning a perennial loser
into two Western conference appearances and one NBA title. In his view, new
owners ought to “be as active as you possibility can in your area of specialty. And
realize that it’s work to keep up.”
Yet even Cuban thinks it isn’t all in his control. “It’s just as much art as science,” he
says, “and the team belongs to the community as much as it does to me.”

35