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SBJ/Jan. 23-29, 2017/Leagues and Governing Bodies
Roundtable: Built for speed, and the long run
Published January 23, 2017, Page 18
|From left: Thomas, Vinik, Leonsis, Jacobs, Chipman.
■ You all entered the league at different points, but what made you choose the NHL? What did you see ahead for it?
■ JACOBS: Forty-one years ago, I was 35 at the time. I had history in the league: my dad owned the minor league team in Buffalo back in the 1940s, the Buffalo Bisons. In ’68, my dad passed away, and in ’69 and ’70, [the NHL] started to formulate the Buffalo Sabres. I became quite involved with them in building the arena out, and investing in the team and all. In ’75, I had an acquaintance that was on the board of Storer Broadcasting, and they owned the Boston Bruins and the Boston Garden. I had said, “If you ever wanted to sell that, let me know.” They called me and said, “We want to sell it and this is how much money we want, and we don’t want anyone to talk about it.” I instantly said I’d buy it. … My love of the game evolved considerably from there. Did it exceed my expectations? Never in my wildest dreams did I expect it to be where it is today. It’s been a tremendous opportunity for us.
■ VINIK: Seven years ago, I bought the Lightning. I love the game of hockey and I love going to hockey games. I obviously think it’s the greatest sport there is — the most action, great guys, great sport to be at and a great sport to watch on TV. I was thinking ahead and wanted to have fun, and had a strong belief that quality of ownership and quality of management matters in sports, just like it does in any business. Being part of the community matters, and I figured we could do a good job at that and have a lot of fun doing it.
■ JACOBS: He was a season-ticket holder of ours.
■ VINIK: I was.
■ JACOBS: We lost a good ticket holder.
■ VINIK: Well, you let me out of my contract — the [New England] Patriots didn’t when I moved down.
■ LEONSIS: I grew up a fan of the game. My dad used to take me to New York Rangers games. I went to college at Georgetown in Washington, D.C., and got involved in AOL early on. Just the opportunity to buy a team in a sport that you love, if I said no, I would feel forever like I made one of the biggest mistakes of my life and my career. The great thing about the game is that it is generationally respectful. My son [Zach] now works for the teams; Jerry’s [Jacobs] son works with the teams. It is the ultimate family business. I also thought it wasn’t valued the right way, having grown up in the tech business where the most valuable enterprises have what is called reccurring revenues, and they celebrate not only the renewal rates — partners that renew year after year and where there is a price increase. When I looked at these teams and how they were valued, I said they are not being valued in the new-media way. We have a naming-rights partner and it’s a 20-year deal, we have a national media rights deal with escalation. I have a local media rights deal with the biggest media company in the world, and I own equity in it, and there’s escalations in the media rights. Our season-tickets base renews at 98 percent, and we raise our prices 5 to 10 percent per year. So you go through that math, and say rather than these teams being valued — at the time two times revenue — it should be valued at eight to 10 times. So, from a business standpoint, I thought they were undervalued assets, and if you bought them and had some leadership in how the business model emerged, these could be great investments. And the partners that you are with, it’s such an exclusive club of really smart people. So I did it because I love the game, and it brought me back to my dad bringing me to games, but also I thought it could be a great long-term business plan.
■ The league’s revenue has grown exponentially in the last decade — from about $2.2 billion in 2005 to more than $4 billion now. What do you look at as the biggest driver of that?
■ JACOBS: Media has made a sustainable difference, as for many years, we didn’t have that. I was involved with the Red Sox when we created NESN [in 1984]. Back then, it was almost pay-per-view in a sense, where you could take it or not. But it became part of the basic package that, one, raised your income, but two, got the eyeballs. And telescope that now into the national deal which everyone is sharing in, and that has been a source of income that in some cases is as much, or more, than they’re taking in at the gate. Our buildings are only so big, and so many of us are sold out.
■ CHIPMAN: In addition to the platform that exists to broadcast the game, it’s the quality of the game itself, and high-definition television. Now, instead of that grainy, somewhat defensive game played, it’s a way more watchable, entertaining game than it used to be.
■ VINIK: Also, the competitive balance throughout the season is so even. Two-thirds of the teams in the league are within a game of .500. On a nightly basis, if you go to a hockey game, you know it’s going to come down to the end as 60 percent of games are within one goal at the start of the third period. Compared to basketball, with all due respect Ted, where probably by the time the fourth quarter starts, many times you already know who’s going to win. In hockey, when it comes to who is going to win the Stanley Cup, we could choose a team right now and rarely be right. There’s probably 15 or so teams with a chance, while in basketball, there may be three or four. With the NFL’s structure, the number of possible winners is broad too, but again, when you go to a hockey game, you know it’s going to be close every night, you know the top players are going to be on the ice at the end of the game and they’re going to battle it out, and as a fan, what more do you want? I think the competitive balance is the secret sauce of the NHL.
■ On the media side, the league has pushed forward on the digital front, including the recent deal with MLB Advanced Media. How do you think the NHL fan watches games in the future?
■ JACOBS: All the mediums make a difference, not just a single distribution platform. It’s not very predictable what’s going to succeed and what’s not.
■ VINIK: But I sure like owning the live content.
■ JACOBS: Absolutely.
■ LEONSIS: If you look at demographics, there are 7 billion people in the world today, will be 10 billion by 2050, so there’s population explosion. Of those 10 billion, 8 billion will have high-speed internet connections. North America will have about 500 million of those connections. So, North America is becoming somewhat of a small part of the global media market. I would say in the next 100 years we’ll look at the NHL as the world’s hockey league, and that all leagues must become global in nature, because that’s where all the growth is. … In addition, our customer bases will become even more incredibly important. Some of us operate in big cities. My DMA is going to be 10 million people in 2025, I want to know all 10 million of them and reach them with our products and services.
■ How will that evolve how you do business?
■ LEONSIS: It won’t just be the game itself. It will be entertainment and merchandise, but this esports phenomenon bringing competitive gaming in your market is a big opportunity. I could see someone going to the live game, but digitally capturing some kind of video tournament. I imagine someday if the Caps are playing in the Stanley Cup Final, the Caps fan base will be playing the opponent’s fan base in a video duel. With e-commerce and wallets and gaming, we’ll be looked at in 10 to 15 years as big data companies, not just as sports programming. Gambling for all sports will become much more accepted and much more of a revenue stream than even our media businesses, and that’s happening very quickly in China, Korea and Europe. So, from a revenue standpoint, a big data company entering those other businesses will be big important things.
■ What can be done to further reach those fans outside of North America?
■ JACOBS: We are doing things through the industry growth fund, like Learn To Play domestically. But should we take that internationally? That would probably be the next step, where we can teach the game to more people than we ever had before. I think we all feel there is a lot more room locally.
■ VINIK: In many parts of the world, kids don’t play hockey, but they play soccer, so the Premier League and Manchester United are more easily global brands. In Tampa Bay, when we thought about the industry growth fund, what immediately came to my mind is roller hockey, and get sticks in kids’ hands and let them learn the game. Well, maybe there’s a roller hockey opportunity worldwide where ice hockey would be a challenge. In France, how many hockey rinks are there? Probably not a lot. So maybe it’s about getting 5 million sticks worldwide and reaching people that way.
■ LEONSIS: If we don’t do it, someone else will. I would envision that China would be bigger than us in everything, and so I wasn’t surprised to see the KHL putting a team there. That should be a wake-up call for us … and we need to go where the eyeballs are, where the economy is strong. The Olympics are going to activate a lot of development and buildout, the [Chinese] government said it will build 200 rinks and it will create a lot of jobs and leadership positions for league alumni. We’ve seen what they’ve been able to do in the tech business — some of the world’s most valuable companies like Tencent and Alibaba, companies that have $200 [billion]-$300 billion market caps, bigger than Comcast, as an example, and they’ve done it because of the ability of digital. So, I could see there being an organized league in China and we ought to have a role in that, and there should be playoffs someday where Chinese/Asian, U.S., Canadian and other teams play, and that would be the biggest, most-viewed, most-important media event. Look at the Super Bowl, it’s [Denver] versus Carolina, and a billion people are watching it. Imagine if there is a winning team from China, a winning team from Europe and a winning team from North America, that would be like an Olympic Games in terms of viewership.
■ What role does continuing to have NHL players participate in the Olympics play in that?
■ JACOBS: There’s a lot of pros and cons to this, and each team has their own views. Boston is neutral; we’re not in favor or against it. But we’re trying to see if when you’re not able to view it in real time in your own country because of time differences, it loses some of its reflective value, and we’re taking weeks out of a very crowded live season.
■ CHIPMAN: I’m an advocate for playing in the Olympics. I understand the issues, I really do. When [New York Islander] John Tavares went down [with a torn MCL that caused him to miss the remainder of the NHL season], that put a real chill in a lot of people’s spine, for those of us that have invested so heavily in this business. That being said, there is a great deal of momentum behind our league playing in the Olympics, and for me personally, it’s a unifying event for our country, as we’ve had relative success in it. It’s difficult to look at a player in the eye and say you can’t play for your country in the Olympics, which to me is a paramount athletic event. So, I will be respectful of the will of the league and the other owners on this decision, but I think if we were to end up in that world that Ted just described, growing the game where the eyeballs are — and Korea is maybe a less advantageous place to hold the Olympics — but on balance we need to keep moving forward to keep exposing our game around the world rather than retreating, assuming we can come to reasonable commercial terms.
■ What is the dynamic like around the board of governors right now?
■ JACOBS: There’s no doubt that so many of the new owners bring in different perspectives to the game. It freshens it every year because you bring a new set of logic and ideas. A lot of them are early in the process, so some of their views will change. Sometimes you often say, wait a year. But it’s good for us. It’s a great group to be involved with if you can get in. It’s the only industry that perhaps has never seen a down market over the last couple of decades in terms of valuation. But we also want to see all our members profitable. It’s not fun to see people lose money, and a lot of sports were losing money for many years. This game is more stable than it’s ever been, and perhaps the most stable of any pro league, and that’s a credit to our commissioner, a credit to our players, and it’s turned out to be a very good place to be in the sports world.
■ LEONSIS: Jeff and I welcomed Mark to the Southeast Division [Note: When Winnipeg re-entered the league in 2011, it assumed the vacated spot of the Atlanta Thrashers. The team has since been moved to the Western Conference’s Central division, alongside many of the NHL’s toughest teams].
■ CHIPMAN: I wouldn’t mind coming back! We had the great fortune of coming into the league and having some great counsel from teams and guys who provided us great counsel, especially those with similar market sizes. Edmonton has been great to us; Ottawa provided a lot of help along the way. It’s a very complex business, and it’s a very unforgiving one, too, and in the end though, the quality of the people and culture trumps strategy every day of the week, and those that are successful in this business have built cultures that can weather results up or down. Our results are published in the newspaper every day, and you must be able to ride that wave of emotion and have a team of people around you to tap into that. That’s just not the people immediately around you, but also being able to tap into other owners and other organizations. I’ve never had a time where I’ve picked the phone up and had someone say no to me, even on questions on sensitive matters, and I think that rising tide mentality has existed in this league for a long time. At the end, we’re one big business.
■ Las Vegas enters the league in October. How does that mentality apply?
■ JACOBS: It’s exactly what we’re doing with the [Vegas Golden] Knights now. Everyone at that table said we want them to be competitive, because when they walk into our arena, we don’t want to have a no-show there, we want to have a game. Everyone is of the opinion that the drafting opportunity that they’ll have in front of them will be the best opportunity any new franchise has ever had.
■ LEONSIS: Their GM [George McPhee] guaranteed playoffs within three years.
■ JACOBS: Well, he was doing it for you!
■ CHIPMAN: Every one of us is going to lose a very good player next year, and it’s going to sting. And you can say the franchise fee would rationalize that, but we’re all going to lose a young player that hurts.
■ What role has Commissioner Bettman played in all of this success?
■ JACOBS: He’s now the longest-standing commissioner of any major sports league, so his background is immense. He went from the new guy on the block to now. The only thing I know about Gary is you can’t outwork him, and he’s always thinking about the game. You can call him any time and he’s available to you. He’ll talk to you, and he talks to all of the owners.
■ LEONSIS: We play a little game; I send him an email and he responds. 16 seconds, 49 seconds — “I’m so sorry I was in a meeting it took 31 minutes to respond.” I agree with Jerry, his hard work, dedication and focus on the game. It’s a shame some people say he’s not a hockey guy — well, we’re not hockey guys.
■ JACOBS: What is a hockey guy?
■ LEONSIS: At what point does someone say you’re a hockey guy? He’s someone who lives, breathes and sleeps the game, the longest-tenured person, someone who cares passionately about the fan and the game, and he’s made some really, really tough decisions — had to sell some of us on what is best for the game, and that’s one of his strengths. I’ve also seen a change in him, because the ownership in the league has strengthened in the last few years, he’s relying more now on other people. I think there was a time where it was just him and a few owners, and now it’s much more collaborative and if you have an expertise in real estate, media, or finance, he’ll bring you into that. He also has the ability to attract really good people. I get to know a lot of people in all the leagues, and we have strong people. Obviously, people love the game, but he’s been really good at recruiting, retaining and training great people.
■ VINIK: I’ll share an anecdote from another owner, Daryl Katz in Edmonton. They just opened a spectacular new building and are doing fantastic there. They are rebuilding that whole area, it’s an amazing project. But during their negotiations — and it was up and down with the city of Edmonton — Gary flew out and helped Daryl numerous times with that, and that just shows his commitment to each owner and each market to make things work.
■ CHIPMAN: He might be the smartest person I’ve ever met. I said the game was complex, it has another layer of complexity at the league level, and there isn’t a subject around this game that he isn’t informed on. And he takes it personally if he thinks he’s lacking in some area. I agree, you can’t outwork the man. He’s brilliant, but he’s also a really good guy. We wouldn’t have a team in Winnipeg today if he didn’t have the wisdom and the vision to see the positives of it coming back long before it ever materialized. He’s a long play guy, he knows how to deal in the now, but he’s always got a meaningful part of his thinking on the long play. He’s got all the skills necessary to run this challenging business, but he does it with a great deal of humility.
■ LEONSIS: He just granted the first professional team to Las Vegas, and while unveiling the jersey, got booed. When you think about it, I had to laugh, it’s like let no good deed go unpunished.