2018 Olin Sports Business Summit - Sport Finance Panel

all right hi everyone so on our sport

finance panel today we have Sal gala tio

tio from galeota sports partners we have

Randy vltava from game plan LLC and

moderating we have Steve Horowitz from

inner circle sports so if you guys can

get started please with salad thank you

sound really respect for for them and if

they've got kids answered that's fine

but we talked about this before like

okay thanks but seeing the deals that

they have done and it's really really a

treat to be on here so first I would

just like to kind of give a little

context to how they got here so Randy I

know I know from you know when you're

playing in the NFL probably going if the

sports finance was not top of your list

but you might just kind of given a sense

of what brought to you sure what you do

you have an hour oh well I I had the

good fortune to play with a quarterback

Heisman winning quarterback at Stanford

University Jim Plunkett who carried me

through and we ended up I played in the

NFL first five years with Plunkett with

the New England Patriots played another

six years total with them one year with

the Green Bay Packers and through that

time I was a wide receiver in case I

wasn't an offensive lineman it through

that time I got very involved with the

Union was on the executive committee and

then ended up on the collective

bargaining negotiations really through

the late well till the middle 1994-95

which was the last collective bargaining

agreement that really brought about free

agency

and a salary captain in the NFL and

after after leaving the an actually

while in the NFL I started a business we

built in New England the first big

fitness clubs sold those in 1981 and

then started a team in the old USFL if

anybody here is old enough to remember

the United States Football League we

owned the Boston Breakers 1984 we played

in Boston 83-84 Donald Trump bought a

team and was then that's already in

existence the New Jersey generals we

moved our team to New Orleans to play in

the Superdome at the end of that year

the now president wanted to move the

league to go play in the fall we didn't

really believe in trying to take on the

NFL so we sold our team and then I ended

up through a close relationship with a

Bob wolf one of the initial sports

attorneys in the country representing

professional athletes we represented

Larry Bird I was the CEO of the company

Larry Bird Joe Montana Tommy Glavine we

did a lot of contracts for entertainers

did all of Larry King when he was CNN

you know superstar and then in 1993 a

good friend of mine who was also a

minority partner in the football team a

local sports attorney Bob Caporal had

the idea and said you know all of my

legal business now is really around

business it's very little legal business

and he said you know I'm thinking what

it makes sense to try to start a small

boutique investment bank that only does

sports because the big investment banks

they come in they do a deal they leave

and you know two or three years later

when one of their clients wants to get

involved in sports there's a new young

guy in the office that they give the

assignment there's been no real

continuity they try to apply all the

principles and traditional Investment

Banking to sports teams and those those

multiples and all of those formulas

don't necessarily work so we thought

about it and

I went back to the Bob wolf who was

about to retire anyway and said hey

we're gonna start a company called a

game plan and we're going to just focus

totally on sports investments so I have

a somewhat unique having played

professional sports negotiated from the

Union side for many years negotiated as

an owner in the league negotiated from

the standpoint of player contracts and

this seemed like a pretty good idea so I

think we were probably technically the

first boutique investment bank and and

it's been a great run and I doubt if

there'll be too many people follow that

career path no I didn't play in the NFL

I did work at a Canada dry bottling

plant and as with Queens loading trucks

I got into the business purely by luck

that's a story of my life I'm one of the

luckiest people you ever want to meet so

a few I was working for a French bank

called social ties Generale they were at

the time one of the ten largest banks in

the world I took over the East Coast

region I looked at the return on assets

return on equity was not great and why

was that well who are our clients

coca-cola United Technologies good luck

with that

so I looked at around a dozen businesses

this was in the late 90s and I looked at

the competition and everything from

mining and minerals to sports and sports

at the time was a mom-and-pop business

it just was it was these franchises

didn't sell for a lot most of them lost

money the leading bank in that industry

was a bank out of Providence Rhode

Island at the time called Fleet National

Bank I looked at that and I said if I'm

not smarter than the people at Fleet I

should be working at McDonald's so I

decided to start a sports business and

within 18 months of starting the

business I met Dan Snyder

dan wanted by the Washington Redskins

there was a debt limitation at the time

you could only secure a loan against an

NFL franchise up to a hundred million

dollars well I went around the NFL rules

I didn't take the franchise as

collateral

I took dividends and distributions

coming out of the franchise I it was the

first sports loan ever rated by the

rating agencies and we got a triple B

rating which is investment grade rating

and we were able to put 340 million on

the team so Dan had to raise a lot less

equity than everybody else the loan blew

out the door we got seven hundred eighty

million dollars in commitments for it

and Dan won and that that facility put

us on the map we grew the business at

such n then I moved my entire team to

Lehman Brothers and again pure total

luck three years before Lehman Brothers

blew themselves up I left and formed GSP

the 14 years ago and by the way as an

aside after 12 months because I left

voluntarily they forced me to sell all

my restricted stock at $72 a share

23 months later was worth zero that was

again pure luck right who knew and I've

been in business since were a lender in

the business we do about 70% of our

businesses by side South Side M&A and we

do a lot of dispute resolution we do a

ton of valuation work so that's what we

do we do sports only great do you want

us to spend a minute kind of going

through how sports finance has evolved

is you watch now I'll just touch on a

couple of the points well I think the

biggest thing is Sal touched on it is

what we started in 94 full kind of full

going there wasn't any sophistication at

all around the sports and for the most

part the league's were totally reactive

to whatever happened they had some rules

and some applied some didn't and over

time as more and more rules and

regulations have come into being he

formed salary caps they they the

league's now have a much better idea of

what the revenues are almost complete

understanding of every team's revenues

which back and in you know 10 15 years

ago solid tell you that the league's

half the time didn't have any idea what

was going on in their own franchises and

so it's really evolved into a very

sophisticated monitoring and regulation

within the business and you know we've

seen that I think it's been part of it's

frustrating to an owner to have all

these regulations but it's dramatically

elevated the value of the teams because

now they're you can really understand

what's going on you really when you go

to do a trend transaction you know the

data is real now it's not you know made

up you know the the biggest problem in

the industry in some of kind of funny

ways is the teams are becoming so

valuable if you want to own one you you

you know a billionaire is kind of a I'll

probably can't do it you know you you've

got to have multi billions and a lot of

really good partners and the other thing

that's happened is because the debt

limits every league has them and in the

aggregate nobody gets much more than

about 350 I mean you know I won't go

through all the league but about 350 is

about as much as you could ever borrow

using the franchise's security but you

now have franchises worth you know ten

times that and so it's very hard this is

an equity driven business when you buy a

sports team private equity funds make

all their money by leveraging everything

this is the exact opposite its its

appreciation very little cash flow some

cases but for the most part not yeah

yeah look that's that's really true our

loan book at its height was around five

hundred million dollars now it's down to

around 250 and it's because of all those

limitations and frankly look the pyramid

of people that can buy

these things is getting narrower an hour

right think about this you buy an NFL

team pick a number 2.5 billion dollars

you put five hundred million in debt you

have to put thirty percent of the equity

in yourself okay that's hard enough to

find somebody can write that check but

now he's got to sell limited partnership

stakes for the rest which is even more

difficult because you're writing it used

to be you bribed a twenty million dollar

check to be an LP but now you're writing

a 250 million dollar check and you get

nothing what do you get you get

preferred parking and nice seats good

luck with that so that makes it very

challenging and I think one of the

things that it's going to have to be

addressed in the coming years is how do

you continue the upward movement in

value if the number of people that can

write those checks is not growing as

fast as the value of the franchise's

it's really tough you know particularly

since we're part of the lake up School

of Management both of these gentlemen

participated and helped on either side

of the lake ups purchase of the Warriors

without going into too much detail on

the price if you wanted to talk about

what it was like to sell the theme sell

and it was great it was the great look I

had a great client who wanted to sell I

mean I knew him for a long time he gave

me a price she said it had to be in the

mid-40s out of my mind nobody would ever

pay that much for a for a basketball

team but Chris cohan was was a great guy

he he delegated it to me

he gave me his proxy he said if you can

hit this number we had a really

difficult process we had 10 bidders we

got down to the final two and to me I

Joe wanted to buy the team more than

anybody that's important because you

know it right down to the wire when you

have to make decision and push the

button and say yes he would do it I knew

Randy and and Bob for a long long time I

really liked them a lot I trusted them

and I trusted what they said to me that

made it really good

we had two really excellent law firms I

used Peters earn at Covington and

Burling and you used Adam Klein not

right Cappadocia and I knew his lawyer

as well his lawyer was Jerry Reinsdorf

his lawyer and Jerry and I are very good

friends and we what I told but I told

Chris was we had two finalists we're

gonna set a bidding date last and final

you came in the bed you couldn't revise

it after that they had the winning bed

and I think the way I mean really worked

out really well oh I thought it did but

then the guy who lost was like cranky

and cried and said he really won and we

took a lower bed and it was chaos for a

little while but you know when when the

buzzer goes off and you're down by a

point you can't wait five minutes and

take a shot again and it goes in and you

win and the rules are set and we live by

the rules so anyway give me your

perspective when you do of course

sometimes you know Jesus we're at the

closing table when I got of course still

yeah midnight

first I want to say if you if any of you

have a chance

you saw Kent here earlier but the the

lay cups are just great great people Joe

was a client of ours fifteen years

before before we bought the Warriors and

we looked at a number of sports teams

with him he is a very very passion at

basketball player still plays now every

Friday at Mapes pavilion on the Stanford

campus just a real just loves the game

this was a classic transaction that took

a lot of courage on his part from the

standpoint that the highest price ever

paid for an NBA team prior to this was

Phoenix Wright Sal Sal stole that thing

for 400 million you had and it was a

very successful franchise very good team

you had the Warriors who had been to the

playoffs one time in 16 or 77

seven once in 17 years now given that

more than 50% of the teams go to the

playoffs it's almost statistically

impossible for that to occur

it was just a you know dream that

everybody said Joe you're out of your

mind to pay over 300 or 350 for the

Warriors terrible franchise and well

give you a good lesson at the end but we

went in and you know Sal did a great job

and we've known him a long time trust

them for you know always being straight

with us and when we got to the far final

bid of 450 and you know that 450 million

2010 that's a lot of money and it was a

real gulp and took an amazing amount of

courage and every one of Joe's friends

thought he was crazy except for his

partner Peter Guber who we we had

introduced them to each other a

Hollywood director and and they did it

and it was amazing I mean the number of

calls we got from the press saying are

you guys crazy you you're gonna bankrupt

this poor guy it's not quite 2 and a

half years later we sold one of the

investors was buying another NBA team he

had put in the third most amount of

money into the Warriors two and a half

years later when we sold his LP interest

he more than doubled his money in that

short period of time and the Warriors

450 million dollar investment Forbes

this last year now has them at 3.1

billion dollars they're gonna open up

the first arena in downtown San

Francisco

the start of next season it's just an

incredible success story but it all

started with the courage to do it and

the one thing we we we all know this at

our business but the one thing that

drives Valley

you it's not how many times they've been

to the playoffs it's not how good the

players are it's not how good the coach

is all of that changes ownership changes

everything can change you kept for one

thing and that's the market demographics

you can't drop 8 million people into a

market they're either there or they're

not or 15 or 16 million in the bigger

markets so that that was the bet we made

with gel that this market is a great

market financially and it's only gonna

get better and any any well-run team we

never dreamed that he would do what he's

done what would be very successful and

worth that value and yeah he made we'll

never know because he made it go way

past where we ever thought it was going

to be from a basketball standpoint

excellent but you know what the worst

tell you a story about this after Joe

one my seller is very shy Chris doesn't

like media coverage and the media was

killing us one of the lead stories was

the reason he sold the to Joe was he

wanted to get even with the warrior fans

he didn't want somebody better than him

buying the team so he wouldn't go on

radio or so he asked me if I would go on

the evening Drivetime talk shows in in

San Francisco and I I said that you know

look I known Joe for a long time he's

very competitive guy really wired this

team he's going to make this team very

competitive he is not gonna tank this

team his team's gonna be good I got

killed

oh let's talk to Peter from Oakland and

the guy like you're an idiot it's an egg

you should have sold it to the other

guys right now they've won how many

championships I've waiting for one one

son of a from the Bay Area to call

me up and say you know what you were

right just one just one no not a single

one so I'm an idiot they were smart

except now they have the best team in

basketball and you know I don't follow a

professional basketball I'm a Knicks fan

ouch I feel your pain it's true it

doesn't seem like there are a lot of

teams for sale right now you know I know

every now and then someone says

something dumb

it's divorced or dies but why is that I

think you're now in a period in the last

five six years all of the leagues have

well baseball doesn't have an official

salary cap but it kind of works out in a

way compared to the because of the debt

limit rules but the the NBA NHL and NFL

they all have salary cap rules that

brought the salaries down from about and

57 percent of the gross revenues the

league down to 50 percent well that

seven percent is a huge number and then

separately you've had these monster

television deals occur and between those

two driving factors one cashflow is a

reality now for just about every team in

a decent market and franchise valuations

because of that have have soared so as

you said Steve there's no reason for

anybody to sell when the salad knife

Amiel half the time you're buying or

selling it used to be because you know

the guy was out of money this was going

wrong and he couldn't make his debt

service there was a million financial

problems and now that's rarely if ever

even any kind of a factor we're working

on four transactions right now they're

all limited partnership sales we're

looking at potentially a control sale in

Europe but in and those teams in Europe

some of those teams lose significant

amount of money it's almost like looking

at what it used to be like in

professional sports 20 years ago 25

years ago in the United States because

they don't have salary caps they spend

money like crazy they have no real

strategic plans management stinks keep

going okay but here we get very few

control sales so we're doing a lot of

limited partnership stuff we do a ton of

valuation work now for various reasons

and we lend money I mean that's what we

do but we're gonna have to evolve I

think with the business we're gonna have

to figure out how to be more efficient

we're going to have to figure out new

initiatives I think one of the problems

in the business is liquidity and we're

gonna have to figure out a way to fix

that

but but we will well somebody well I'm a

hundred years old so I won't be around

when that happens next year I know now

I'll be a hundred next year but I mean

that's something we have to take into

account when we look at how we structure

our companies and where we spend money I

mean it just this and the other thing I

think that's gonna happen is the

league's are gonna have to start to

evaluate some of their rules their

ownership rules for example it's very

difficult in the NBA you can't have a

partner that's a private equity fund

that there there are some prior

instances of publicly owned teams that

was pretty much not favorably looked

upon by the league's because they like

to so tightly regulate everything but

you're now getting to a point where the

the capital needs to to underpin the

valuations that are occurring are going

to outdistance the the wealth to pay

those prices by just individuals so I

think and the debt limits as well as

teams have become a lot more profitable

you know they have been increasing a

little bit over the last couple of years

but nowhere the the increase in the

valuation versus the increase in the

debt limits are totally out of whack the

the the valuations are far exceeding

that pace so there's going to be a lot

of changes I think in the next ten years

which is Sal said we have to always be

thinking about and how to adapt to and

in some cases you know we talked of

league salad as Steve's cup company

about some ideas that maybe you could

structure things this way or we're

always poking a little bit about could

we do this one if we didn't get every

private equity partner to sign could we

get you know I mean you know that that's

part of our job to try to to make that

the the potential capital keep up with

the valley

I think we have some people who are

gonna be out on the job market soon you

want to just do a minute or two of what

it you know types of people you guys

look for and what you seem to be

successful in the industry

yeah it's that's interesting I have kind

of a an advantage sort of because I

teach at business school at Columbia

University I have four since 2002

I do it every other semester so I have

73 students who I get to interview for

an entire semester basically and so when

there are job openings for us in the

past we've we probably hired half dozen

of those people over time they come into

our firm they work with us for four or

five years and then we help place them

in other jobs either in sports or

private equity in other places because

it's a great business I love it

I look forward to going to work every

day but it's not a growing business

there's static number of teams you have

to watch your overhead we have eight

people in our firm how many people you

have in yours on and off four or five

yeah yeah I mean it's not like we're

gonna hire a whole mass of people and so

if I have an opening I'll either find

somebody who has been an outstanding

student of mine or will go through an

incredibly painful interview process

where we get hundreds recipes and just

poor people that go through this thing

it's just it's horrible and then I get

to interview the last four and for me if

my people tell me they're technically

competent they can really do the job the

most important thing is when you have a

small firm is everybody's got to be a

team player they have to be able to work

with everybody at the firm it's really

really important there are a lot of

people that can crunch the numbers and

can do this this is not deconstructing

Enron but personality helps a lot

because when we're pulling together and

trying to do several transaction at once

everybody's got to be able to work

together for long hours and if they

can't or somebody's going to be a pain

they're not making it so we try to do

that it's hard

does anybody have a question before we

wrap this up yeah obviously a lot of the

conversation was teams which

opportunities what can any of you or the

deferment that you represent looked at

opportunities when it comes to a growing

aspect of sports team sports technology

stars I've looked at some of the stuff

in eSports and some like my people

understand that business but I want to

work where I have a competitive

advantage I don't feel I have a

competitive advantage in that I just

don't don't sure there are a whole bunch

of people that can do it better and

that's not a good playing field for me

and we're the same way we go back a long

ways we know what we know and then we

know what we don't know and that that's

a sometimes knowing what you don't know

is more important than what you do now

it's true and the other thing I was

going to say about our field and you

know I'd love your guys comments on this

but it's it's not a growing business at

all you know I mean you know we how long

is Rob and you know inner sports yeah so

I don't know of any new firms I mean

there's there's you know in the last

1012 years you know there's a finite

number of transactions and you know it's

it is relationships the South said that

you have to build and I don't it's hard

to envision some you know even somebody

leaving a good bank and whatever it's

just it would rich it's really hard but

in in terms of overall sports the other

thing I always tell everybody if you're

going to get in the sports business one

when you first get in you're gonna get

way way way way underpaid you're lucky

to find anything in sports you're going

to work twice as hard and if you think

you're going to get in there at nine and

head out at five you'll have a short

short very short term

job and and sometimes it'll take three

to five years to get through the clutter

because everybody thinks they want to be

in sports and then when they find out

what a grind it is at the end of the day

and the kind of commitment it takes that

falls out if you survive all that then

you know it's a wonderful place to be

but you have to be prepared going in

that it it's a grind to get going there

quickly just you know I agree with these

guys we have actually focused out of a

sports tech space a lot less on the

startup side because for us raising a

million two million three million

dollars is hard but we just sold a CRM

company called core kawari to a private

equity firm we did a fund raise for team

works a mobile collabora software

company out of Durham just in the last

few months and we're spending more and

more time doing that right now so you

know for us as we do see some of the

same stagnant side on the team side it's

at some place we are spending a lot of

time yeah it's very interesting I mean

some of the large investment banks they

kind of blow into the business they do a

deal then you never see them again and

it's kind of like okay but think about

how small this business is relative to

what they do right they're doing

thousands of transactions in computer

technology right and they'll do one

sports deal and relatively speaking that

sports deals tiny right so it's not

worth it for them and they don't put the

a-team on the transactions either which

is frustrating sometimes when you're

dealing with them because they don't

even know what questions to ask and we

could spend a lot of time making fun of

some of the big banks but we'll have a

save that for another time

too bad I think we're running look into

the camera speaker but thank you too for

sharing all your stories and Patrick

thank you this is a great day

[Applause]