Get Ready for the PE Owner

Changes in league rules and ballooning valuations have drawn private equity (PE) investors into team ownership. Opening up ownership to a new class of deep-pocketed investors will likely fuel further valuation growth in the future. But these PE owners are likely to bring different perspectives and expectations to the executive suite. This has significant implications not only for current owners and top management but also for day-to-day operations. Savvy managers will thrive in this new environment if they can adapt to how PE owners are likely to think and act. Here are the types of questions that will become far more common in a PE-influenced environment:

Where Are the Opportunities for Revenue Growth?

The first rule of PE is understanding how a firm makes money and how it can make more of it. A business operator of a team should be able to explain the following:

• What are the different revenue streams available to the team (e.g., media, tickets, concessions, merchandise, real estate, events, etc.)?

• How are those streams performing?

• Where is the most potential for growth in those streams?

• Are there new streams to tap into?

Sure, data about players’ performance has skyrocketed in the last decade with metrics like WAR, VORP, and GAR. But the same cannot be said for data on fan performance. Players drive wins, but fans drive revenues. Many teams don’t have access to what would be considered fundamental customer information to a typical PE owner. Most teams have disparate measures of fan engagement, such as season ticket holders, social media followers, and TV ratings. But few know how those audiences overlap and how they translate to a holistic measure of a team’s total fan base. A PE-friendly manager would help determine:

Where’s the Data?

• How many fans do you have?

• How is the fan base growing, aging, or changing?

• What are the key fan types/segments by demographics and psychographics?

• How much do fans spend by type?

Who’s the Competition?

Conference groupings make a team’s on-field competition obvious. But it’s not as easy to understand the competition for fans. The competition for fan attention and wallets is likely to differ significantly between cities like Las Vegas, New York, and Kansas City. Understanding who your competition is will help you design programs and packages that can increase your team’s market share.

Where Can We Be More Efficient?

The second most important thing to PE investors, after growing revenues, is cutting costs. Of course, the most costly part of running a team is player salaries. That’s a deep topic unto itself, so we’ll set that aside for a moment. The next highest areas of expense are usually facility costs, travel and event logistics, and marketing. Business managers should evaluate whether there are untapped efficiencies in those areas. Areas to explore include:

• Is there an opportunity for new or improved technology to reduce operational costs?

• What are the comparative costs of in-house vs. outsourcing for various functions?

• When was the last time large third-party services were put out for bid?

The manager who can think and talk about the business of sports in these terms will fare well in a PE-influenced world.