Entrepreneurship and the Sports Business Case Studies Presented by Professor Bruce Firestone and Mr. Ted Wagstaff Telfer School of Management and Algonquin

Entrepreneurship and the Sports Business

Case Studies Presented by Professor Bruce Firestone and Mr. Ted Wagstaff

Telfer School of Management and Algonquin College

Desmarais Building, University of Ottawa. Room DMS 4101

February 24th, 2010 from 4 to 7 pm

Ottawa 67s

“WANTED: RICH UNCLE BUCK TO MILLIONS TO START MY SPORTS BIZ”

Jeff Hunt and his brother relocate from NFLD to Ottawa

‘Great’ JOBs– selling carpet cleaning at $3.50 per hour

Jeff figures he can sell for himself Starts his own firm– he sells/his brother cleans Mom and Grandmother in tears[Jeff Hunt (left) and CFL Commissioner Mark Cohon, Photo by Tom Hanson, Canadian Press]

Ottawa 67s

Jeff can SELLJeff’s insight: branding is important‘Borrows’ Sears’ brandTakes over all Sears Carpet Cleaning

coast to coast in CanadaSears lends their name/get royalty in

return/money for nothingJeff visits Chicago

Ottawa 67s

Hung around long enough to go golfing with Sears Roebuck VP

Turned down in US marketMonths later: Houston we have a problemGets opportunity to turn around Sears

Carpet Cleaning in HoustonMakes sure he does a good jobTakes over US market

Ottawa 67s

A few years later– Sears decides to buy back its own name!

Jeff is sitting on $40 million USD at age 40What’s next?Buy the Ottawa 67s!Buys team from owner Howard Darwin

and his partner at low point– attendance is less than 1,500 per game

Everyone tells him: DON’T DO IT!

Ottawa 67s

Everyone tells him:

* DON’T DO IT!

* YOU CAN’T DO IT!

* YOU’LL FAIL!

* IT’S A LOSER NOW THAT THE SENS ARE IN TOWN!

Ottawa 67s

Makes every game an eventBrings in beloved stars of old (like Yvan

Cournoyer) to sign autographs and collectibles

Sells out all 44 private suites by bundling them with signage, sponsorship, giveaways– things that leverage their investment

Ottawa 67s

Turns a cost centre into a profit centre> 500 charity requests per seasonInstead of giving them money, Jeff gives

them discounted tickets that they can resell for a profit

Never needs to turn anyone down!67s set attendance records and is model

franchise

Ottawa 67s

Naming rights of Civic Centre never soldJeff creates a ‘lottery’30 companies who each buy minimum of

$1,000 of 67s product (season tickets/signage/suites/sponsorship) entered into a draw.

Urbandale wins naming rights for a year

Ottawa 67s

67s set attendance records and is model franchise, copied by not only other Junior teams but by the NHL’s Ottawa Senators and others

Franchise value is now vastly more than Jeff’s purchase price

He is too young to retire!

Ottawa 67s– Lessons Learned?

Jeff had confidence in himself Brand creates trust and trust creates the opportunity to

sell (more) Innovation, big and small, is important Never take ‘no’ for an answer Great execution counts– make a profit every year Buy low/sell high Turns a cost centre into profit centre– better yet, turn it

into a new distribution channel Never retire Started with nothing/bootstrapped his way to wealth Now leads Lansdowne Live and the return of the CFL to

Ottawa

Mont Cascade and Pro Slide

Rick Hunter, former Canadian Ski Team Member

Retires after injuryBuys a ski hillMostly on credit and a bit of savingsLoses an atrocious amount year 1Sitting on the hill in Spring of that year–

what to do?


Family to supportDebt to repayBankruptcy facing himLooks at hill/looks at lake/looks at hill

againEureka!


Buy two straight plastic tubes from manufacturer in Rigaud, Québec on (yet more) credit

Buys a couple of pumps on (still more) credit

One shack for women’s change room/another for men’s

Reuse parking and food services and toilets from ski hill

30,000 people show up that summer and give Rick $13 to use his waterslides


Saved!Asks Rigaud manufacturer: “How about a

tube with a bend in it?”“No we don’t do that.”“Why not?”“We do it that way because that’s the way

it’s always been done.”Rick hires first engineer to design a

waterslide with a curve in itNon trivial problem of g-force calculations


One day a Disney executive hears about this

Rick gets the contract for Splash Mountain

Pro Slide is born World leader in

custom design, engineering and manufacturing of fiberglass water rides

Mont Cascade and Pro Slide– Lesson Learned?Just because you’re a good skier doesn’t

mean you know anything about running a ski hill– you need to be an expert

Opportunity is where you find it/disaster focuses the mind

Never give up but be prepared to change what you are doing if it isn’t working

What business is Rick really in? The design business.

Which can not easily be knocked off or outsourced to CHINDIA

Wilderness Tours and Mount Pakenham

Joe Kowalski from Philly falls in love with Algonquin Park

Decides to be an outfitter– taking visitors on canoe trips

First summer is a disaster– turns out no one wants a guide

But he learns that there are force 4 rapids on the Ottawa River that no one had traversed in over a century


Joe and his pal Robbie Rosenberger scout out the territory

Joe sees BIG OPPORTUNITYLess than 90 minutes away is a market of

800,000 outdoorsy people with lots of disposable income

Next Spring, he and Robbie ask a farmer for permission to set in to the river on his property

They launch Wilderness Tours with two rafts– Robbie in one and Joe in the other

Wilderness Tours and Mount Pakenham100s then 1,000s of people show upProblem– while the rapids are terrific, the ride

is shortJoe embraces programming: swimming the

rapids/one channel for adventurous paddlers/another for families who want to bring kids/bungee jumping/kayaking/ mountain biking/rock climbing/volleyball/ horseshoes/paddle tennis/basketball/ soccer/ball hockey/lawn chess/softball

Joe starts to buy landJoe starts to build a town


4,000+ acres owned by WT

Both sides of River (Québec and Ontario)

No development permitted (other than WT)

Problem– how to keep good staff in seasonal biz?

Wilderness Tours and Mount PakenhamBuy Mount Pakenham– winter time staff

reallocationAnother problem– smallest vertical anywhere

in the regionTurn Mount Pakenham into largest ski school

anywhere– safety becomes their competitive advantage

Schools show up what ever the weatherMore programming? Add snow board parkAdd tubing for non-skiers/boarders

Wilderness Tours and Mount PakenhamFurther expansions– jet boat business in

Lachine and Niagara Falls Another problem– smallest vertical anywhere

in the regionTurn Mount Pakenham into largest ski school

anywhere– safety becomes their competitive advantage

Schools show up what ever the weatherMore programming—snow board park/tubing

for non-skiers/boardersNow selling fractional ownership for Presqu’ile

Wilderness Tours and Mount Pakenham– Lessons Learned?

Entrepreneurs would rather ask for forgiveness than beg for permission

Start with nothing/bootstrap your way to success/make a profit/cash is King

See and seize opportunities where others fail to go

Outcompete your competitorsBe innovative and creativeTurn problems into opportunities– your

biggest weakness becomes your greatest strength

Ottawa Senators

Terrace gets $18 per s.f. for its office space/five years later it’s $6

What to do?What does Toronto have that Ottawa

doesn’t have?A zoo/Princess of Wales Theatre/

Wonderland/NHL TeamConversation w/ Cyril Leeder and Randy

SextonBring Back the Senators

Ottawa Senators

Cyril asks how much will it cost?$35 million (est. based on NBA)Actual NHL ask? $50 million USDRandy says let’s go for itCyril asks how will we pay for it?Bootstrap capital, that’s how

Ottawa Senators

Buy 600 acres at $12,500 per acrePut a NHL team and NHL-calibre building

in the middle of itDrive up the value of the land to $112,500

per acreKeep 100 acres for Scotiabank Place and

parking lotSell extra 500 acres for a profit of $100k

per acre or $50 million!NHL franchise cost = ZERO!

Ottawa Senators

Also get 32 Original Corporate Sponsors at $15k each

And 500 Corporate Sponsors at $500 each

Sell 15,000 PRNs at $25 each

Raise $1,105,000 to help with bid

As Al Davis once said: “Just win, baby.”

Anaheim Ducks

Can this work for a large firm like Disney?

SureBuy a NHL expansion

franchise for $50 million

Of which $25 million goes to the NHL and $25 million to Bruce McNall and LA Kings

Anaheim Ducks

But Bruce McNall gets $5 million per year for five years

And Disney gets a leasing inducement from Ogden for Honda Centre of $20 million

Plus Disney pledges their new asset for a commercial loan of $30 million

Anaheim Ducks

So what is the actual franchise cost?$50,000,000 - $20,000,000 - $20,000,000

- $30,000,000 = - $20,000,000Minus $20,000,000!This is called accretive buying– where you

have more cash on hand > a purchase than before

Ottawa Senators and Anaheim Ducks—Lessons Learned?

When something isn’t working, do something new Learn from your competitor Commitment is important: “YOU’LL NEVER, EVER GET

A FRANCHISE IN … OTTAWA” You can bootstrap big projects Even Fortune 50 companies do that Sponsorship can apply to many industries and is a form

of Bootstrap Capital Keep your core competencies– outsource the rest If you are profitable, you will get financing not the other

way round Entrepreneurs make their own rules

Jim Balsillie, the Phoenix Coyotes and the Hamilton Bid

If you want to join a private club, litigating your way in probably not the best way

NHL a private club with 30 voting members plus the Commissioner

Similar to a political campaign to become Mayor– just fewer voters

Member clubs held in trust by their owners for their fans

NHL believes they should not be moved until all options exhausted


NHL leadership—two lawyers (Gary Bettman and Bill Daly)

NHL leadership– no fear of litigationJim soundly defeated in Phoenix

courtroomExpansion route probably would have

workedFinancial incentive for owners since they

share in expansion proceeds but not relocations


“Do you want a new one or a used one?”Relocation means disenfranchising fans in

other cities (Ask Cleveland Browns fans how they feel about the Colts)

New one creates opportunity for fresh brand and sets stage for love affair between fans and team

NHL agrees that TO and Buffalo do not have veto

Expansion remains a possibility


But can you pay $400 million and make it work? Sure by bootstrapping it!

Naming rights: $45 millionArena management, product rights,

parking rights, F&B rights: $20 millionPouring rights: $15 millionTV rights: $120 millionDebt: $100 millionNet Franchise Cost = $100 million

Jim Balsillie, the Phoenix Coyotes and the Hamilton Bid– Lessons Learned?

Play to your strengths not your opponent’sBe strategicLitigation is a soul-destroying, time

sucking black holeBootstrapping lowers your risks and

increases your returns

“You can catch more flies with honey than with vinegar,” Anon

Conclusion

Thank you

Questions?

Documents

Entrepreneurship and the Sports Business Case Studies Presented by Professor Bruce Firestone and Mr. Ted Wagstaff Telfer School of Management and Algonquin