Getting Started

Imagine you were the owner of the newest expansion team in professional sports or the CEO of any start-up business for that matter. What actions would you take to propel the business beyond the initial planning process toward that of market leader? Once obscure companies like Microsoft and ESPN began with a mere vision and plenty of skeptics, but grew to become the bellwethers by which other industry participants measure themselves in the software and sports media industries, respectively.

After being fired by the World Hockey Association's (WHA) New England Whalers, Bill Rasmussen, a public relations specialist, launched ESPN on September 7, 1979. The handful of people who noticed the network's launch undoubtedly dismissed the notion of a 24-hour cable sports station. How could the sporting world warrant that much nonstop coverage? Who would watch it? How could it be economically viable?

Compelling programming was thin for ESPN in its early days. ESPN's first live event was the 1979 Professional Slo-Pitch Softball World Series between the Milwaukee Schlitzes and the Kentucky Bourbons. But once SportsCenter, the network's flagship news program and highlight show, was supplemented by college basketball programming, the station managed to cobble together enough programming to fill each day. Nonetheless, few existing networks viewed the start-up cable network as a legitimate threat.

As the popularity of cable television grew, SportsCenter began to overshadow local sports broadcasts. Soon, as the concept gained support, SportsCenter junkies became acquainted with personalities like Chris Berman, Bob Ley, and Dan Patrick, each of whom became cult heroes who were just as famous as most of the athletes they covered. Today, SportsCenter airs in more than 80 percent of U.S. homes and ESPN is far and away, as its tagline suggests, "The Worldwide Leader in Sports" with ESPN, ESPN2, ESPN Classic, and ESPNEWS. The ESPN brand has also been attached to ESPN.com, ESPN The Magazine, ESPN Radio, and ESPN Zone restaurants. With the acquisition of the NBA's broadcast rights in 2002, the network became the first to broadcast games from all four major sports leagues at the same time.

Just like Rasmussen was able to get past the initial skepticism, so too was Frank Batten, who helped start the 24-hour, 7-days a week Weather Channel a couple of years after Rasmussen began ESPN. The initial response to the Weather Channel was just as bad. After all, who needed to watch anything but their local weather? Who cared if there was a massive storm in Oklahoma if you were soaking up rays in Malibu? Well, by 2000, the Weather Channel was generating $320 million in revenue and boasted a steady following of nearly 100 million weather watchers.

In addition to ownership believing in a business concept, most successful businesses, regardless of their industry, have adhered to the following process to achieve market leadership positions.

They must begin with a vision. An organization must be able to look at the future and determine its short-, medium-, and long-term strategic goals: How will the business adapt to inevitable change? What direction should the business take when faced with this change? Where should the business focus its human and financial resources? Creating a tight strategic plan answers these questions and provides a guide for growth and success.

Owners of expansion teams in professional sports must address these issues upon being granted their franchises. They must decide how they will stock their teams with players (employees). Will they do it economically and methodically over time through the draft and their newly established minor league affiliates? Or will the new owner choose to go the free agency route, electing to use checkbook diplomacy to rapidly and expensively establish a contending team? How will the primary stakeholders, namely the media, sponsors, and fans, react to the new owner's strategy for building a franchise?

In many respects the sports world has a lot in common with the dot-com frenzy, in which capital was easily raised and quickly spent to rapidly establish a brand. Financial returns were less important than establishing a strong Web presence. Throughout much of sports, success is measured not by operating incomes but by winning percentages. When sports teams fail to take into account the financial bottom line they face the same challenges encountered by online companies who invested heavily in establishing a brand name but lacked the business acumen to capitalize on it.

Business leaders are also measured by "winning percentages," such as stock price and other yardsticks, like profitability. However, unlike baseball players, corporate leaders need to bat well over .300 in their decision making to be considered successful in today's fiercely competitive business world.

Unlike Jerry Jones, who built the Dallas Cowboys over time while leveraging the rich tradition of the team, Arizona Diamondbacks owner Jerry Colangelo built his team rapidly and without the benefits of an established and committed fan base.

In 1995, Colangelo long-time managing partner of the NBA Phoenix Suns and numerous limited partners purchased the MLB expansion team, the Arizona Diamondbacks, for $130 million, $20 million more than the group anticipated it would cost.

Colangelo's primary goal was to field a competitive team that played in a great ballpark. He achieved this goal, as the Diamond-backs became the quickest expansion franchise to win the World Series, doing so in only the team's fourth season. However, the costs incurred by Colangelo and his partners were enormous.

Before taking the field in 1998, the costs associated with building Bank One Ballpark soared from $230 million to $368 million. Following the inaugural 1998 season the Diamondbacks increased the team's payroll to about $70 million, giving it one of baseball's top 10 highest payrolls. The signing of six free agents, including pitcher Randy Johnson and outfielder Steve Finley, whose combined contracts cost Colangelo $118 million, was primarily responsible for the rapid increase in player costs. Despite these changes in the lineup, season ticket sales declined. The number of season tickets fell from 36,000 in 1998 to 27,000 in 1999 and again to 24,000 in 2000. For the Diamondbacks championship year, the season ticket base fell to 22,000.

Due to this eroding season ticket fan base Colangelo sought and received financial relief in the form of a $10 million loan to provide the team with the necessary capital to sign additional free agents. But even this proved to be insufficient.

By 2001, Colangelo took the extraordinary measure of asking his top 10 players to defer a reported $150 million to $200 million in salaries over five years. By the end of 2001, Colangelo had existing partners invest another $160 million over a 10-year period to ensure a financially stable and competitive team in the years to come.

Despite much criticism throughout the process, Colangelo said it all paid off that merchandising, postseason ticket revenue, and the rebounding season ticket base allowed the team to lose only $44.4 million in its championship year and that the team would eventually be debt-free thanks to the owners providing the necessary cash. In the process, however, Colangelo's ownership stake in the team was further diluted and the franchise faces ongoing financial problems arising from the deferrals on player salaries, as well as $150 million in stadium debt. This financial situation has been further exacerbated by the fact that, as part of the team's agreement with the league, it did not begin to share in the national television revenue monies until the 2003 season.

Amazon.com, the Internet's largest retailer, and the Diamondbacks of the dot-com world, lost $2.8 billion from 1995 through 2001 before announcing in January 2002 that it had made its first quarterly profit, a meager yet welcomed $5.1 million.

Given the game plans undertaken and well communicated to important constituents by both Colangelo and Amazon, each was able to avoid some of the scrutiny associated with such extraordinary investment spending. Based on shareholder input, senior management must decide if the industry that a company is in, and the circumstances in which it operates, will allow it the latitude to undertake a similar strategy. They also must decide what constitutes "winning." Might it be having the greatest market share in the industry (the championship) or could winning be defined as being the most profitable (highest franchise value)? Perhaps winning requires both.

In sports, expansion teams much like any new business must assemble a great, service-oriented sales staff to help sell everything from season tickets to luxury suites. Along the way, aggressive sales forecasts are made and in the competitive world of sales, marketing representatives who aren't putting the proverbial fannies in the seats typically find themselves scrambling to keep their jobs.

Some employees in the sports world are driven by the fear that many others would love to work in their field and they are therefore, in essence, more replaceable than employees in other businesses. However, employees who are lower on the team's totem pole are often driven to do well for a team and sell as many tickets as possible because of the commissions they earn in the process. Small businesses and organizations, like expansion teams in sports, must consider which aspects of their operations allow them to attract, and then motivate, their own employees.

Because management has to more personally acknowledge employees in a commission-based system, it tends to be more cognizant of who is doing extremely well. Those that are excelling are routinely identified as fast-trackers, employees with a work ethic and track record that warrant senior management's attention. However, these fast-trackers are but a single component of a comprehensive strategic plan.

The strategic plan, which must include dedicated employees, might be the framework for the organization, but it alone is not enough. A company must establish measurable performance benchmarks and hold its management accountable to meeting agreed-on targets. The business should develop a financial and operational reporting system that allows it to track all of the critical performance numbers. Periodically revisiting and refining performance standards will contribute to broader companywide goals. Markets don't wait for annual planning reviews, so the business shouldn't either.

Respected, revered, and dedicated leadership in the organization is also of paramount importance. Often a business owner is passionate about his or her product or service and knows the market well, but lacks sufficient expertise in management and leadership. Some of the best sports owners are those who admit to themselves that they can't manage or lead (or possibly even both), and thus delegate authority at the appropriate time and to the right people.

It is also critical that the owner of the business makes the personal transformation from technical expert to master strategist. The personification of this is Bill Gates. He is undoubtedly a computer genius, but he had to develop the key strategic and leadership skills needed to nurture and then lead a global organization.

It is equally necessary to assemble a competent, creative management team. A good manager will become a great one if he or she surrounds himself or herself with the best people possible. The key to manageable and sustainable growth is avoiding inconsistent or unpredictable leadership. By identifying all the key people who are driving the business and creating incentives for each of them to stay and help grow the business, the company will remain in a position to optimize its growth. This has been evidenced in both baseball and basketball, where the most successful active manager and head coach New York Yankees manager Joe Torre and Phil Jackson of the Los Angeles Lakers have spent many seasons discussing game strategies with their faithful assistants, Don Zimmer and Tex Winter, respectively.

Fear of inconsistent or unpredictable leadership is one of the reasons the founder of a family business might be hesitant to approve of his or her children's wishes to expand the business. The founder might think that the company would be compromised if one of them cannot possibly be in charge of every aspect of the business.

In the sports world, such issues prevail between university presidents and athletic directors who are required to relinquish a significant measure of control to the school's head football coach and pigskin patriarch.

Likewise, when an athletic director gets comfortable with a certain coach even if he or she is no longer winning he or she tends to keep that coach longer than he or she should.

Such was the case with college basketball coaching legend Denny Crum, who was forced to resign from the University of Louisville after the 2001 season. Crum coached the Cardinals for 30 years, during 23 of which the team went to the NCAA Tournament, including six Final Four appearances and two national championships (1980 and 1986).

However, midway through the 2000 2001 season, Crum was forced to say he would resign at the end of the season. At the time, the team was 11 18 and 61 61 over the last four years with two first-round losses in the NCAA Tournament.

After Crum's firing, ESPN basketball analyst Jay Bilas likened being the head coach at a traditional power to being the CEO of a major corporation. Bilas suggested that success and succession were always major issues and that it would be unimaginable for a corporate board of directors and the company's shareholders to allow an aging CEO to serve at his pleasure when the company's fortunes were sagging. This would particularly be the case if no credible evidence existed to indicate that the company's future would improve.

Louisville basketball's new CEO was former Kentucky coach Rick Pitino, a man not unlike former Louisville football coach Howard Schnellenberger, a coaching patriarch who enjoyed the challenge of turning around programs.