Ken Shropshire, the David W. Hauck Professor of Legal Studies and Business Ethics and director of the Wharton Sports Business Initiative, would not discourage Josh Harris, W’86, in his purchase of the Philadelphia 76ers.
He believes that private-equity professionals can apply their experience turning around all sorts of companies to the art of turning around a professional sports team. The formulas for reaching the highest level translate from one sector to another.
In most other industries and in business, however, there can be multiple winners at the highest level. In professional sports, only one world champion survives each season.
How can you get to be the greatest of the great? That’s what drives team owners and coaches crazy. You can think you have all the right pieces in place, Shropshire says, but it still doesn’t happen.
Still, being private-equity people might help Harris and company for many reasons, he notes. Typically, professional sports teams in the United States are owned by individuals or by corporations (the Sixers were previously owned by Comcast-Spectacor). The downside of the latter is that a sports team can be just a “blip” on the corporation’s radar. The downside of the former is that individuals might view the team as a hobby, or they might not have the resources to support it.
Private-equity owners have resources with the added benefit of an investor’s acute attention to improve an asset. It’s a “middle path” of ownership that is beginning to look like a trend in U.S. professional sports, particularly in the NBA, where private-equity buyers have been involved in the purchase of the Detroit Pistons and the Boston Celtics.
“This is a real business that we’re trying to maximize, and we have a lot of resources to do it,” is what Shropshire imagines private-equity owners thinking.
To that end—maximizing the investment and improving the team—Shropshire offers some advice to Harris. The first is to avoid flashiness.
“The biggest risk in sports is getting caught with trendiness and not being agile enough to change,” Shropshire says. He points to the New England Patriots as an organization that knows how to “facelessly” sustain success.
One mistake would be to rush out and deal for a huge-name player with an even bigger contract, just to grab short-term headlines.
Shropshire recommends that owners first understand the team structure and the broader fan base, before positioning the team for success with big-name acquisitions and trades and the release of high-priced players. Of course, the formula for understanding the fans and getting them in your court can seem as deceptively simple as a layup.
“Winning ultimately gets people back in,” Shropshire says.
(Editor’s note: Be sure to read our profile of Harris, “The Private-Equity Diaries.”)