by: Jerry Kavanagh
SAL GALATIOTO is managing director and head of Lehman Brothers’ Sports Advisory and Finance Group, which was founded upon his arrival in ’01. He was managing director and head of SG Cowen Securities Corporations Sports Advisory Group (SG Cowen is a wholly-owned subsidiary of Societe Generale), which he joined in ’93. From ’84 to ’93 he was senior VP and manager of the corporate finance unit at Westpac Banking Corporation — which focused on leveraged finance, debt restructuring and specialized insurance lending. He is an Adjunct Professor at the Columbia University Graduate School of Business. Galatioto spoke recently with SportsBusiness Journal N.Y. bureau chief Jerry Kavanagh.
Q. The composer John Cage said, “I can’t understand why people are frightened of new ideas. I’m frightened of the old ones.” What has been the best new idea in sports business?
Galatioto: Gee, I think the next time I hear a new idea in sports business will be the first time I hear a new idea in sports business. Most of the stuff that we do is adapted from other businesses. The financing techniques that we use they evolved over time, but they’re not any great, brilliant new ideas. A lot of the things being done in sports business now are logical extensions of marketing techniques used in other businesses, and people are applying more professional applications to sports now. Certainly they’re doing a better job marketing in some leagues. They’re trying to get their labor situations together in others. But new innovations, not that many.
Q. You were an adviser on the sale of the Redskins, the Mighty Ducks, the Angels?
Galatioto: And we advised BOB JOHNSON on the purchase of the new Charlotte franchise in the NBA, which, to me, is one of the highlights of my career. Bob being an African-American to buy an NBA team, I think, is a great event for a lot of reasons, not the least of which Bob is just a very unique guy and somebody I have a lot of respect for. We advised EUGENE MELNYK when he bought the Ottawa Senators last year. We advised and financed FRED WILPON’s acquisition of the 50% of the Mets they didn’t already own.
Q. What’s the best call you have made in your position?
Galatioto: Two, really. One, working with DAN SNYDER and helping get the Redskins for $800M when a lot of people thought we had overbid for the franchise. Obviously we didn’t. The franchise is worth well in excess of that now. It’s one of the premier franchises in all of sport. And we just finished selling the Nets for a very full price in a very interesting bidding process. I thought it was a deal that was notable. Selling an NBA franchise in the New York metropolitan area doesn’t happen all that often, and it was a nice transaction to be involved in.
Q. What is the dumbest moment in sports business history?
Galatioto: The sale of BABE RUTH to the New York Yankees. I don’t think there is one that goes beyond that one.
Q. They haven’t gotten over that yet in New England.
Galatioto: Well, it was a pretty dumb move.
Q. What is the best buy in sports today?
Galatioto: Depending on the position you take on what the collective bargaining agreement is going to look like, if you pick the right National Hockey League franchises, you can probably get them at very reasonable prices right now. And if the collective bargaining agreement works out the way it needs to, I think there is a lot of upside in hockey.
Q. Among the major pro leagues, is one a better investment than the others? Galatioto: The Rolls-Royces of professional sports franchises are the NFL franchises. they’re profitable,they’re well-run, they have a salary cap, they have no guaranteed contracts, there is extensive revenue sharing. However, there are some big-market NBA or baseball franchises that look more like NFL franchises than they do like NBA franchises or Major League Baseball franchises. There’s a real bell-shaped curve, and if you get the premier franchises in baseball or basketball, they rival some of the mid-level NFL franchises. But clearly the NFL has got the right model.
Q. You have said that people who buy sports franchises didn’t become extremely wealthy by owning sports franchises. They become extremely wealthy doing something else, and then buy a franchise.
Galatioto: There are very few exceptions to that rule. People become very wealthy in other business, then, oftentimes for the love of the game, they come into one of the professional sports leagues, and many of them really wind up enjoying it. When we sold the Angels to ARTE MORENO, I think Disney was very happy with the outcome, Arte was very happy with the outcome, and from everything I hear from Arte, he’s really enjoying owning the team. And he’s done some great things in Anaheim with the team and is building a great brand out there. So, that’s a win-win for everybody.
Q. You have also said that the best team owners are individuals. Why?
Galatioto: A team needs a face. It’s very difficult for a large corporation to own a franchise. The fans don’t have anyone to react to, either negatively or positively. The face of a team, a person in charge, gives marketing momentum. He becomes kind of the symbol of the team in many markets, and large corporations just can’t do that. In addition to which, large corporations have to manage for shareholders, and so sometimes they can’t take the long-term view that an individual owner can take. They can’t just make some of the investments. And they can’t run the team basically like an owner can. They delegate through their staffs to run the team, and that’s just not the right way to run it. It just doesn’t seem to be a successful formula and I can’t think of a single one that has really worked.
Q. Has there been an ideal match of owner and team?
Galatioto: GEORGE STEINBRENNER with the Yankees, clearly. I think Arte Moreno has done just a terrific job with the Angels since he’s taken over. JERRY COLANGELO with the Diamondbacks. AL DAVIS and the Raiders. The Raiders take on Al’s personality or vice versa. When you say Raiders, you think of Al Davis immediately. And JERRY JONES with the Cowboys. He rebuilt that brand. He went through some lean years and went out and got [BILL] PARCELLS, and it looks like they’re back on the way up.
Q. You called the Celtics a trophy franchise, and one of the most attractive in the NBA and that the value varies for each franchise.
Galatioto: If you put the Knicks, or a team like the Knicks or the Bulls or the Lakers, on the market, you’re going to get tremendous interest, which is going to drive up the price. If you look at what happened with the Nets, which is not in the same league with the Lakers or the Bulls or the Knicks, you got tremendous interest because of the market they’re in. If you’re in a secondary market, its much more difficult. You need a real reason to want to buy a team in a smaller city. Now, you may be someone who has always wanted a team there or is very wealthy from that area, but they just don’t have the visibility that the big-market teams have. You can say that — and I have said that — but look at what MARK CUBAN has done with the Dallas Mavericks. Arguably they were the worst franchise in the league when he took them over. And through the force of his personality — we were talking about the individual owner taking over and really making a difference — he has taken the franchise and built it into one of the most popular, or at least visible, franchises in the NBA.
Q. Would you put the MALOOFS in the same category?
Galatioto: Absolutely. The Maloofs have done a great job. Look, who knew the Sacramento Kings before the Maloofs took over? They have just done a tremendous job in marketing that team and getting visibility to that team. You just can’t say enough about what they have done.
Q. They make it fun to go to the game.
Galatioto: Absolutely. They understand it’s entertainment. They want a competitive team with a chance to win, and they’ve done that in a market like Sacramento, which is really a market most people never thought of before. Before the Maloofs, who thought of Sacramento?
Q. Earlier this year you called the Tampa Bay Buccaneers one of the NFL’s most valuable properties. Why?
Galatioto: They have a great stadium deal in a growing market. The teams been competitive for a long period of time. And if you look at their stadium deal and the cash flow the team generates, it clearly is one of the more valuable franchises in the league. Plus, it’s football in … Florida. People in Florida love football.
Q. Who is the shrewdest or most creative business man in sports?
Galatioto: Look, with all the criticism that he gets, George Steinbrenner has done a terrific job. He was the first one to form a regional sports network, with the YES network. People forget that when he bought the Yankees in the early ’70s, the team drew less than a million people. It was the No. 2 team in New York. It wasn’t even one of the premier franchises in the American League. And he clearly turned that team around. Dan Snyder has done a tremendous job from a business point of view in increasing the cash flow of the Redskins. He got a great naming rights deal. He’s done a terrific job in increasing cash flow out of that stadium. I think Dan is a brilliant businessman. Obviously, if you look at Jerry Jones and what he has done with the Cowboys since he has owned them, he has done a terrific job. And let us not forget DAVID STERN. He got a terrific media deal signed in one of the worst advertising markets in the last 25 years. He doesn’t get enough credit for that.
Q. What can the different pro sports leagues learn from each other?
Galatioto: The other leagues can certainly learn from the NFL that competitive balance, revenue sharing, better TV production help and build a sport. The NFL has become the most popular sport in the United States, and it has done it because I think the fan of each team believes that his team has a reasonable shot to at least make the playoffs every year if not win the Super Bowl. And you can’t say that about every other sport.
Q. NCAA president MYLES BRAND, speaking at an ethics conference the week of Feb. 15, 2004, said: “College sports is not a business. It’s about educating young men and women in the field and in the classroom.” Do you agree? Is college sports not a business?
Galatioto: I wish that were so. I really do. I hate to disagree with him, but to say college sports is not a business is somewhat disingenuous. And if you look at the graduation rates of many of the major programs, its very disappointing. Some major programs graduate very few of their varsity athletes. And especially if you focus in on the real money-making sports like football and basketball, they graduate a small fraction. Why do they play? Do they play to educate those football and basketball players? Or do they play to make money and gain recognition for their schools? Which increases contributions from their alumni? Gee, I think college football certainly is a business but I wish it weren’t.
Q. What is the best thing about sports?
Galatioto: The fact that you get a group of people that come together for one purpose, and you know what that purpose is at the beginning of the season: It’s to win. These athletes — say what you will about how much they get paid — most of them work extremely hard. They are incredibly talented. They do things that normal people just can’t do, although it looks easy on TV sometimes. And it’s that coming together for a common purpose and then achieving that goal which is amazing to me.
Q. Mark Twain said, “The man who does not read good books has no advantage over the man who cannot read them.” What are you reading now, and what books have meant the most to you?
Galatioto: There are two books. The one I read most recently is “The Last Stand of the Tin Can Sailors,” which is about the Battle of Leyte Gulf in World War II. Fascinating book. And one of my favorite books is “Gates of Fire,” about the Spartans and their allies at the battle of Thermopylae, which I would recommend to anybody. It’s a really inspiring historical novel by Steven Pressfield. Those are my two favorite books. I love history, and especially World War II. “Incredible Victory,” by Walter Lord, is another fantastic book.
Q. Favorite sportswriter?
Galatioto: I read a lot of sports business. I really like RICHARD SANDOMIR of the Times. He writes some interesting stuff, everything from the dog show to Major League Baseball. Very good.
Q. What does a typical day off like?
Galatioto: Day off?
Q. Do you get a day off?
Galatioto: (Laughing) I spend time with my family, my kids. If its the summertime, well try to take in a baseball game if we can. The winter, we love football. It’s so hard to get a ticket here in New York, but once in a while we’ll get tickets to the Giants and well watch the games together. My youngest son is a huge Florida State fan, so we oftentimes watch Florida State basketball and football. I’m more of a family person than anything else. I love cars and sports. Nothing earth-shattering.
Q. Favorite piece of music? Galatioto: Boy, I’m a guy that likes the music of my generation. The Beatles are my favorite, but I also like the Beach Boys and the Four Seasons.
Q. Favorite actor?
Galatioto: Robert DeNiro
Q. Favorite movie?
Galatioto: The Godfather trilogy. No doubt.
Q. Oscar Wilde said, “We are all in the gutter but some of us are looking at the stars.” Do you have a favorite quote?
Galatioto: There’s a quote by Albert Einstein that I can paraphrase. What he said was, the thing that was the greatest hurdle for him to overcome in order to learn was his education.