Celtic pride: Boston co-owner Stephen Pagliuca talks smart business in the NBA

After getting ever closer in recent seasons, the Boston Celtics are the outstanding performers in the National Basketball Association and may even add to their league record 17 championships. Co-owner Stephen Pagliuca shares his thoughts on how the team and league are getting improving, and what his experience as co-chairman of Bain Capital has taught him about value in the sports industry.

Celtic pride: Boston co-owner Stephen Pagliuca talks smart business in the NBA

Few names in sport carry the cachet of the Boston Celtics.

No team in the US major leagues has won as many championships as the 17 they have plundered in the National Basketball Association (NBA) – it is a source of great comfort and amusement to fans at the TD Garden that the LA Lakers are one title behind. Yet 16 of those successes came in the period up until 1986, and the last was in 2008.

The need to satiate that appetite for victory will not have gone unnoticed in the Celtics’ ownership group, whose arrival came five years before that comeback title a decade ago. With the super-teams of the Cleveland Cavaliers and Golden State Warriors blocking others’ route to the big prize, the Celtics have sought careful improvement and, under general manager Danny Ainge and head coach Brad Stevens, have edged ever closer.

Last season brought a return to the Eastern Conference Finals, and with it a five-game defeat to the Cavaliers. Seeking the last piece of what could be a championship-winning team, the Celtics completed a deal over the summer to take superstar Kyrie Irving from their victorious opponents, sending Isaiah Thomas the other way.

The effects have been impressive. Irving has been in MVP-worthy form for the regular season’s outstanding team. At one point before Christmas the youthful Celtics had notched up 16 wins in a row, and they still lead the Eastern Conference standings at the time of writing.  

In a sports-mad local market – earlier in the decade, the Celtics shared a years-long sell-out streak with Major League Baseball’s (MLB) Red Sox, the National Hockey League’s (NHL) Bruins and the National Football League’s (NFL) New England Patriots – the executive team under president Rich Gotham have sought to build an organisation worthy of an elite team.

The Celtics are owned by Boston Basketball Partners LLC, a group led by venture capitalist Wyc Grousbeck, who is also the chief executive. Other members include Jim Pallotta, owner of Italian soccer side AS Roma, and Bain Capital co-chairman Stephen Pagliuca, who speaks to SportsPro a few days after the team beat rivals Philadelphia 76ers in the NBA London game at The O2.

These are auspicious times for the Celtics away from the court. Work is nearing completion on the Auerbach Center, a high-end new practice and medical facility in Boston Landing, named for legendary former coach and president Red Auerbach. This is also the first season of a new jersey patch partnership with GE, looking to use the franchise to showcase its own move into the analytics sphere.

A team taking a hard look at the numbers in the game, and the masses of data generated by their own fans – speaking at the Leaders Meet Innovation event in January, Pagliuca said around 60 per cent now use mobile ticketing at home games – should provide ample opportunity to do just that.

Pagliuca on… the Celtics in 2017/18

“We never set a specific goal for number of wins per year. Our ambition is always to fulfil the potential of the team and win more every year as you build the team. But Coach Stevens has always said that he never wants to put a ceiling on the team because the ceiling can be too low.

“This year, the team has certainly performed beyond anybody’s expectations, especially accounting for the fact that Gordon Hayward got hurt in the first quarter of the first game.”

Pagliuca on… getting closer to titles

“It’s a building process. It involves a lot of factors. It’s really about being patient. We’re working on five-year plans to get better and better and contend for championships. There are so many factors that go into winning championships. A lot of it also has to do with the health of players, and major injuries can obviously set back the team. So it’s a continuous improvement process where we’re being patient and trying to build a core team that can contend.”

Pagliuca on… the difference in Boston

“Well, I think what’s different in general in Boston is that people in Boston really expect teams to go for championships. And the great news is that the fans here are very knowledgeable about their sport – we’ve got some of the best fans in the world – and they understand that you need a patient plan to try and win championships. So we’re not a team that is trying to be designed to win a fair amount of games every year and try and make the play-offs.

“We’re really trying to go all the way. And the fans – since the start, since we bought the team in 2003 – have been very patient and they’ve understood the plan and really backed the plan and filled the stadium. We’re very fortunate to have these special fans in Boston.

“This does result in added pressure on the Boston teams. It keeps everybody on their toes and it really forces all the professional sports teams here to try and achieve a high level of excellence.”

Pagliuca on… making an exception for Irving

“Anytime you have a chance to get a transcendent player – and there are probably less than 15 in the league – you have to take a hard look at that. Kyrie is one of those players who has won a championship and can lead a championship team and he’s very young. When he became available, we had the assets to acquire him and we did everything we could to bring him in on the team.

“Coach K [Mike Krzyzewski] from Duke, who had coached him and knew him in college, told me that Kyrie would be even better at the Celtics, given more free rein. In Boston he wouldn’t have to play through LeBron [James] because he was such a great ball handler and shooter. It turns out that Coach K was absolutely right about that. Kyrie was fantastic out in Cleveland but he’s been even better here in Boston.”

Pagliuca on… encouraging players to reach out

“We try to help the players communicate with the fans and get them interacting with the fans. When we bought the team we had three major strategic objectives. The first one was to win a championship and put together a championship front office, back office and team. That’s the hardest one of the three. The second was to really improve the fan experience. The franchise didn’t have dancers, they didn’t have a lot of half-time entertainment, and there wasn’t a lot of connectivity with the team in general.

“And then, third, we wanted to make a huge impact in the community. So the ownership group formed the Boston Celtics Shamrock Foundation and that’s become a leader in community work and helping children in need in Boston in terms of healthcare, education and general welfare.

“So that was a three-pronged strategy and the hardest one was to get a championship, but you can always do a lot on the other two: making the fan experience better and getting everyone more connected to the players, and you can always do a lot in the community, which our team has embraced. It’s made the team stronger and it’s made the franchise stronger.”

Pagliuca on… driving fan interaction

“It’s very important. Fan engagement is critical for the franchise and the health of the franchise, and the more we can make fan engagement happen and know more about our players and all the great qualities of our players and what they’re trying to accomplish, and the values of our franchise, the better off we are as a franchise.

“And social media has been that platform to basically allow 24/7 conversation with fans. That didn’t happen when I grew up as a sports fan.”

Fan interaction is important to the Celtics on and off the court

Pagliuca on… reaping the benefits of supporter data

“Our marketing and ticketing operation, the more data we have on the fans and what they like – which games they like to see, and what players they like and what kind of apparel they like, and their general demographics – the more it allows us to serve them better and get them more connected into the things that they want to see.

“We have a very sophisticated operation that analyses any of the fan preferences and fan data that comes in, who’s watching the content, and we can then customise programmes to offer them the things that they really like.”

Pagliuca on… collaboration within the NBA

“The NBA under [former commissioner] David Stern and now under [commissioner] Adam Silver and [chief operating officer] Mark Tatum really has made an effort for teams to share things that benefit all the teams. There are management meetings of all the marketing people and team presidents, and they formed NBA Cares so we’re trying to share community ideas.

“There’s an organisation called Teambo that basically is consultants that you can call upon to help all the teams and demonstrate best practice. So if you see something that’s state of the art and works for one team then you can implement it with the other teams, and obviously we’re not competing in terms of the community. We’re all trying to make the community better and all trying to get to our fans in the same way.

“We compete voraciously on the court, but from a business standpoint you can share many, many things and the NBA facilitate that through their consulting organisation and through actually facilitating meetings of management from the different teams on those topics like social media and marketing and team operations.”

Pagliuca on… the league’s global ambitions

“The NBA has done a fantastic job, both in the fan experience and on social media. The NBA has also been out ahead in terms of globalising the game. There are really two games that are totally global: soccer and basketball. The NBA made early investments a couple of decades ago when it was controversial to go to China, setting up offices in China, setting up offices in Europe.

“These initiatives have turned into major increases in the number of global fans, revenues from tickets sales, revenues from television monetisation, and revenues from promotions in China, Europe, and Africa. There is still a long way to go in terms of building a global fanbase and the NBA has been ahead of other leagues in their global approach.

“We were playing in London, for example, and you could see in the stands that there were green jerseys everywhere. It almost felt like a home game. When we went to Madrid and played there, there were Celtics fans that knew our general manager, knew all of our players. So you could really see that there’s an incredible global buzz about the game, and Adam Silver and Mark Tatum have worked tirelessly to get that out there.

“Social media has really enabled that and has probably turbocharged the globalisation of basketball.”

Pagliuca on… the new Auerbach Center

“That’s going to be a fabulous facility. It’s going to be great for Boston because the facility is going to be in a cluster right next to the New Balance headquarters and the Bruins’ practice facility. These two facilities are the centrepiece of development. They will attract hotels and housing and further development in the city. The facility is very accessible to the TD Garden, where we play.

“It’s going to be really great for that area and, secondly, for our players, it’s going to be a state of the art facility. When we look at free agents, they’re going to see that we’re totally committed to developing it and making it better. It’s going to have state of the art medical equipment and two courts, and training facilities, and everything the players need. 

“We have a partnership with the General Electric company which will allow us to have state of the art GE medical equipment in the facility. We’ll also be able to use their Predix system to do analysis for our players and their health as well as analysis of the attributes of each player and of competitive teams.

“We are very excited about the GE relationship and how it will improve our team. We have been fortunate that GE has been involved since the beginning in the development of the facility.”

Pagliuca on… the GE jersey patch partnership

“It turns out that there’s some serendipity involved. GE had done a major search to relocate from Connecticut. They looked at several cities and they chose Boston because they were turning GE into more of a hi-tech, information-based company. They chose Boston as headquarters and at the same time they were doing that, we came out with the patch programme. And then in terms of the perfect storm, a classmate of mine and good friend – Jeff Immelt – was the CEO of GE.

“So when we heard about the patch programme, we contacted Jeff and said, ‘So you’re moving to Boston. We have a fantastic global brand that fits with the GE brand. GE has lots of business in China and the NBA and the Celtics have lots of fans in China.’ If you’re in Hong Kong or lots of cities in China you’ll often find that when people are going to work they’ll be watching NBA games on their phones because of the time zone difference.

“Our management team met with the GE management team and they did a great job looking at all the things that GE could do for us and all the things that we could do for GE. Within three months, they became the leading contender and they signed up for a partnership deal. The patch programme is one piece of the partnership and we are very excited that we will be able to integrate the Predix system to improve our analytic capabilities, have access to the medical equipment, and utilise everything we can from GE to make our team better.

“The patch programme will showcase GE’s logo on national and local television for both home and away games including the play-offs.

“This generates significant television exposure and we’ve been fortunate, GE’s been fortunate, that ratings are up over 100 per cent from last year to this year given the success of the team. The programme has been outstanding as far as delivering impressions of the GE logo to consumers.” 

Boston Celtics co-owner Stephen Pagliuca knows his fanbase won't accept anything less than titles

Pagliuca on… where investors find value in the sports industry

“The sports industry has a bright future. We are now in a period of disruption of the television industry. Players like Netflix, Amazon, Verizon, DirectTV, Hulu and other services are changing the way programmes are distributed and consumed. The digital disruption has caused fragmentation of the audience and given consumers a lot of choice in terms of how and when they will consume content.

“The good news is that the major sports are one of the few effective content aggregators. The value of sports content is extremely high because it’s one of the few things that people demand to see live and that can aggregate large national and global audiences.

“There are also the ancillary investment opportunities around sports, which would include  complexes, stadiums, digital marketing agencies, video games, analytics and esports. The NBA is investing in esports and the Celtics are investing in an esports team. There are many exploitable adjacencies driven by content and maximising the use of the content.”

Pagliuca on… the fundamentals of a good capital investment

“When we invest in a company, our goal is to grow and build a sustainable position. We are looking for a business that we can strengthen strategically, improve relationships with customers in order to gain market share and grow.

“Right now, in this environment, multiples are at all-time highs, so there probably won’t be a lot of future multiple expansion. It is critical to develop a strategy that can fundamentally grow a business by taking market share, expanding globally, bringing out new products and acquire new businesses.

“We try and identify the type of businesses that can grow and transform. We work with management to develop a strategic blueprint to help their company grow.”

Pagliuca on… the lessons he has taken from investment into sport

“Number one: you have to have a great management team, and we have that at the Celtics. Wyc Grousbeck, our co-owner and CEO, is one of the best in the business. Our president Rich Gotham, our chief financial officer Bill Reissfelder, and our chief marketing officer, Shawn Sullivan, are also world class talents and they have achieved outstanding results.

“It’s also important to develop a clear strategic vision. There’s a lot of pressure in sports because, unlike business, you’re in the media every day and fans are calling for player changes or for you to fire the coach or hire a coach or find a new manager.

“You’ve got to learn to ignore short-term pressures and take a long-term, patient approach. Our management team has had very little turnover over the years and we have continued to support and back their efforts to build a great franchise. The long-term approach has paid a lot of dividends and allowed for continuity and stability.”