Friday, November 02, 2007

Building Red Sox Nation – brick by brick

Sunday the Boston Red Sox won their second World Series in four years, their second in 89 years. This week the sports industry proclaimed the Red Sox as the model sports franchise, the organization other teams’ should look towards if they want to build a winning team on the field and a money-making machine off the field.

An incredible turnaround for a sports team that had become famous for playing in a dilapidated facility and one that could never win the ‘big game’. Their turnaround began when John Henry, along with Tom Werner (producer of Roseanne and The Cosby Show) and veteran baseball executive Larry Lucchino, bought the Sox for $700 million--a record for a major league team in December 2001. The trio bought the team from the Yawkey Trust with a vision to build a business with the Red Sox serving as the foundation.

"The Henry-Lucchino group did not pay $700 million for the Red Sox so they could half-ass it as owners. They were men used to getting their way, and having their way work out just fine, thank you ... Henry and Lucchino decided to go to war. No one needed reminding about who the enemy was in this war. His name was George, and he lived in Florida," writes sportswriter Steve Kettmann in One Day at Fenway, a 300-page account of the Yankees-Red Sox clash at Boston's Fenway Park on August 30, 2003.

Henry entered Major League Baseball with his purchase of a small interest in the New York Yankees in 1991. Henry became the sole owner of the Florida Marlins in 1999, purchasing the Major League club for a reported $158,000,000, which he ironically bought from Huizenga. In January of 2002 Henry sold the Marlins in a multi-franchise deal to Jeffrey Loria then owner of the Montreal Expos (now the Washington Nationals).

In 1990, Werner entered the world of sports by purchasing the San Diego Padres from Joan Kroc. Werner often used the team to help promote his television programs, such as when he invited Rosanne Barr to perform the national anthem. Werner was ostracized by fans and media for reducing the team's salary, and he succumbed to pressure and quickly sold the franchise in 1994.

At Princeton, Lucchino, an athlete in his own right, was on the basketball team with Bill Bradley who later became an NBA star and United States Senator from New Jersey. After law school Lucchino practiced law with the Washington, D. C. law firm of Williams & Connelly. The founder, famed litigator, Edward Bennett Williams, had ownership interest in both the Washington Redskins and the Baltimore Orioles. Lucchino's law practice at Williams & Connelly included a substantial amount of work for those two sports teams. Through that work he ultimately became President/CEO of the Baltimore Orioles and later, the San Diego Padres. Under his watch both teams built new stadiums Camden Yards and Petco Park. After the Red Sox lost to the Yankees in a bidding war for Cuban pitcher Jose Contreras, a frustrated Larry was quoted in the New York Times "No, I'll make a comment. The evil empire extends its tentacles even into Latin America."

Sunday evening Major League Baseball commissioner Bud Selig presented the World Series trophy to three men who had all been part of losing baseball teams, but in six short years have turned the Boston Red Sox into baseball’s most popular franchise, creating Red Sox Nation. While the foundation for Red Sox Nation is found at Fenway Park – Fenway Sports Group is so much more than the Boston Red Sox, and that comes from the vision Henry, Werner and Lucchino shared when they paid $700 to build Red Sox Nation.

The organization behind the 2007 World Series champions includes but certainly isn’t limited too: Fenway Park, the Boston Red Sox, an 80 percent ownership stake in the New England Sports Network (NESN), MLB Interactive hired FSG to generate advertising and sponsorships for its online enterprises, a 50 percent of NASCAR team Roush Fenway Racing, marketing rights for Boston College athletics for the next 12 years, a sports tour and travel company and regional AVP volleyball rights in New England.

In the last twelve months Fenway Sports Group (the parent company) have created partnerships with Roush Fenway Racing (an investment just north of $150 million), returned outdoor volleyball to New England, renewed their agreement with the number two ranked college football team Boston College and announced the 2007 Verizon Wireless Campus Tour.

Meanwhile the Red Sox payroll for the 2007 season was just north of $143 million (the second highest payroll in baseball) with the Red Sox playing in Fenway Park which seats just a shade over 37,000 the smallest ballpark in Major League Baseball. Yes Fenway Park has been sold out since early in the 2003 season and at $47.71, according to Team Marketing Report the Red Sox have the highest average ticket price in MLB.. That's $18.70 higher than MLB's second-most expensive average ticket (at Yankee Stadium). Boston nonetheless has sold out 388 consecutive regular-season games, but those entrusted with the day-to-day business affairs of the Fenway Sports Group (COO Mike Dee) seem to have created a formula for how to build a winning sports team and a successful business, while understanding given the limitations Fenway Park represents in terms of revenue generation.

"The team has operated on its own. It's not like we're cutting a check from FSG to the Red Sox to sign players," said Sam Kennedy, the senior vice president of sales and marketing for both the Red Sox and FSG in a report at CNNmoney.com

"That said, the financial health and well being of the parent is in the team's best interest," he added. "The concept for creating FSG was to diversify the parent's interest. We had all the eggs in those two baskets, and we needed to look for revenue streams outside of baseball and cable television."

The decisions the Fenway Sports Group have made in the last year are in part a reaction to the Red Sox biggest on-field rival the New York Yankees getting ready to move into a new stadium in time for the 2009 season. The Yankees are in the midst of building a new Yankees Stadium that when completed is expected to generate $100 million in additional ticket and luxury box revenue for the Bronx Bombers, according to filings related to the bonds sold to finance the new home. It’s well worth noting that while the Fenway Sports Group own 80 percent of NESN (Red Sox, Celtics and Bruins cable partner) the Yankees YES Network is valued at more than $2 billion.

While Henry and company (like all of the groups who bid to buy the Red Sox from the Yawkey Trust) looked at building a new Fenway Park the 95-year old landmark dubbed “America’s most beloved baseball stadium”, Henry, Werner and Lucchino appear committed to keeping the Red Sox where they are for the foreseeable future.

Fenway Sports Group has instead done their best with the hand they’ve been dealt, adding to the current Fenway Park as best they could. Before the 2003 season, seats were added to the Green Monster. After the 2005 season, the Red Sox completed their plans for the .406 Club area (above home plate), which became the EMC Club. The construction resulted in 852 pavilion club seats, 745 pavilion box seats, and approximately 200 pavilion standing-room seats along the left- and right-field lines, resulting in approximately 1300 additional seats.

The winter of 2006 renovations focused on renovating the luxury boxes as well as adding a new food concourse area and renovated bathrooms behind the third base grandstands.

The Red Sox added approximately 700 tickets for the 2007 season and plan to add 1,400 tickets for the 2008 season. In adding additional seating, the Red Sox plan to have 1,000 of the seats added over the three years be high-priced premium seats, to help deflate ticket costs and bring Fenway Park up to the MLB average of percentage of premium seating.

The Red Sox have also stated that at some point before the 2012 season (Fenway Park's centennial) they would like to replace the old wood seats in the Grandstand section.

The limitations linked to Fenway Park (there is only so much that can be done with a 95-year old relic to generate revenue) and the size of the market (comparing the value of a regional sports network in New England and the greater New York markets) forced Henry, Werner and Lucchino to look well beyond their boundaries

On February 14, 2007, the Fenway Sports Group purchased 50% of Roush Racing to create a new corporate entity, Roush Fenway Racing. According to various media reports FSG paid $150 million for the 50 percent stake.

"This partnership will bring a whole new perspective to our business," said Jack Roush. "There is a lot of hard work that goes into being successful in sport. John Henry and FSG understand what it takes. Anybody that has watched the Red Sox has been impressed with their tenacity and their ability to prevail after all the frustration. To be able to have someone to bounce ideas and strategies off of will be fun. Everyone at Roush Racing is excited to welcome our new partner and we look forward to our success together."

"This is an unprecedented partnership of two extremely successful organizations with proven track records for winning in their respective businesses and sports," said Mike Dee, chief operating officer of the Boston Red Sox and president of Fenway Sports Group. "We believe in NASCAR and like its long-term business future and are thrilled to be a part of this exciting and growing industry."

Dee, added "Although there have been many instances of cross ownership in the world of professional sports, this partnership marks the first time that owners of a professional franchise in one of the four major leagues have crossed over into the world of NASCAR."

Current management remains in place at Roush Fenway Racing, with Jack Roush handling all competitive operations and Geoff Smith will continue as Roush Racing president to handle business activities.

As one of NASCAR's largest premier racing teams, Roush runs teams in the NEXTEL Cup, Busch, and Craftsman Truck series. Founded in 1988, the company was originally a small branch of co-owner Jack Roush's successful automotive engineering and road-racing equipment business based in Livonia, Michigan. The NASCAR operation, based in Concord, North Carolina, has since become the cornerstone and centerpiece of the company, winning back to back Nextel Cup Championships in 2003 with driver Matt Kenseth and 2004 with driver Kurt Busch. With Carl Edwards' win in the 2007 Dodge Dealers 400 at Dover International Speedway, Roush Fenway Racing had compiled 100 victories in NASCAR's Cup series.

One of the principal roles FSG is playing with Roush-Fenway Racing is to help create a synergy between Red Sox Sports and the opportunity involvement with a NASCAR team can represent.

"What you get with NASCAR is two things: You do get a national audience. The second thing is fan loyalty. NASCAR fans truly understand the dynamics that my driver, who I love, is racing because the sponsor is on his back," said Jon Hickey, senior vice president of sports marketing at Mullen, a Boston advertising agency in a Boston Globe report. "NASCAR fans really change their buying behavior because of that."

"One of the things in waiting four years, our owners were convinced that this wasn't an impulse buy and nobody could accuse us of going 'Ready, fire, aim,' " said Dee in a Boston Globe report.” We looked at the sport, the fundamentals of the sport, we looked at different ways to get in -- small teams, middle-sized teams, big teams, start-your-own -- we compared the valuations of NASCAR with the valuations in other sports and other alternatives for making an investment and growing some asset value. I think we were able to demonstrate that this was a great opportunity -- not just an investment, but an opportunity."

On August 8, 2007 Boston College renewed its marketing deal with Fenway Sports Group, the sports sponsorship company owned by Boston Red Sox principal owner John Henry. Financial terms of the 12-year agreement, under which Fenway Sports will negotiate regional media deals and national corporate sponsorships for Boston College's athletics department.

BC first hired Fenway Sports in 2005. FSG created Red Sox Destinations a sports tour and travel has taken more than 2,500 Sox fans on trips across the country. With the Eagles ranked second in the BCS and all of the major national football polls a BCS Bowl and maybe even the BCS title game could be in the future for Boston College’s football program and Eagles Destinations (same company with a differently named division) are leveraging the opportunity with a series of travel and tour opportunities for football fans.

"There's a benefit to showing the nation that hey, Boston College does travel. There's this misperception among other fans that BC fans don't travel well, but we're trying to change that perception," said Tim Zue, who runs Red Sox Destinations.

Zue organized two trips to Notre Dame and last Thursday’s game at Virginia Tech. FSG will send interested fans to Clemson for the November 17 game and will be ready to leverage whatever bowl game the Eagles head too.

The weekend of August 16-19 saw FSG really step outside of their box organizing the first professional Beach Volleyball event to be held in New England in 14 years.

"The AVP is excited at the opportunity to bring the sand, the beach environment and Olympic caliber volleyball players for the Tour's stop in Boston," said Leonard Armato, CEO and Tour Commissioner. "We are thrilled to introduce New England fans to our athletes and the excitement of AVP Crocs Tour events."

"Professional beach volleyball is one of the fastest growing sports in the country and we're proud to give fans the opportunity to view AVP matches live," said Mike Dee, President of Fenway Sports Group. "New England has some of the most passionate and enthusiastic sports fans and we look forward to introducing AVP, its athletes and its sponsors to this high-energy sports environment."

Earlier this month FSG completed a 15 campus tour dubbed the Verizon Wireless Campus Tour. Alternative hip-hop group Gym Class Heroes opened the 2007 Verizon Wireless Campus Tour at the University of Massachusetts' Mullins Center in Amherst, Mass.

This was the third year that FSG is working with Verizon Wireless to produce this concert series for college students. Previous tours have featured artists Howie Day and the All American Rejects.

The program was created by FSG in collaboration with Verizon Wireless to introduce students to its mobile technologies and services through experiential on-campus and in-venue promotional activities. FSG designed this unique event marketing and sponsorship program, coordinating all logistics for the concert tour including securing the Gym Class Heroes, venue selection and development of the promotional campaign for Verizon Wireless. The program provides college-age concert goers with the opportunity to experience Verizon Wireless' portfolio of next generation, interactive wireless services. Participants can also enter special contests including "meet-and-greets" with the Gym Class Heroes and the opportunity to win a grand prize that will award one student a trip to meet the band at one of their national tour stops with the well-known alternative rock group Fall Out Boy.

"Music has become an important component to the wireless handset product offerings, so it was a natural fit to create an experiential marketing platform around a concert tour," said FSG Executive Vice President Mark Lev. "This campaign provides Verizon Wireless with the ability to connect first- hand with the undergraduate college market. We are excited to work with Verizon Wireless to build and execute this entertainment marketing platform."

The tour, which ended Oct. 13 at the University of Connecticut, made stops at Clark University (Sept. 25), Hofstra University (Sept. 26), Pace University (Sept. 27), Lehigh University (Sept. 28), Kutztown University (Sept. 30), James Madison University (Oct. 3), Virginia Tech University (Oct. 4), St. John's University (Oct. 5), Temple University (Oct. 6), SUNY Binghamton (Oct. 7), University of Buffalo (Oct. 8), Towson State (Oct. 11) and Syracuse University (Oct. 12).

Vince Gennaro who wrote "Diamond Dollars: The Economics of Winning in Baseball," an innovative look at the business of baseball believes the Red Sox 2007 World Series win will be worth $45 million in additional baseball revenue for achieving their second World Series championship in four years.

Major League Baseball’s economic engine (MLB Interactive) has been paying attention to what the Fenway Sports Group has accomplished.

"They can sell because they really understand the value of an event or property," says Bob Bowman, chief of MLB Advanced Media. Bowman's group retained FSG to generate advertising and sponsorships for its online enterprises, and told ESPN.com MLB interactive is pleased with the results. The firm according to ESPN got Chevrolet to take some of its MLB advertising online for the first time.

Filling Fenway Park, managing NESN successfully given the how New Englanders support their sports franchises wasn’t the biggest challenge Henry, Werner and Lucchino faced when they successfully purchased the Red Sox on December 13, 2001

It was in looking outside the box and creating enough revenue generating opportunities where the Red Sox could afford to compete with the New York Yankees. And the bottom line – not only have Henry, Werner and Lucchino stood and delivered but they’ve brought winning baseball to a city and a region who had long believed they where destined to be destiny’s doormat -- Henry, Werner and Lucchino creators of Fenway Sports Group and protectors of Red Sox Nation, 2007 World Series Champions.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: ESPN and The Boston Globe

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