In a virtual fireside chat with the Business of Sports Club, Boston Celtics President Rich Gotham shares how smart business decisions helped the franchise find its way back to prominence.
To say that the 1990s were disappointing for the Boston Celtics fans would be an understatement. While the Celtics bagged 16 championships—the highest of any NBA team—up to 1986, the 1990s were the first decade when the team walked away without a single championship. The streak of losses on court had started to exhaust the patience of even the most ardent Celtics fans, hurting attendance in home games in a town still dominated by the Red Sox. In professional sports, home-game attendance and franchise revenue were often correlated with team success; so, the Celtics’ losses on the court limited the franchise’s ability to spend on players, perpetuating a vicious cycle of losing.
In a couple of years after the turn of the century, a group of private equity veterans, led by Wyc Grousbeck, bought the Celtics for $350 million and soon brought in Rich Gotham, a tech industry veteran, to run business operations. The Celtics’ new owners and executives were united by their common vision of tapping into the franchise’s “very under-managed, under-leveraged assets.”
Since joining the Celtics in 2003 and becoming its President in 2006, Gotham spearheaded a series of business initiatives that increased the franchise revenue by over 300 percent. As of 2020, Forbes estimates that the franchise value has increased roughly 10 times to $3.1 billion. Under Gotham’s leadership, the Celtics also set new records for attendance ticket sales, sponsorship, merchandise sales, and television ratings during the team’s first NBA championship in 22 years in 2008.
How Gotham and the Boston Celtics broke the vicious cycle of losing was as much a result of smart business decisions as a result of on-court team performance.
“From the onset, our goal was to build a recession-proof business—a business that will be profitable regardless of whether the team was winning or losing,” says Gotham, in a Zoom fireside chat with roughly 100 Business of Sports Club members at HBS. “By positioning ourselves well on the business side, we were able to add roughly $150 million to our team’s player payroll and acquire star players like Kevin Garnett, Paul Pierce, and Ray Allen. This wasn’t something losing teams did at that time.”
This iconoclast attitude was a fundamental tenet of Gotham’s turnaround plan. Contrary to how NBA franchises were run at the time, Gotham invested in building data architecture and customer relationship management (CRM) systems to gain market insights. “The Celtics had no real understanding of who was sitting in the stadium and what that person really wanted from the fan experience. So, one of the ‘aha’ moments was when we sent out a simple survey to our fans to understand the importance of winning to the overall fan experience. You would think that winning was the most important thing for a fan in Boston but the survey results showed that winning actually ranked sixth or seventh on the list of things that fans cared most about.
“What mattered most to fans was the overall entertainment value of going to the games, and so we invested time and resources to improve fans’ driveway-to-driveway experience. We re-evaluated every small factor—from the scoreboard video technology to the concession menu—that impacted the fans’ experience, and we made smart decisions by relying on data.”
Now big data is used to not only optimize player performance but also inform major business decisions. One such application has been in yield management and dynamic pricing. “When you are running a sports business, you only have a finite amount of assets. You have only 82 games a year, about 19,000 seats and only so many sponsorship spots. So, you really have to maximize yield against finite assets in order to grow.
“We were one of the early adopters of dynamic pricing. Our ticket pricing now is based on a real-time algorithm that allows us to set the right price for the right customer for the right game against the right opponent. In this way, we are able to balance supply and demand and maximize our yield.”
Gotham also attributes part of his success with the business turnaround to the team culture at the Celtics. “The NBA franchises can have vastly different cultures. In many franchises, the business and basketball operations have little overlap, and this separation of the church and the state can lead to suboptimal results. I was lucky to be part of a team where the owners understood that the business and basketball operations [led by Celtics GM Danny Ainge] should work closely together—such as in marketing—to deliver the best possible results.”
While the coronavirus has led to a prolonged off-season for all sports franchises, Gotham and his team remain busy preparing for a comeback whenever that might be. “We want to keep our players ready for the competition when games resume. At the same time, we are planning out different scenarios of what the rest of this season might look like, what form we are coming back in and whether we are playing in front of fans or not. If we have to put 19,000 people back into the arena, we may need to re-imagine the way we operate, in order to make it safe for fans to come back.”
Despite the challenges posed by coronavirus, Gotham thinks that these uncertain times could fuel resourcefulness and creativity in different operational areas. “Due to the lockdown, our scouts have not been able to travel; we cannot bring in players for workouts; the NCAA tournament got cancelled. But it’s incredible how much video data our scouts have at their fingertips today. To some extent, the video data allows us to prepare for opponents and prepare for the draft even during a lockdown.
“Also, if we resume games but not in front of fans, we might see interesting experimentation with new broadcast formats and camera angles. The appetite for experimentation has been limited since we have to forgo revenue-generating seats to provide room for a number of cameras to capture different angles. So, an empty arena could lead to more innovation on those fronts.”
Upoma Dutta (MBA ’21) came to HBS after spending roughly four years in the media and entertainment industry in New York, where she helped two media companies (HBO and Disney) transition into the streaming era and build on new strategic growth opportunities. Originally from Bangladesh, she also worked for the International Finance Corporation (World Bank Group) early on in her career to promote financial inclusion and financial sector stability in South Asia.