Henry on LFC etc (long)

[gkmacca]

DEMYSTIFYING RED SOX OWNERSHIP, PART 2: FENWAY SPORTS GROUP, NESN AND THE LIVERPOOL QUESTION

Fri, 05/24/2013 -​

This is the second of a three-part series examining the function and structure of Red Sox ownership and governance. Part 1, on Thursday, investigated the role of Red Sox owners in running the organization.

​

Red Sox CEO/president Larry Lucchino, chairman Tom Werner and principal owner John Henry (AP)​

It started as a regionally defined sports undertaking. But in recent years, the owners of the Red Sox have broadened their ambitions to encompass global sports business ventures, and now there are those who wonder whether what began as the purchase of the Red Sox is in danger of becoming as bloated and ungovernable and financially unsustainable as the Roman Empire.

When John Henry, Tom Werner and Larry Lucchinoacquired the Red Sox, their purchase was somewhat narrowly focused. The triumvirate -- in concert with fellow investors Les Otten, the New York Times Company and other limited partners -- created a sports investment company, then called New England Sports Ventures (NESV), to purchase a controlling stake in both the Red Sox and NESN in 2001, gaining operational control of the team and network in early 2002.

At the time, the interests were small enough, narrowly defined enough and closely aligned enough that it made sense for Lucchino to have involvement in both of the subsidiaries of NESV. At that stage, Lucchino, Henry and Werner were all involved as a regular matter of course in NESN affairs.
Expansion started subtly, with the creation of Fenway Sports Management (then known as Fenway Sports Group) in 2004, a sports marketing and consulting arm of NESV. However, in 2007, the owners took a bolder step to diversify their investments, in no small part because baseball's revenue-sharing structure represented a significant financial burden that limited profitability.

And so, Sox owners decided to use their brand to expand into new territories, starting with the purchase of a 50 percent stake in Roush Racing (subsequently renamed Roush Fenway Racing) and expanding into aggressive investment in other sports undertakings.

Roush served as a prelude to the addition in October 2010 of an even more ambitious and bold purchase: Liverpool Football Club, acquired for a reported £300 million ($476 million) in October 2010. After the acquisition of Liverpool, NESV was rebranded as Fenway Sports Group, a signal of the growing ambitions of the operation.

"The name change occurred following the acquisition of Liverpool FC, which solidified the more global nature of the company's diversified holdings and set its course for more world-wide pursuits," pronounced the press release announcing the rebranding.

Now, there are five departments within FSG, each of which has its own CEO or president:

Red Sox (Larry Lucchino)
NESN (Sean McGrail)
Fenway Sports Management (Sam Kennedy)
Roush Fenway Racing (Steve Newmark)
Liverpool Football Club (Ian Ayre)

Operationally, there are varying degrees of involvement and delegation regarding the three key Red Sox figures. Just as is the case with the Red Sox, Henry carries the title of principal owner and Werner that of chairman, but Werner used the term "co-managing partners" to describe their involvement in the operations of Fenway Sports Group. Both portrayed equal involvement in the organization's sundry undertakings, with Henry stating that he and Werner are "involved in all FSG matters," according to Henry, though it is safe to say that they are not as intimately involved with the governance of, for instance, Liverpool, as they are with the Red Sox.

Henry notes that he's been to Liverpool "once in the last year." Werner says that he goes to Liverpool "a handful of times a year. That is operating as a stand-alone enterprise." That stands in contrast to the Sox, where both are regular attendees of games and frequently spend time meeting in the team's offices.

Lucchino has total day-to-day involvement in the Red Sox, limited involvement with NESN and no real participation in the other undertakings.

"They are separate entities," Lucchino said of the FSG subsidiaries. "NESN is separate from the Red Sox. Roush Fenway is a separate entity. Liverpool is a separate entity. These entities depend on operating teams. But there is an overlap at the ownership level. When you're talking about all of those entities, you're certainly implicating John and Tom. My primary focus has been and continues to be theBoston Red Sox and the sort of issues that affect our fans, our employees and our players."

Fenway Sports Management is profitable and rarely encounters scrutiny. Roush Fenway, according to Henry, is also profitable, and interestingly (given the contrast to Liverpool), rarely elicits any reaction or controversy.

NESN and Liverpool on the other hand have both become flashpoints for different reasons. And so, it is worth delving a bit deeper into the function of both.

 

[gkmacca]

LIVERPOOL AND THE FINANCIAL QUESTION

The purchase of Liverpool in October 2010 proved a head-turner in both magnitude and ambition. NESV (soon to become Fenway Sports Group) committed a reported £300 million ($476 million) to acquire a franchise with a proud history that had fallen on bleak times, both competitively and financially.
The initial investment was enormous. The subsequent cost of ownership has remained considerable. The evidence that there will be positive returns remains questionable.

The financial cost for FSG -- detailed as a matter of public record -- has been significant. Liverpool (like all English Premier League clubs) releases annual financial statements detailing the club's profits and losses. In the most recent report, released in March, Liverpool announced that it endured losses of £40.5 million ($61.6 million) between July 2011 and May 2012. During the previous 12 months, the club announced losses of £49.3 million ($74.4 million).

Meanwhile, the club's home at Anfield requires a substantial renovation that will cost more hundreds of millions of dollars. Put all of these elements together and it's not hard to avoid wondering how Liverpool can avoid becoming a financial black hole that threatens to swallow the operating revenues of other FSG operations, including the Red Sox.

So, why wouldn't the expansion of FSG interests -- particularly Liverpool -- represent a financial compromise of the potential investment in the Red Sox? Henry, in an email, responded at length to the query:

"Let me begin by saying the answer is simply and categorically this: Fenway Sports Group expansion has never and will never take place at the expense of the Boston Red Sox. There are a number of reasons for this, but the primary reason is that FSG exists to compete on the field. Everything we do off the field is designed to positively impact what happens on the field. We're competitive and are driven to win that third ring.

"Each separate entity -- and they are separate -- the New England Sports Network, Liverpool Football Club, Fenway Park, FSG real estate investments, Roush Fenway Racing and Fenway Sports Management each finance themselves.

"Now it's absolutely true that of the entities, only the LFC is not presently profitable. But there were many years the Red Sox weren't profitable and yet that didn't stop us from having extremely high payrolls in those years. Nor did spending $280,000,000 on Fenway Parkadversely impact Sox payrolls. To the contrary, we gained additional revenues. At LFC we have only just begun there to build revenues. It has a global fan base and a global commercial appeal.


"Fenway Sports Group is very strong financially. If you look at who the partners are individually you'll see people who not only have financial resources but people who are remarkably financially astute.
"If one entity -- whether it is the Sox or LFC -- loses money in a particular year, where do the resources necessary to compete annually come from that year? FSG has significant borrowing capacity. But more importantly we have cash flow from all of the other entities. There has not been a year in which FSG as a whole had an operating loss. And there hasn't been a year in which we've paid a dividend (although we are slated for our first later this year).

"We've invested and reinvested for 11 years -- happily. Money, and this will be scoffed at by those who don't know us, doesn't provide great stimulation for the partners of FSG unless it's going to provide more wins on the field. There is no question about that internally.

"Further, not once have I ever been a part of a conversation or seen an email advocating moving monies from one entity to another. If FSG moves $50,000,000 to LFC as it once did, that comes from FSG. If you want to be cynical and say that has to come indirectly from somewhere, then logically you would look at the most profitable part of FSG and that's certainly not the Red Sox.

"Let me reiterate that each operating unit finances itself. Just as the improvements at Fenway financed themselves, renovations at Anfield will finance themselves. If the Red Sox or Liverpool had been forced to build brand new stadiums that might not have been the case.

"Look, all this financial talk misses the greater point and that is that we are and have always been committed to winning. There is no excuse for the kind of year the Red Sox had last year. Our resolve and commitment to winning isn't being tested by the poor results of late. What is being tested is our capability to respond to the adversity we've had. We are going to do that and the results will speak for themselves."

 

[gkmacca]

THE OVERALL IMPACT OF FSG INTERESTS ON THE RED SOX
Time is zero-sum. Waking hours spent managing one business interest cannot be invested in another. And so, from the standpoint of offering leadership to the Red Sox, it seems fair to wonder whether the proliferating FSG interests have impaired the ability of the Sox owners to govern their baseball team.
And make no mistake: There are individuals who work closely with Henry and Werner who harbor significant reservations about FSG's expanding pursuits.

Henry acknowledged as much when he made the eyebrow-raising admission this spring that some of the team's limited partners "are not OK [with FSG's involvement with Liverpool] because they read the same stuff that you write … [But] last year's [Red Sox] losses weren't the result of Liverpool."

Henry and Werner acknowledge that their time commitments to other parts of FSG have grown. Yet they note that the compromises to accommodate those management needs have been made not with the Sox but elsewhere, meaning that they are as invested in the governance of the baseball team as they have been through the years. (Because Lucchino's job is specifically as the president and CEO of the Red Sox, there have been no suggestions of his inattention to the Red Sox.)

"John said something once that resonated with me: There isn't an owner in baseball who doesn't have some other enterprises that he's involved with. [Patriots owner] Robert Kraft is involved with a paper company and the Revolution and all sorts of other stuff," said Werner. "As FSG has grown, I can just tell you my own personal involvement in FSG has become more time-consuming, and my involvement in producing and creating television shows has diminished. This thing that you have to focus on just one business, I don't think there's one major league owner who isn't also involved in some other business that throws off enough revenue to work in baseball."

Red Sox COO and Fenway Sports Management president Sam Kennedy, meanwhile, suggests that the growing number of interests merely underscores the necessity of having strong, competent leadership at the subsidiary level of the different enterprises. If Henry and Werner do well in the critical function of hiring strong presidents to run the different FSG operations, then concerns about the time and intellectual energy that they can commit to the individual teams and companies recedes.

"The good news, from a Red Sox perspective, is they have hopefully a competent front office running the team day-to-day, but the decision-making and the interaction on those big decisions has not changed," said Kennedy. "It would be disingenuous to say that [Henry and Werner] don't have more on their plate. They're both full-time on Fenway Sports Group and interacting and working with all of the Fenway Sports Group businesses. That's even more of a reason why they need to have competent presidents of each of the businesses that they hold accountable."

As for the financial implications of the other undertakings, though it would be naive to dismiss the possibility that some of the FSG holdings -- particularly Liverpool -- could develop into an albatross that would impact the Red Sox' budget at some point, for now, it's noteworthy that the three highest payrolls in Red Sox history have come in 2011, 2012 and 2013 -- the three years since FSG acquired Liverpool.

Overall, Werner insists that the non-Red Sox holdings of FSG have been "a net-positive. Every business has its own goals and objectives. It's a very healthy enterprise. We are punching above our weight in terms of the amount of money, each year, that we invest in player personnel."


Some of that represents what Werner characterizes as the health of FSG's overall holdings. At the same time, while Henry characterizes the Sox as being not profitable (as opposed to Liverpool, which is a net-negative in the ledger at this point), Werner notes that a large part of the Sox' ability to support robust payrolls derives from the success that Lucchino has had tapping internal revenue streams with the Sox.

http://www.weei.com/sports/boston/b...emystifying-red-sox-ownership-part-2-fenway-s

 

[6TimesaRed]

Can someone post a summary. .


ie brief outline..

Ta

 

[gkmacca]

Henry hinted at the ownership groups desire to grow the commercial side of the club, saying: “At LFC we have only just begun there to build revenues. It has a global fan base and a global commercial appeal.”

What FSG are not going to do though is pour millions upon millions into Liverpool, or any of their other ventures, in a similar manner as we have seen at clubs such as Man City and Chelsea in England and now in France with PSG and Monaco.

But any investment into LFC would not be at the loss of the Red Sox, and vice-versa. “We have cash flow from all of the other entities. There has not been a year in which FSG as a whole had an operating loss. And there hasn’t been a year in which we’ve paid a dividend.”

The club are expected to make further announcements this summer with regards expanding Anfield and Henry explained that “renovations at Anfield will finance themselves”.

 

[Sheik Yerbouti]

You know the £12m we've saved by getting Toure instead of Papadopolous. Well it's getting used to kit out The Main Stand with new bog seats.

 

[tony]

Can someone post a summary. .


ie brief outline..

Ta

Its a long winded sop to red sox fans to explain that Liverpool isnt a drain on the red sox resources and that their attention is focused on the red sox primarily as they only visit LFC very occasionally. Reading that you have to wonder why the fuck they bought us, it can only be the long term potential riches of devolved tv and internet rights. Really can't see why else they would want us. Shame imho the share liverpool thing never came off

 

[Sheik Yerbouti]

Didn't Ayre say there would be an announcement over the ground in May?

 

[hamstrung_pigeon]

Didn't Ayre say there would be an announcement over the ground in May?

There was; I just read it on the offal - it was a low-profile piece, because I read the offal quite often and didn't see a headline, nor was there any media coverage I think (at least not from the couple of sources I read).

Here's the link to it; it's rather long:
-- http://www.liverpoolfc.com/news/latest-news/ian-ayre-reveals-stadium-plan

I don't think you'll find any useful info there though. Some high-level stuff, no concrete timelines, plans, etc. even the expected capacity isn't mentioned. It's basically an announcement confirming we're staying at Anfield.

 

[Sheik Yerbouti]

I had to double check the date of that article because it looks like a re-hash of his previous announcement.

 

[hamstrung_pigeon]

I had to double check the date of that article because it looks like a re-hash of his previous announcement.

Haha me too! It did seem the same, so I wasn't sure if I'd made a mistake somewhere.

 

[hamstrung_pigeon]

Wait hang on... take a look at the comments... and see the dates on all of them. Well, maybe it is the article from Oct 2012 after all... or maybe they just merged the comments from the old article.

Very odd anyway.

 

[Sheik Yerbouti]

I thought 22 May wasn't the 2nd anniversary of FSG's ownership.

 

[hamstrung_pigeon]

Ah good catch... 15 October was the date. So... there wasn't an announcement then.

 

[Spionkop69]

I had to double check the date of that article because it looks like a re-hash of his previous announcement.

Liverpool FC in PR shambles? Never!!!

 

[Dirkus_Circus]

Liverpool FC in PR shambles? Never!!!

Get Jen Chang back in!

 

[Frogfish]

I quite like this quote :

only the LFC is not presently profitable. But there were many years the Red Sox weren't profitable and yet that didn't stop us from having extremely high payrolls in those years. Nor did spending $280,000,000 on Fenway Parkadversely impact Sox payrolls. To the contrary, we gained additional revenues. At LFC we have only just begun there to build revenues. It has a global fan base and a global commercial appeal.

 

[Rosco]

Wait hang on... take a look at the comments... and see the dates on all of them. Well, maybe it is the article from Oct 2012 after all... or maybe they just merged the comments from the old article.

Very odd anyway.

It was an article released last week by this fella http://www.weei.com/columnists/alex-speier