Ted’s Monumental Adventure

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1:35Congratulations! You made the Varsity podcast. My name is John Aranda, and I am Puck's sports correspondent and the host of this pod. And today is Wednesday, September 23rd, and I'm happy to have Ted Leonsis on the Varsity. Ted, of course, is the owner of the Wizards, the Capitals, Mystics, Capital One Arena. and he's also breaking some news on this podcast. Ted bought the Capitals way back in 1999 and is now one of the longest tenured owners in the NHL. And today, Gary Bettman is going to name Ted chairman of the board of directors. So we're going to talk about that a lot. But we're also going to hit on a bunch of other topics like the crazy valuations hitting the sports market.

2:13Ted also chairs the media committee for the NBA. So we'll talk about how the league will handle local media rights moving forward. I visited Ted at his office in Capital One Arena, which is going through a ton of renovations right now. So we're going to talk about why he felt the need to embark on such an ambitious project. That's right now. Let's just get right to it. Let's get to Ted Leonsis. Well, this is a special treat for me. I'm here at, I almost said MCI Arena, Capital One Arena, showing how long it has been. I've been a fan of the local teams here with Ted Leonsis, who, of course, owns the arena, owns the Wizards, owns the Capitals, owns the Mystics, owns some gaming teams as well.

2:54E-sports. E-sports teams. You're not big on League of Legends? I am when we raised the banner, which I know you did. So congratulations. As I was walking in, all the scaffolding around the building, how was sort of the rebuild going within Capital One Arena? Well, this has become a very, very big project. These venues, they kind of deserve it. The venue business post-pandemic has really become a big driver of growth, but of rising importance for big cities, metro areas. And Capital One Arena is certainly playing a central role. You know, we had the inauguration here for President Trump. That's how important the building became.

3:41So we're in the midst, a little more than halfway through a big three-year, billion-dollar redevelopment. We're going from 900 ,000 square feet to about a million six hundred thousand square feet. Connecting entertainment options around the venue was important. And it really goes to, you know, what I saw almost 30 years ago, where these buildings are kind of like portals. They attract a lot of people. More and more people will come to a game which starts at 7. They'll get into town at 5 o 'clock. They're parking their cars or they're taking Uber, taking Metro. They're going for drinks. They do a little bit of shopping.

4:27They come to the game. When we win, they take an Uber and they go to a bar or restaurant afterwards. And we'll have one to three million people coming into the building and so this billion dollar renovation is really really important but because we have so many teams you forgot Georgetown men's basketball NCAA plays here we can only do the development and the work in the offseason and the offseason can start in April if you don't make the playoffs or it can start in end of June if you go all the way to the Stanley Cup and I want us to make the playoffs and win the Stanley Cup or the NBA championship, which would have made the development four years.

5:14And this year, none of our teams made the playoffs. So there were literally over a thousand people per shift here, and we made really, really good progress. We have one more offseason next offseason, and then that following season will be open totally. We had our first events this season, this weekend, with the Garth Brooks concert. And it was nerve-wracking because the outside of the building, as you say, looks like a condemned building. I felt like I needed to put on my hard hat to walk through. The inside, though, is in really, really great shape. And I got lots of compliments on the new bathrooms.

5:56It seems that I have to remind people all the time that services like bathrooms and making sure that the toilet paper is there and making sure that the ketchup is clean and readily available and that the lighting is good. So we've spent a lot of time on the fundamentals, the lighting, the acoustics. And next offseason, we'll replace all of the seats, all of the screens, and then the outside facade will be done as well. Now, when you first bought these teams, you would buy a ticket, you would sit in a seat, and you'd watch a game, maybe have some popcorn or beer. You'd have some suites, of course, that were the corporate suites.

6:40I have a distinct memory of interviewing you probably 15 years ago, and you talked about that. You bring people in, and everybody else is—all the restaurants are taking business from your fans that were coming here. How did you get from sort of that place to where you are now, where it's like, okay, we are really putting everything within this one building, and this is the portal, as you described it? Well, I think we have a big social responsibility, much bigger role to play in the city. Our building, and talking with our mayor, is how do we become a front door to Washington, D.C.? You know, we've got 30, 35 million tourists every year that come in, and they're mostly on the mall.

7:27And how do we beckon them from the mall to here? We just produced the IndyCar race three weeks ago for Roger Penske and that organization. And one of the key things we were cognizant of is we're going to have hundreds of thousands of people in August in Washington, D.C., but they're going to be on the mall. How do we get them to come stay in the hotel, stay, eat in our restaurants, go shopping here? And so I would say over the almost 30 years now that I've been involved with sports, I've seen it develop in fits and starts in ways that you wouldn't think. 30 years ago, we said, you want to be in the media part of the business.

8:13The most valuable entities were the regional sports networks. And the buildings were looked at, geez, you've got to have a big mortgage, you've got to do maintenance. Now it's kind of the opposite, right? The regional sports networks don't have as much value, and the venue itself, we're going to spend a billion dollars on just the rehab, reimagination of the building, and it'll pay for itself, obviously, through an uplift in ticket pricing and club memberships and sponsorship revenues. And what people start to realize is the level of engagement. When you come to a game, you're investing a lot of your time, say 30, 45 minutes to get here, three hours in the venue, especially if you're watching hockey or basketball.

9:03It's not like baseball or even football. There's a play. There's 30 seconds. There's nothing happening. There's something going on all of the time. So we become very cognizant of the end-to-end programming. bricks and clicks, if you will, making sure that people have a great experience in the building. But when they're coming here, when they go home, when they're watching on television, the use of technology for us is really critical because we have so much data. That was one of the things, John, that I was blown away when we bought our RSN. Comcast, NBC, those are sophisticated companies. And I'd say, who's watching the games?

9:47And they'd say, men. I'd say, give me more. What do you mean men? They go, well, men, 1845. So I got to call BS on that. No one who's 18 going to college is watching cable. They don't have access to cable. They didn't have any data. In fact, the RSN world was enjoined by Congress to not have access to the data from the cable companies. Compared to us, where we have season ticket holders, groups that come on an ongoing basis, they buy merchandising, and we know, oh, John's a season ticket holder, this is how long he's been, oh, he's married, oh, he has kids, He comes to X Games. He sells X Games.

10:37This is his credit card. We have real deep information and an ongoing relationship with customers. And they renew. In a bad year, our renewals are 80%, 85%. On great years, it's over 95%. You have to die, right? And most of the fights are, Oh, my husband passed away, but my family wants to keep the season ticket. It's a subscription business. And so I think one of the reasons that these teams, these enterprises are so valuable is they no longer can be defined as just a sports team. You're in the real estate business because you own the business. Being in the convening business, being able to play the central role in your community, but the business model of reoccurring revenues.

11:38I know SaaS has fallen out of favor because of AI. Well, we're the antidote for AI. People want to be with real people and have real experiences. and our excitement that's generated at these games because it's reality TV happening right in front of you all the time. Watching some of the highlights, the Commander's game yesterday was just filled with drama and angst. Shakespearean, this great young player gets injured again. And if you're a Commander's fan like I am, you go, oh my gosh. I run upstairs. Lynn, you won't believe what just happened. But she goes, what? Oh, the quarterback, the same elbows last year.

12:26My wife kind of rolled her eyes a little bit at me. But that's how engaged and invested we are. And there's no other business, no other content that you have and you can present that gets that kind of emotional connection to it, other than your newsletter. That's all I was looking for. We can end the interview here. Ted, I want to hit the different leagues that you're a part of. Let's start with hockey. You own the Caps. They've owned D.C. for as long as I can remember. Alex Ovechkin, of course, and the run that we've had. You're about to, you've just announced, the NHL just announced, what do you call this, a promotion?

13:10Yeah. Well, I'm honored and flattered that I've been chosen to be chairman of the NHL. And it's a non-paying volunteer job. But I think what it shows is that when I bought the team in 1999, there was an ESPN article that talked about markets that should be contracted. And how the South, starting from Washington, D.C., going to Florida, and Carolina. In fact, the division we were in, they labeled the South least. and that local radio basically said we had 15 ,000 fans and no one cared about hockey. And those 15 ,000 all went to the games. If we were lucky. When I bought the team, we had less than 3 ,000 season ticket holders, which was scary because a 20 ,000-seat building, It meant, how are you going to fill this building on a Monday night when you're playing Calgary?

14:20And so we set to work. And to be blunt, we were the first modern tech-oriented operators. We're not PE company people. We're entrepreneurs, and we know a lot about technology. And we introduced a lot of firsts. you know, this league was run on fax machines. And I gave every employee and every player a laptop computer and an email. And we built the first websites. You've always been ahead of the tech game, Ted. I mean, we built websites and then the league started to build websites. And then I was president at America Online and with the NBA, David Stern, commissioner.com, I nicknamed him. It was go to NBA.com or AOL keyword NBA.com.

15:14And so we just saw and I just saw that these assets were undervalued, misunderstood on a business standpoint. and that the notion of community, which what AOL was built on and then Facebook and Twitter, that you had deep communities of interest and that they all wanted to be together, they all wanted easy ways to share, that that was being not understood because most of the owners at the time were real estate people. and so when I bought the team I said we need to look at what we're going to build as a platform you know AOL at the time we gave you access and then you got email and then you got maps and then you got stock quotes and and then you got your content then you go out to the web and it was a platform play where we built multiple streams of revenues and the more usage you had the happier the customers were it wasn't the opposite the more engagement the more people time that they spent online and the more they could tell their friends about it and that's how viral marketing started and I said that's what we have to be doing unlocking locally.

16:44And so we got lucky. And then even with all that planning, it's amazing that the team turned everything turned because of a ping pong ball. Just try to tell people when they're saying how strategically smart you were. I said, well, if the year that Alex Ovechkin was available to be drafted and we had the third pick in the draft or the fourth pick in the draft, I don't think I'd look that strategic. You'd have Ben Smith or somebody like that. It really is. We won the first pick in the draft this past season in the NBA, and we've got A.J. DeBansa, and we've made some smart trades to add value around him, and we had a bunch of young kids.

17:37I think we're going to have a real good team as time goes on. But it's a ping-pong ball. I mean, it's so random. And we, over the last 25 years, have been one of the most successful franchises in the NHL. From a financial standpoint, I paid$85 million for the team. The team's not for sale, but it's probably valued at$3 billion standalone. But the platform of the building, the Wizards, the Mystics, we're the second longest tenured owner in the WNBA. And a lot of people threw the keys in along the way in the WNBA. The MGM owned the team in Vegas, and during the pandemic, gave it to Mark Davis. He now has one of the best franchises, won many, many championships.

18:36The Knicks own the Liberty. They threw in the keys. They gave it to Joe Psy. That's where the Liberty are now within the Brooklyn diaspora. So I just look and say it's Herb Simon and then us, and we believe in women's sports. And I think Washington, D.C. should become the women's professional sports capital of the world. I want to bring a women's hockey team here next. Someone just bought the women's, D.C. United, I think, just bought the women's volleyball team. Michelle Kang, who's like ultimate alpha, owns the spirit. And women's sports are transcendent. It all happened because of Washington, D.C.

19:24and Title IX. When I first came to Washington, D.C., it was Title IX era. and I said well that makes sense and and so so we we're building a platform here at Monumental Sports I'd like to own a baseball team I don't know if I can but I'd like to I'd like year-round programming we have our own network you want to manage multiple venues you want to have one CFO you know one head of AI and and so so we've made monumental punch way above its weight and in the NHL we're a top five top revenue producing team and we've had the most playoff appearances you know if you're gonna put a knock on us we've only won one Stanley Cup, but you know the team has performed well and so the executive committee Gary Bettman said you should be chairman to help us navigate what the next big challenges are.

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21:35Follow and listen to The Woman in the Woods wherever you get your podcasts. When you see the Lakers going for$12.5 billion, that shocks me. Because I come from the sort of media side of things. You wrote the book on it at Sports Business Journal, your previous place. I mean, you made the business of sports and started covering it. And you're right. It's probably the thing that I'm most concerned about right now. When private equity came into the business, I got very nervous because, first, for the most part, private equity, they're not managing their money. They're managing someone else's money, and they're making fees, and they get paid annually a percentage of what they've raised.

22:31And then if they get a big win, they get a piece after they pay it back. And sports teams, we don't look like investable assets in that we don't worry about quarterly results. I mean, I've said we're more public than a public company. Well, how many investors would okay what you're doing to the building here? No, it's crazy. You're spending how much? Yeah, a billion dollars up front and in hopes of 20 years increasing our revenues, 100 plus million dollars per year. And why are we doing it? Well, our fans deserve better services. And the unions want us to generate more dollars so that salary cap can go up.

23:18And you have a social responsibility to the city as well. So there's a lot of drivers, if you will. And for us, owning the teams, if you own the team for a long time like I have now, I look at some of the flipping that's going on and get nervous about it, right? where even in a case of the Lakers, the Lakers do a lot less revenues than monumental sports and entertainment does. They don't even own their building. They don't own their building, they don't own a hockey team, they don't own the WNBA team, they don't own their network. We have a integrated platform play and we're on our way to a billion dollars of revenue.

24:12And, you know, I raised some money rather than bring in a private equity firm. That's why I brought in a sovereign wealth fund. People didn't understand, maybe they still don't understand, that sovereign wealth funds, they are parking their money into something that will appreciate over a really long term and they don't want an exit. And so, you know, probably the best of these groups so far has been Arctos. We have Arctos in our company in that there's no puts and calls. You get to manage it and then they'll trade the position when they feel it's okay. But there's no drive on don't make this trade, don't build, make this improvement to the building.

25:08It's you have to run it like it's a family business and do what's in the best interest. So Ted, am I understanding you correctly? If I'm reading into what you're saying, you're worried about the private equity because you're worried a potential bubble or? I'm worried about you know 10 billion no it's 12 and a half billion. In less than a year. In less than a year and that the the the Lakers are a one-of-a-kind asset and there's no other team like the Lakers. Wait for AJ to bounce for a second year, third year, Ted. But I don't want my partners to go, now what was their multiple? Their multiple was 20 times revenues, and you raised money last at a nine times?

26:02You're a bad CEO. You're a bad leader. Why didn't you get us 22 times? The other thing that's concerning is that does the tree grow to heaven? Right. And when you're in the battle every day, and that's something as well. I'm in market, and I used to be president of America Online and own the teams. Then I started a private equity firm with Steve Case, and I would spend a lot of time. Now I'm spending most of my time here because the issues, the navigating through federal government, local government, league politics, the investor bases, multiple leagues and what's happening with CBAs in each of the leagues, the national media, the local media, these have become very complex businesses.

27:06is. And if you run it remotely, or if you're involved and you're not connected, you don't go to the games. Last year, last two years for the Wizards, we were rebuilding. I made sure I came to all of the games. I wanted the fans to understand, I know how hard this is, but it'll be worth the wait, just like we did with the Capitals. And when they're paying as much as are paying for tickets, they're vocalizing that to you as well. They are. And I, not only do you have to have empathy, you have to understand that I need to give them now a return on their investment. They came to games. And with the capitals, I would tell people, you should buy your tickets now.

27:56It's Malibu real estate. It's, it'll never be cheaper or easier to get tickets. Our biggest complaint now with the Capitals is tickets are not available, so they're too expensive because I have to buy them on the reseller market. And people still want to blame the team owners. And I go, no, no. I sold the ticket. It was a$100 ticket at discount,$85 to my customer. And they're putting out, what will you pay me for the ticket? And if you paid$1 ,000 on the resale market for I got$85, that means my customer just made an unbelievable margin. Can I ask you a question about that? Because FIFA came to the States, and they charged an arm and a leg.

28:50And I have to admit, I wanted them to bomb because they were charging too much for tickets. They were sold out. They sold out everywhere. As a owner, you want to be part of the community, but you see where you can price those tickets at. Well, they did that, too, out of that necessity of—we had Garth Brooks here the last two days, so first shows. And Garth is a great man and a great operator and a great artist. and he was very, very cognizant of his fans and he worked with Ticketmaster to put a level on what they could charge as a service fee. And then he would open rows and essentially he was charging the same amount for a ticket, row A all the way up to like row 27 downstairs and then he would open upstairs.

29:54And it was magnanimous of him, and he was involved. I went to a meeting. He was working with our box office people, looking at what was the backlog of calls and what was the right show of interest before he would release another row. That's how granular this man was. I mean, I loved it. I was so respectful that he cared that much. But guess what happened? Some people bought the tickets downstairs, and he had fans who would pay a lot of money to sit closer who bought the tickets upstairs. And so it was the person who got in first, and they were reselling the tickets. And, you know, that's the balancing act that we have to do.

30:43You know, we're providing you as a season ticket holder with the option for the seats, right? and now you're reselling it. That doesn't happen in any other world. It's not like you're taking the Acela to New York and the Acela's sold out. And so you're standing outside Penn Station and saying, I got two to Manhattan, first class. What are you going to pay me? Back in the day in my youth, we used to buy Maryland basketball season tickets, sell the Duke game to pay for the tickets. There you go. It made sense, right? Yeah, and I have people all the time saying, I have my tickets for free. I buy the 42 games, now 43 games, and I sell 10 a year at a markup, and the markup is enough to pay for my season tickets.

31:37So I said, oh, I understand that business. I'm a venture capitalist to you in a small business. But pricing, another thing that concerns me and you might have read last week that making a bit of a transition with my son, you know, Zach's in his 30s and he's worked here for 15, 16 years and and he'll play a bigger role on succession but he has a better feel than I do now on technology and young people and my fear is if kids on college campuses and DC has 10 major universities here if they can't watch games you you grew up in Minnesota you go to George Mason University you love hockey and you can't watch the games you can't subscribe you don't get cable you have to go to a sports bar to be able to watch a game and and you can't afford a ticket because we're sold out how am I going to get how we gonna get the next generation of fans as fully engaged falling in love like I was growing up you know I'd be listening to games on my transistor radio and you know I'd buy baseball cards and I I just play little league baseball and you know you read all these articles pricing out families for baseball and skills camps and I go we we really have to be cognizant of what are we doing to make sure that we're more accessible and and you know with cable now locally really shrinking why we bought our network it was we have to make sure that we get we We give people access linear.

33:39We were the first team to go direct to consumer. We had software developers. Go ask owners around the league, how many software developers do you hire? I created a company called ViewLift and it started to build private networks. They built our network and then they started building networks for other teams and other leagues and entertainment companies. Versant is a big, big customer. And DAZN just bought ViewLift to be able to build networks for teams across the leagues. Going direct to consumer is going to be hard and painful. But if you get the data on those people, as opposed to what the RSNs had been doing, relying on Nielsen data, men 18 to 35.

34:33And our business has boomed since the pandemic, since going direct to consumers, because we know so much about the behavior, the likes and dislikes of our customers. And we're able to serve them up because we're all digital. And so we're going to make this building an all digital building first, what Steve Ballmer did in LA was, you know, just to start facial recognition, anticipating your needs, knowing when someone is coming into the building, oh, it's so-and-so's birthday, let's automatically, you know, greet them with a birthday greeting. And then you learn, like, what are the most important things for you?