by Pim van Nes
Our colleague Ivano Luberti, writer for the Italian website Baseball.it, recently interviewed Mr John Genzale. Whilst the website with editor-in-chief Filippo Fantasia in Milano and webmaster Alessandro Labanti in Bologna is widely known in Italy, Genzale’s name is a new phenomen in European baseball. However, his reputation among Italian insiders was good enough for federation president Riccardo Fraccari to hire him in the interest of Italian baseball. The country has a strong sports ambition and sports minister Giovanni Melandri claims she has paid 450 million Euros to national Olympic committee CONI for the largest Italian delegation possible to the 2008 Olympics in Beijing. Baseball was not there and even in Europe the average ranking of the national team went down from second in the previous century to fourth since the start of the present century.
FIBS president Fraccari thinks that Italian baseball needs – in Formula 1 racing terms – a kick-down to speed up to full professional baseball in his country. He has no alternative than to seek the financial help from Major League Baseball and early last year he personally handed over the first version of his business plan to MLB vice-presidents during the IBAF congress in Beijing. In July 2008 the business plan came back to Rome, where the FIBS board had to reconsider and reshape it for a broader support than solely by president Fraccari: on request of MLB. It seems that the Italians are close to a long awaited approval by the richest baseball organization in the world.
A top meeting was held on August 13 and 14, when the owners of the 30 Major League clubs discussed the reports presented by MLB vice president Paul Archey. When a fast reply was not received in Italy, Baseball.it journalist Ivano Luberti wanted an extensive interview with Italian-American business man John Genzale, the author of the famous business plan. Luberti’s questions sound familiar in European baseball and Genzale’s answers show the American views on the development opportunities for sport organizations. The interview was published in Italian language by Baseball.it on August 26, but on request of Pim van Nes our colleague and international business man Ivano Luberti was so kind to translate it into English for the audience of Mister Baseball outside of Italy. We wish to thank our Italian friends for time invested for the love of baseball and recommend baseball readers to spend their time on the interview.
by Ivano Luberti, Baseball.it
Jon Genzale came to Italy about two years ago after a great career in the sports business world both as a journalist and a professor at the New York University: we illustrated his career with an interview in which he told us how he was able to meet the main officers of the professional sports and particularly those of the MLB.
Even if he came to Italy to change his life (he asked for Italian citizenship right after his arrival and has already obtained it) it was difficult for him to not be involved in the dealings between FIBS and MLB to build a baseball professional league in Italy.
In any business, being acquainted and or friends of the decision makers is a strategic advantage and Genzale, probably, is currently providing this to FIBS, especially talking to the MLB owners that, differently from what happens in Italy, will definitively decide if MLB will invest.
Knowing about his role we have decided to interview Mr. Genzale and hear about his point of view on what is going on between FIBS and MLB, clearing the view from the rumors and the not verifiable information leakings, but looking over the always aseptics official releases.
Ivano Luberti: We hear many things about the IBL business plan. Good things like it’s the perfect plan for commercial baseball right now to things that are not quite as good like it’s too ambitious. Since you are the architect of the plan that MLB thinks so highly of, perhaps you can tell us how it would impact its most important stakeholders, the current club owners.
John Genzale: Perhaps “architect” is too strong of a word. Riccardo Fraccari had a vision to commercialize baseball in Italy and to energize it when it is most needed. MLB’s Clive Russell and Dan Bonnano, representing the interests of their organization to grow the game in Europe, did the hard work in initial planning. All three are the architects. But all three are properly very loyal to their organizations. Perhaps they needed an outsider. It must be very clear: Riccardo Fraccari hired me and I work for FIBS. I am an Italian working for Italians. I was lucky to work with many people at FIBS who love baseball and are dedicated to revitalizing it. So I see myself more like the general contractor than the architect. I drove the nails. I was hired to put the brick and mortar into the renovation. With their help, we built a solid business foundation from their blueprints. We built the walls and the halls of a viable plan for business operation, one that provides shelter, comfort and prosperity for everyone, FIBS, MLB, fans, customers, clients and, most importantly, the owners.
IL: So you are saying the most important people to work in this structure will be the owners. They are the driving force in any commercial sports league. Could you tell us how the plan impacts them?
JG: There are plenty of rumors out there about how the plan would increase expenses and restrict owners. Taken in bits, these rumors would scare me if I were an owner. But the simple truth is that owners shouldn’t see any change in their authority to run their clubs, in their ability to manage the game they love as before, to acquire players and conduct business operations just as they do now. The day-to-day operation of their clubs will be almost exactly the same under the new league. If they chose to be in the league and they are willing to cooperate within a strong organization, the only real change for them will be commercial success, more fans and more profits and better baseball.
IL: Are you implying that membership in the IBL by current teams is not guaranteed.
JG: Yes I am. We are building an organization. The strength of that organization is going to be determined by its members. Each of its members must demonstrate a willingness to succeed as a group. If they can’t, then there is no place for them in the organization.
IL: Do you fear that you will be making enemies?
JG: No, I’m not afraid of success. The current owners shouldn’t be. It will easily for them to see that by contributing to the organization, they also will be very successful. From the day they earn and gain membership, they will get rewards.
IL: Do you mean that they are automatically better off by joining the league?
JG: Again, it’s not only a matter of them simply joining. The IBL must also want them. They must contribute to our collective success. But if that’s the case, and I believe it will be for many of the current clubs, the owners will be richer from the day they join.
IL: How can that be?
JG: Major League Baseball has not yet agreed to invest. That must be understood. But if they do or if we get another partner, they will buy into the league. It’s a business deal, not a handout. They will invest according to the value of the teams in the organization. When endorsed and funded by MLB, the value of each team will be many, many times greater than the owners previously thought.
IL: How many times? Can you estimate the value of the clubs?
JG: I can and I did. That makes this a real business deal. It is safe to say that I came to an agreement with MLB staff on valuation. I won’t say how much, because that’s like telling how much wealth a person has and that’s inappropriate.
IL: Can you at least tell us the value of the league as a whole?
JG: No, because then all you would have to do is divide it by 8 to get average team value. We assigned no value to the league at this point. It will lose money for the first few years and hasn’t even been in operation for a day. Once it can generate revenue of its own, it too will have value.
The current owner doesn’t only gain value of multiple times what they originally thought, but they also have league equity and that will grow also. That will provide more than a little added wealth for them.
And just because MLB had agreed on value and how much they are willing to invest, doesn’t mean that we have a deal yet because there’s much more to consider. But I will tell you this: The amount, under the organization we built is real value when and if MLB owners approve a deal. Effectively, MLB will be saying to the world that the worth of each club is much higher than they previously thought. That’s strong backing from a noted worldwide brand.
IL: What else has the MLB to evaluate to decide if they want to sign the deal?
JG: I can’t speak for their business goals. I know they want to grow baseball around the world and this will help. But I don’t know how motivated they are. I don’t know how much money they have allocated to worldwide baseball growth. I don’t know the competition for that money, if there is any. I don’t know their strategy. And I don’t know their business situation. I think this is a great investment for them, but I wouldn’t pretend to know the basis for their decision.
I do know that the owners, all with their own priorities, will have something to say. They run the league. If they want this to happen, it will. If they don’t, it won’t. So our strategy has always been to approach them with a bona fide business deal. That’s the language they talk and that got their attention.
IL: Going back to the team’s value: it seems to me that’s money on paper, not real Euros in the owners’ pockets.
JG: Of course it’s real. Just like the investment they have in their houses or their other business. If they sell, they will sell for the price at which MLB is buying in or more.
IL: But then it’s not real until they sell.
JG: Yes it is. They can acquire capital based on the true value of their team, the value determined in the marketplace by the deal with MLB. They can go to a bank and get money. They can find venture capital. If they don’t want to sell the entire club or sell controlling interest, they can take partners, selling off a minority percentage of their team, still keeping controlling interest and pocket more money than they originally thought their teams were worth in the first place.
IL: Well, that sounds good, but can that really happen? Is it practical?
JG: Of course it is. It’s just a basic part of doing business. I will tell you this, Octagon, the world-renowned marketing agency that currently represents CONI and has agreed to represent the IBL, has already told me they will handle team transactions for the IBL. They not only want to do our marketing, but they want to negotiate investment deals. It’s a chance for them to make a commission. The owners can let Octagon do the work finding investors and negotiating the deals. Then the owners would pocket more money than they thought and still keep controlling interest in their teams. That’s real and that’s practical.
IL: Is it realistic to think that American businessmen that already have an experience in sports business will invest in the IBL ? Moreover what is difference in terms of initial investment modalities, between the Italian Baseball League and the Israel one (that incidentally has the same name) that has recently failed to run a second season.
JG: Realistic. Yes. Business is a universal language. If we were asking to borrow money from American business people, I don’t think we would get anywhere. But, as I said, business is a universal language. This will be a wonderful business opportunity for business people anywhere. Also, in America, minor-league teams have proven to be highly desirable business investments. There are not enough teams to fill the demand. I think that without a doubt, we can attract smart money.
Israeli league had no history, no facilities and only one investor who turned out to be less than honest. There is no comparison. We are already operating at break-even. We will build from there. The Israeli’s needed to be able to sustain five to seven years of loss. They couldn’t sustain one. Yet, we’ve been operating for 60 years. This doesn’t bother me nor MLB. We have the plan for success. Three people from the Israeli league have asked me if they may be an opportunity for one team to play in Italy. We open to talk about anything that would enhance our business, but have no such plans right now.
IL: What are the downsides in the business plan for the owners?
JG: There are none. Like I said, we’re not starting a new business. We’re converting a 61-year-old organization. I understood from the beginning that everyone must be better off in the new league than in Serie A.
IL: But isn’t it going to cost the owners more money to be in the league?
JG: No, not at all. Right now, they pay a participation fee to play each year. I was determined that in the first year, 2010, the participation fee would be the same as they paid in 2006. No inflation. That’s their cost to begin the 2010 season, same as before. After they start making money in subsequent years, that participation fee will grow, but it’s a drop in the bucket compared to the profits they will realize.
IL: I heard that they would be required to spend more money. Their expenses will go up.
JG: They are not required to spend anything that they haven’t taken in first. Just like any business, they take in the revenue and pay the expenses afterwards.
IL: So if the revenue goes up, so do the expenses?
JG: Yes, just like any business, but the revenue comes first, and it grows faster than the expenses. So they will be able to handle it and not be afraid of the expenses.
IL: But how do you guarantee more revenue.
JG: This is an organization and marketing endeavor. Just think of it that way. Baseball has existed in Italy with a weaker organization and no marketing. The IBL provides for baseball as usual … same as the owners have been doing in the past. But the league is stronger, able to attract partners in business like MLB and Octagon. The cash provided by our partner’s investment will fund the organization and Octagon or another strong marketing agency will provide the marketing. We will invest substantial money in attracting fans (customers) and sponsors (clients), even before the first season. Baseball is a very attractive sport and we will provide good, safe, clean family entertainment at an affordable price. If we do our job marketing something as attractive as this, our fan base will grow. Grow a lot.
IL: So you expect more fans.
JG: Yes, but we’re going to pay to attract more fans. And the business plan is very generous on this point. If for instance, we expect a club to produce greater gate revenue (attendance) we will put almost that amount into marketing. That’s what the outside investor provides. In the business plan, we can pay for almost all the tickets we sell.
IL: So you can almost guarantee the attendance you need?
JG: Well we can come close to paying for all the tickets. But we’re building a business, so we won’t do that. I don’t think getting people to the ballpark the first time is our biggest challenge. Our goal is to create the atmosphere, the fun and entertainment to make them want to return.
IL: So the owners just do what they were doing, sit back and enjoy greater profits?
JG: No, not at all. If they are looking to sit back and let it happen, they should go somewhere else. They will drag down our efforts. They must participate actively, zealously, in growing the organization and their businesses. They will not only be representing their businesses in their communities, but the IBL as well and baseball in general.
IL: OK, besides the spirit of representing the IBL and baseball, they just start taking in money.
JG: Well, the marketing will produce results. There’s no doubt about that. But they must continue the efforts that we collectively (including the owners) start.
IL: What does that mean?
JG: They have to make a trip to the ballpark a pleasure … a real leisure-time alternative. And they have to invest in marketing themselves. There will be a minimum expenditure on marketing. This is not negotiable … it is essential.
IL: So it will cost owners more money to run a team in the IBL.
JG: Well, at the end of the year, they will have spent more money than they do now. Isn’t that natural. A better business means more revenue. More revenue means more expenses. As long as the revenue exceeds the expenses, this is a definition of a successful business. They will spend more of the revenue to operate their teams. But they will receive the money before they spend it and spend only a percentage of what they have already taken in. Then they will keep the profit. Again, no downside. They don’t have to find more money to operate between the 2009 and 2010 season. But they will make much, much more money. That’s a great deal.
IL: So IBL owners will be required to spend a percentage of revenue on marketing?
How will you control that?
JG: It’s a single-entity league. The control is central. We will have a league-wide marketing plan in place. And we will consider marketing expenditures as a whole. We will also “seed” the marketing by providing advance marketing Euros for the teams. That will generate initial revenue to initiate the process.
IL: Do you think the current owners will have a problem with that?
JG: Not if they fully understand the concept. Look, the owners obviously love baseball. They are intelligent businessmen. This is an opportunity for them. An opportunity to not only realize increasing profits and enjoy ever increasing team value, but an opportunity for them to be a part of the future of Italian baseball. After many years of trying to build baseball in Italy, we may now be able to get the outside help we need. We have a solid business plan that provides for everyone, most especially the owners. The opportunities are endless. A better league and a successful business provides better baseball and more profits. It is my sincere hope that those owners capable of seeing the future take advantage of this opportunity by taking the first step into the future with us.
IL: We know for certain that one of the current owners has already said that he doesn’t want to change a bit. If some owner will refuse to join IBL, that is to accept some of the duties involved in participating, what’s the FIBS plan to substitute them? Do you plan to start with less teams or you will find a way to substitute it?
JG: First, a team in the league will be worth a lot of money. Outside the league, it would be worth almost nothing. I’m not sure current owners understand that. That makes it hard for me to believe that owners would just throw away money and ignore such a rich business opportunity.
We will have eight teams. The entire business plan is dependent of eight teams producing revenue.
We haven’t gotten into the selection process or haven’t decided how a new owner might acquire a club. These are decisions for after we are incorporated but long before the first pitch in April 2010. Right now, we put together the model for the business, the shell. So we had to know how many teams and what we should expect in terms of revenue and expenses. But we never felt a need yet to determine which teams will start with us.
That’s an important decision. I can assure you, that the quality of the market for baseball is important to us. It had to be one with a viable baseball tradition or one large enough the support our business plan. These are very important decisions for the near future.
Here ends our long interview with Mr. Genzale that brought him to stress out some concepts he think are particularly important. As for any other article the final judgment is up to the reader, but we think it worth to make some personal consideration. Not about the famous business plan that we have been not able to read and then we cannot judge.
Genzale could only be positive speaking of a plan of whom is a co-author and he has personally presented at the last Federal Council, obtaining a good success ,as reported by FIBS itself. But it is difficult to imagine an investment plan without any risk for the investors, even if to be in a partnership with MLB allows those investors to minimize those risks.
We have also to say that only the owners that are part of the Federal Council have seen the plan: we understand the need to present it at first in front of the official decisional group before spreading it around the world, but we think it would have been appropriated to show it to other owners right after its approval by FIBS. That would have allowed preventing the spreading of rumors and some bad reactions based on not certain news.
Finally we think that the trust of the Italian owners by Genzale is optimistic to say the least. The ability of those people to look only to the private and limited interest of their team has been proverbial in these last years and it is difficult to say if they will be able to follow a coherent plan that anyway is dropped to them by the FIBS.
It is true that “pecunia non olet” but the teams have demonstrated in the past that lack of money was not the problem.
Photos: © Baseball.it (picture 1: John Genzale, picture 2: Ivano Luberti)
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