GS Warriors, Moneyball and Silicon Valley
There may be some lessons here:
What Happened When Venture Capitalists Took Over the Golden State Warriors
After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
By BRUCE SCHOENFELD
It was still dark one morning early this year when Joe Lacob, the majority owner of the Golden State Warriors, drove his Mercedes station wagon through the Stanford University campus. He parked near the business school, then walked down a sidewalk through a drizzle to meet a group of Silicon Valley executives. The ex-C.E.O. of OpenTable, now a partner at Andreessen Horowitz, was coming. So were a founder of the online-learning start-up Curious and a managing director of Vanguard Ventures. On another morning, they all might have met at a charity event or a TED Talk. But it was a Tuesday, and that meant basketball…
Silicon Valley — the place itself, but also the society of smart, technologically savvy people who surround it — is full of basketball fans. Many of them made a lot of money in their 30s and 40s. Now in their 50s, they’re looking for something gratifying to do with it…
Lacob was not the first venture capitalist to buy a franchise, but he is the first to operate one according to what might be called Silicon Valley precepts: nimble management, open communication, integrating the wisdom of outside advisers and continuous re-evaluation of what companies do and how they do it.
None of that typically happens in professional sports. Most franchise owners of previous generations became wealthy mastering businesses that did one specific thing, if only because that was the way that people used to become wealthy in America. They’ve run their teams, for better or worse, in the same autocratic, hidebound fashion that they ran those companies. As a manager, Lacob prefers to surround himself with expertise and exploit it.
…what really set the franchise apart, he said, was the way it operated as a business. “We’re light-years ahead of probably every other team in structure, in planning, in how we’re going to go about things,” he said. “We’re going to be a handful for the rest of the N.B.A. to deal with for a long time.”
When Lacob and his group of investors bought the Warriors in 2010, the $450 million they paid was deemed wildly excessive by nearly everyone…In the months since, they’ve attained the status of a cultural phenomenon. More than any team since the “Showtime” Lakers of Magic Johnson and Kareem Abdul-Jabbar, they’ve become famous not just for winning but also for how they win.
What’s happening with the Warriors as a business isn’t something Kimmel is likely to mention, but it’s equally impressive. The $450 million that Lacob’s group paid to Chris Cohan, the former owner, seemed so laughably expensive because of the woeful state of the Warriors franchise…Such ineptitude had eroded interest.
Other potential buyers perceived the institutional decrepitude as a drawback. Lacob and his partner, the Hollywood entrepreneur Peter Guber, believed it represented an opportunity. “That’s what Joe does…He saw potential in what we were doing with Autotrader, even when others were dismissive. He’s one of those rare people who can look around the corner and see something interesting.” In the Warriors, Lacob saw a start-up disguised as an underperforming business, a sports franchise that had been run autocratically — and therefore ineptly — as the industry evolved around it.
That $450 million investment is now worth around $2 billion…Venture capitalists make large investments in companies that they don’t necessarily control. Lacob brought the same mind-set, if not the actual structure, to his basketball team. “In venture capital, I started 70 companies,” he told me. “I also watched my partners’ deals, maybe 200 of them. That’s a lot of companies. I thought about the way we design a board of directors, the way we design the financing. There’s an architecture to it. And I started thinking about the architecture I would use when I owned and built my own team someday.”
Anything in the Bay Area is subject to being optimized in some way that proudly snubs tradition. It’s one of the reasons I enjoy living…
Lacob gave Guber, who owns a smaller share, all but equal standing because Guber brought four decades of connections in movies, music, sports and media to the deal. Together, they hired a general manager who had never worked for a team before, let alone run one, and two coaches who hadn’t coached at any level. At the time, these moves were perceived around the league as rookie mistakes. But Lacob was no rookie, not at building companies. And it turned out that they were not mistakes.
The Bridge Club has become one of the best venues for venture-capital networking in the Bay Area. It’s a perk for the minority owners, but it serves a purpose for Lacob. Before and after each game, he’s accessible to any investors who want his ear. “It’s the atmosphere of knowing you have a voice — knowing you’re part of this,” he explained. “One thing I didn’t like when I owned part of the Celtics — was I really heard? I don’t know. I wanted to make sure that when I did this, everybody got heard.”
The N.B.A. demands that each franchise confer one owner, regardless of stake size, with nearly dictatorial power. Lacob wields his softly, just as he typically sits in the back of corporate board meetings without saying much, absorbing information, then guiding the discussion toward a decision. “I’m a professional listener,” he told me. “There’s a lot of smart people in the world, you know. I’m not the smartest. I’m just an integrator. The N.B.A. isn’t like the outside world. I can do whatever I want. But you don’t treat people that way.”
Even teams in small markets cost hundreds of millions of dollars these days. Unless you’re Steve Ballmer, the former Microsoft chief who spent $2 billion on the Los Angeles Clippers without the help of outside investors, most potential owners don’t have the wherewithal, or the gumption, to finance a purchase themselves. But rather than money without strings attached — investors who would have little involvement beyond writing checks — Lacob and Guber purposefully sought out entrepreneurs and businessmen with attributes and access that complemented their own. “Everyone he’s partnered with has a strategic reason to be there,” says Dennis Mannion, C.E.O. of the Detroit Pistons, who has held executive positions with teams in all four major American sports leagues. “You have this phenomenal bullpen of talent.”
So after the shareholder Dennis Wong, the managing director of SPI Holdings, advised Lacob on the real estate purchase for the new arena, Walecka helped with the financing. When I spoke with Swinmurn, he reeled off rapid-fire opinions on the design of the Warriors’ branded attire, the type of food sold at the concession stands and other disparate topics. Occasionally, minority partners can even influence what happens on the court. John Burbank of Passport Capital, who uses a deep knowledge of mathematics in his own investments, contributes detailed memos applying complex metrics to potential acquisitions. “I don’t know if any of it has 180ed us on a player,” Bob Myers, the Warriors’ general manager, told me, “but it has certainly moved us in a direction, one way or another. And he’s done it enough that it’s just the course of things now. It’s part of the process.”
But sports isn’t a small industry anymore. Playing the games and charging people to see them now constitutes only a fraction of the business. Franchises run gourmet restaurants and concert venues these days, and entire streets of retail outlets. They service fans in distant cities through audio and video streaming and proprietary content. Those owners who want to personally dictate everything “down to the color of the underwear,” as Stevens puts it, can find themselves at a competitive disadvantage. “It’s very hard when someone has had great success in another business — the fish-delivery business, the box-cutting business,” Guber says. “And then you come into this because ‘I want to buy a sports team, and I know how to run a business.’ That just isn’t a formula for great success in today’s world.”
Lacob’s experience in venture capital, building a diverse portfolio of businesses, prepared him well for the peculiarities of owning a franchise, which perhaps explained why spending time in the Warriors’ front office often felt like hanging out at a software company. Soon after buying the team, Lacob supervised the removal of the walls inside its headquarters, which sit atop a parking garage in downtown Oakland. The various departments now share the same open-plan room; when I visited, I kept expecting to see a kegerator or some hoverboards. “You walk through there now, and it’s young, and there’s excitement,” said Gib Arnold, a former University of Hawaii head coach, who spent several days observing the franchise last year. “It’s Google in the N.B.A.”
In sports, unlike other businesses, companies have two bottom lines. Their owners want to win, of course, but they also want to make money, and the two are linked more loosely than you might think. You can make a lot of money with a bad team, as the N.F.L.’s Washington Redskins have done since 1999, when they were bought by Daniel Snyder. He has been a terrible owner, winning just 43 percent of his games, burning through seven head coaches, never reaching the Super Bowl and stubbornly refusing to change the team’s polarizing name. Yet if you judge him by the standards of any other business, he has been exemplary. The Redskins are the third-highest-grossing team in the N.F.L.; Snyder’s $800 million investment has more than tripled. If the team had public stockholders, they would be giving him a party.
Competitive success is more elusive…
When Lacob and Guber bought the Warriors, they hired West as a senior adviser….“Bringing in Jerry West is not just a V.C. move but a typical Kleiner move,” says Vanguard Ventures’ McConnell. “They always put Nobel laureates on their advisory boards. In basketball, that’s West.”
West is known for his spirited, and occasionally profane, defense of his strongly held opinions. But Lacob doesn’t mind the shouting. His professional experience involved investing hundreds of millions of dollars in nascent businesses, some of them in categories that didn’t yet exist, then relying on the judgment of the executives he hired to guide them to profitability. He doesn’t just appreciate conviction; he relies on it.
Since joining the Warriors, West has disagreed strongly with Lacob on several personnel moves. Each time, Lacob has deferred. “Not everything you’ll do as an owner will work,” West says. “Some things that you’ll do, or might want to do, will not work. So you have to have the right people in place who can tell you that, not people who will crumble as soon as you express your opinion. That’s the first part. And then you have to be willing to listen to them.” With all the innovations that the ownership group has put into place, West seems to be saying, if Lacob’s skin had been a little thinner or his need to assert his authority a little greater, the Warriors might still be struggling.
Once he had his investors in place, Lacob treated the Warriors like another of his fledgling companies in need of adept management. In 2011, he hired Bob Myers as an assistant general manager. He promoted him to general manager a year later. Myers, now 41, lettered in basketball at U.C.L.A. as a walk-on, studied law at Loyola Marymount in Los Angeles, then started a career as an agent, representing athletes. “The reason I’m sitting here now is because of that V.C. model,” he told me. “I had no track record. I had no past experience. If you only believed in past performance, you’re talking to someone else. I mean, I wouldn’t have hired me.” Last season, Myers was named the N.B.A.’s Executive of the Year.
At Kleiner Perkins, Lacob was often forced to change entire management teams and restructure companies before he could make them profitable. He wasn’t daunted by the challenge of turning around the Warriors. “You make highly contentious decisions in venture capital all the time,” says Trae Vassallo, a former Kleiner Perkins partner who worked with Lacob. “But not everybody sees them.”
Lacob understood that the Warriors, who had a losing record, needed to be dismantled before they could be rebuilt. He often had to implement a similar strategy with struggling companies…
…Such noodling with success, replacing a leader with a limited strategic vision with another who is comfortable aiming higher, rarely happens in sports. But in venture capital it happens all the time.
Kerr’s willingness to at least consider suggestions from almost any source may have saved the Warriors during last year’s championship series. They were behind Cleveland, 2-1, when Nick U’Ren — Kerr’s assistant, whose responsibilities include constructing the musical playlists used during practices and splicing highlight reels — happened to be watching a tape of the 2014 playoffs. Noticing how San Antonio defended LeBron James, he suggested that the Warriors replace Bogut in the lineup with Andre Iguodala, who is half a foot shorter but athletic enough to at least force James to work to get good shots. Kerr took the suggestion, and the Warriors didn’t lose another game. Kerr publicly gave U’Ren the credit.
“I’ve played for nine different organizations,” Shaun Livingston, a Warriors guard, told me, “and I’ve never seen anything like that. This wasn’t even an assistant coach; it was a video coordinator. And Steve Kerr listened to him, and he did it. All the bridges are open here. There’s an open forum of ideas. A good idea really can come from anywhere. And that kind of thinking has to start at the top.”
Lacob presents winning as an inevitable result of the way the team has been constructed…As with Jordan and the Bulls, a strong case can be made that Curry, not the ownership group, provides the point of difference. “They did what every really good organization should do with their star,” the Bucks’ Lasry said. “They nurtured him. But they got lucky in that Steph became far and away the best player in the league.”
Still, Curry’s mere presence wouldn’t have created the means to overhaul a franchise…But as Lacob sees it, Curry’s dominance on the court, though essential, is inextricable from everything else he’s done with the franchise over the last few years, from knocking down the office walls to the Ellis trade. “It’s not just Steph Curry,” he told me once. “It’s architecting a team, a style of play, the way they all play together. It’s all extremely thought through.”