If I Had the Moolah...

I just finished taking a GREAT class called "Managing Sport & Entertainment" this spring.   Great guest speakers, topics, and cases that ran the gammut including Manchester United, Cirque du Soleil, Radiohead, NYC nightclubs, Broadway theater, YouTube, the book publishing industry, and much more.


If I had a couple hundred million dollars lying around, I'd invest in a sports franchise (though be a bit more price conscious than the likes of Magic Johnson recently).   Or an entertainment business (there is convergence). Sports franchises are full of passionate people who tend to make passionate decisions.  Take for example European football (whose revenues top those of the NFL, MLB, and NHL combined).  Even in the economic recession, there is no "revenue problem" for European football.  Fans will pinch pennies elsewhere before giving up on football.  Stadiums are sold out.  Lucrative media deals are struck year after year (plus you have new players like Al Jazeera who are just throwing money at it and driving up prices).  Teams have increasingly learned to monetize the brand with licensing deals.  And while all this money is coming in, there has been a wave of European football clubs going bankrupt (some are publicly listed) and others continuing to struggle financially year after year.   The virtuous cycle should be that money comes in, it's invested wisely on and off the pitch, more tickets sold, etc.  However, it's warped in the opposite direction for some clubs.  My hypothesis is that some of these football clubs (and other sports teams, in general) have passionate people making irrational decisions (record contracts given to players, bigger stadiums, etc.).   I feel there's a positive correlation between the sophistication of the team off the field and the sustainability of teams.    Seems ripe for some turnaround investors (and cash flows are more stable than you'd think).


Another story that stuck with me was that of Guy Lilberte, the founder of Cirque du Soleil.  Around each big top touring show Cirque has, there is a white picket fence.  Guy calls this his world when customers walk through this fence.  If you've ever been to a Cirque show, you know that it's an emotional roller coaster where you leave on a high.  Guy's purpose for starting Cirque was so that when people entered his world, they would forget the troubles and torments of their life and let him entertain and educate them on what is possible.  And then maybe, when they walk out of the picket fence, they will take a piece of his world with them.  The best entertainment businesses are driven by something other than profit.  I personally respect them for that and think that applies to most businesses in general.

Leaving on a Jet Plane

Yesterday, I attended a lunch & learn hosted by our London Business School Marketing Club (they do GREAT events).   The guest speaker was Rob Britton, a professor turned airline executive.  He spent over 20 years at American Airlines and left as Advisor to the Chairman.   In the 1970s, Rob helped launched AAdvantage, the first airline loyalty programme, and his seminar focused on the value of these frequent flyer programmes (the only marketing tactic that has really worked for airlines).

A few random factoids and musings I wrote down in my Moleskine about this challenging yet very interesting industry:
-There's significant spoilage by the very nature of the service.  Weak demand, stiff competition, overcapacity, etc. leads to empty seats.  A surprising 20% (!) of seats flew empty on flights last year in the United States.

-The airlines business has relatively low barriers to entry (not good from a firm standpoint).   And, on top of that there are high exit barriers.  New airlines seem to sprout up every year but think about how they don't go away as often.  Once an airline goes belly up, the assets (planes) are worth more cobbled together as a going concern than grounded separate planes.  And I don't imagine the secondary market for used (and many times old) aircraft is so great when the industry already has an overcapacity problem.

-The innovation in the industry has to come from customer experience (legroom, wifi, food, online distribution, etc.) and not the actual product or service (fast, long travel).  For over 30 years, most airplanes fly between 500-600 mph, which is slower than the speed of sound.  I don't quite understand all the physics behind it (need a Khan Academy talk!), but once a commercial jet breaks the speed of sound barrier, it becomes prohibitively expensive because of the amount of energy required.  More interesting info here: http://www.physicsforums.com/archive/index.php/t-173394.html

-Travelers prefer frequency to differentiation.  Boutique aspirants have tried to carve a niche in this space but fail every time.  Imagine a Goldman Sachs employee chooses to fly one of these high end airlines from NYC to London.   If and when a meeting runs over or there is bad weather, one of the legacy carriers could book him or her on the next flight out that day.  With a boutique airline, she or he may have to wait a day.  This resonated with me.  When I travel for work and return home, I want to get there NOW and will pay anything to make it happen.

-If you added up global airline profits throughout time, the sum is a loss.  That's not too surprising and could be used to call for shutdowns or thwarting of future investments.   However, I think airlines are similar to banks, they lubricate the rest of the global economy.  And thus, I foresee subsidization and loss minimizing policies for at least my lifetime.

Rob is a very entertaining and energetic speaker!   He is quite generous with his time too and does a circuit of top business schools each year.  Am going to solicit his help with an idea I came up with to see if British Airways or Lufthansa would be willing to give LBS Class Gift 2012 student donors the perk of airline status for a year.  I see it as a win-win-win marketing tactic for the airline, the school, and students.  Fingers crossed!