20VC Boston Celtics' Steve Pagliuca on The Future of Sports Team Ownership; What Happened with the Chelsea Acquisition Why More Money is Pouring Into Sport Than Ever & Do These Assets Keep Increasing in Value

In an insightful conversation on "20VC" with host Harry Stebbings, Steve Pagliuca, senior advisor at Bain Capital, discusses the principles of successful investing and business growth. Emphasizing the importance of treating people well and maintaining humility, Pagliuca shares his journey from joining Bain Capital in 1982 to becoming a leading figure in private equity with over $160 billion in assets under management. He also touches on his experiences as a co-owner of the Boston Celtics and Atalanta, highlighting the challenges of balancing competitive success with financial prudence in sports. Pagliuca attributes much of his success to the mentorship he received and underscores the need for a growth-oriented investment strategy, citing his involvement with the Gartner Group as a prime example. He also discusses the impact of the current generation's values on the investment industry, particularly their focus on purpose, diversity, and sustainability.

• Importance of personal conduct in professional settings.
• Perception of individuals is influenced by their treatment of others.
• The concept that behavior is always under scrutiny and impacts reputation.

"One thing you really have to learn about it is that all the world's a stage. I've given that advice to generations of Bain Capital. People judge you by how you treat other people."

This quote emphasizes the idea that personal interactions and the way individuals treat others are constantly observed and judged, akin to a performance on a stage. It serves as advice for maintaining a positive professional image.

• Consideration of capital availability when making business decisions.
• Recommendation to avoid pursuing a business plan if capital support is insufficient.

"And if you feel like there's not going to be the capital there, you're going to struggle with it. In the plan. You probably ought to back off."

Steve Pagliuca advises that if there is a lack of capital for a business plan, it is prudent to reconsider or abandon the venture to avoid potential struggles.

• Harry Stebbings hosts the 20 VC podcast.
• Steve Pagliuca's notable career and positions.
• Acknowledgment of Moshi from Shrug Capital for the introduction.

"This is 20 vc with me, Harry Stebbings, and I'm thrilled to welcome Steve Pagliuca, senior advisor at Bain Capital, the firm he joined in 1982."

Harry Stebbings introduces the episode and guest Steve Pagliuca, highlighting his long-standing role at Bain Capital and his other prominent positions.

• Steve Pagliuca's humble beginnings and arrival at Duke University.
• Influence of family background on attitudes towards success and opportunity.

"Oh, that seems like yesterday is a long time ago. But it was a very sunny day. Day. I'd never been to Duke University and I was amazed when we pulled up."

Steve Pagliuca recounts his arrival at Duke University, symbolizing his humble start and the beginning of his journey towards success.

• The role of Steve's mother in instilling confidence and support.
• The influence of parenting on Steve's own approach to family and career balance.

"But I would say that my mother was very fundamental influence on me, and she believed I could do anything, and that's a great lesson learned."

Steve Pagliuca credits his mother for giving him the confidence to pursue his goals, highlighting the importance of parental support in shaping ambition and self-belief.

• Steve Pagliuca's pivotal summer job at Bain & Company.
• Mentorship and guidance from Harry Strachen and Mike Dimanto.

"Clearly my biggest break was in the summer of 81. I applied for a summer job at Bain and company, the consulting firm at the time."

Steve Pagliuca identifies his summer job at Bain & Company as a transformative experience that set the course for his career.

• The lasting impact of advice from mentors.
• The significance of maintaining respect and appropriate conduct in professional relationships.

"Harris Strachen said to me, and one thing you really have to learn about it is that all the world's a stage."

Steve Pagliuca shares a piece of advice from his mentor, Harris Strachen, about the importance of conduct and the perception of others in professional settings.

• Balancing ego with humility.
• The influence of family background on maintaining humility despite success.

"I have an ego just as any of us. You can't be successful in this business without ego."

Steve Pagliuca acknowledges the necessity of ego for success but also the importance of remaining grounded, attributing his humility to his family's values and background.

• The conservative financial mindset influenced by family history.
• The tension between a safety-first approach and taking risks for passion projects.

"Yes. We're two peas in a pod in that respect. I struggle sometimes to spend money because it's highly agreeing that you really got to feed your family and you got to be secure."

Steve Pagliuca discusses how his family's experiences during the Depression influenced his cautious approach to financial decisions, emphasizing the importance of security.

• The decision-making process behind investing in sports teams.
• Balancing passion and financial prudence.

"That was a labor of love. There was a community asset at the Celtics, and they weren't doing that well."

Steve Pagliuca explains his decision to invest in the Boston Celtics as a passion-driven choice that aligned with his love for sports and community involvement.

• Definition of high performance in both business and sports contexts.
• Characteristics of high-performance teams, such as attention to detail and going above and beyond expectations.

"High performance teams at bay and at the Celtics, the teams we've had, they look at every detail."

Steve Pagliuca describes the attributes of high-performance teams he has worked with, emphasizing their commitment to excellence and thoroughness.

• Perspectives on trust-building in professional interactions.
• The balance between initial trust and trust earned over time.

"I'm a believer"

Unfortunately, the transcript cuts off before Steve Pagliuca finishes his thought on trust in professional relationships, making it impossible to provide a complete note on his perspective.

• Steve Pagliuca emphasizes his belief in trusting people until proven otherwise.
• He notes that most people are trustworthy, indicating a positive view of human nature.
• The conversation shifts to the topic of investment diligence in the context of the recent excess supply of capital.
• Steve reflects on the lack of diligence in recent years, with too much capital flowing into companies with little to show.

"I believe in the full trust model until I'm true of wrong, and most people are very trustworthy."

This quote underlines Steve's default position of trusting individuals in a professional context, which is relevant to the theme of trust as a foundational element in business relationships.

• Steve has witnessed several market crashes and periods of exuberance followed by doom.
• He discusses the recent exuberant period where companies were expected to follow Amazon's model of long-term losses followed by significant profits.
• Steve points out that this model is not sustainable for most companies and that the market is adjusting to a more traditional focus on profitability.
• He mentions the tendency of investors to overinvest in companies with the expectation of future profits, which he believes is often misguided.

"And we certainly had exuberant period here where the model was slipped on its head."

Steve is referring to the recent period of market exuberance where traditional investment models were inverted, with companies being funded despite sustained losses.

• Steve compares the current situation with the 2008 crash, noting that the current issues are less severe because they involve equity rather than leverage.
• He believes that while there will be losses, the lack of leverage means the impact on the broader economy will be less significant.

"Equity dollars are just lost. You're not loaning it to somebody else, you just lose your equity dollars."

The quote explains that the current investment losses are contained within equity and do not have the cascading effects that debt-related losses, like those in 2008, would have.

• Steve recounts his experience with the Garga Group, a successful investment that taught him the value of growth opportunities.
• He discusses the shift in private equity from cost-cutting to identifying and fostering growth opportunities.
• Steve highlights the importance of investing in companies with potential for expansion and innovation.

"It really taught me that there's huge value to investing in companies that have a growth path."

This quote reflects Steve's learning from the Garga Group investment, emphasizing the significance of growth potential in investment decisions.

• Steve shares his biggest investment loss in PQC, which was an idea ahead of its time and failed to execute due to technological limitations.
• He learned the importance of considering the maturity of technology and infrastructure when investing.

"It was an idea ahead of its time."

The quote summarizes Steve's reflection on his investment in PQC, acknowledging that the timing was not right for the business model they were trying to implement.

• Steve discusses the importance of understanding macro trends and their impact on investments.
• He believes that being both a micro and macro economist is beneficial for venture investors.

"I wouldn't call it market timing. I would call it stepping back and saying, what is the macro trend?"

The quote clarifies Steve's approach to investment decisions, which involves considering broader economic trends rather than trying to time the market.

• Steve attributes Bain Capital's success to applying consulting skills to business ownership and maintaining high alignment with investors.
• He also regrets not applying Bain's model globally earlier, acknowledging the benefits of a global network.

"With reflection, I think the first element was the idea of taking the consulting skills developed at Bain company and applying that to actually owning the businesses."

This quote highlights one of the key elements behind Bain Capital's success, which was leveraging consulting expertise in an ownership role.

• Steve identifies maintaining investment discipline and firm culture as challenges in scaling Bain Capital.
• An investment committee reviews every investment to ensure discipline and alignment with the firm's culture.

"It's maintaining the investment discipline and the culture of the firm."

This quote emphasizes the critical importance of preserving core values and disciplined processes as a firm grows in size.

• Steve stresses the importance of an open environment where investment committee members can challenge each other without fear of political repercussions.
• He believes in the effectiveness of the "disagree and commit" philosophy, comparing it to a sports team executing a play.

"The worst thing you can do in investments is politicize it so that you say, I don't want to upset that partner because I want to vote for his investment."

This quote addresses the need for objectivity and openness in investment committee discussions, avoiding political dynamics that could hinder decision-making.

• Strategic planning is fundamental in both sports and business.
• A focus on building championship teams is crucial for engagement in sports, similar to transforming companies in business.
• Community engagement, such as through charitable foundations, creates a virtuous circle of support.
• Enhancing fan experience is akin to customer engagement in business.
• Both require identifying and executing key strategies for long-term improvement.
• Sports teams operate under intense media scrutiny, unlike most businesses.

"There's a lot of similarities. One of the similarities is we went into the Celtics, we had a strategic plan, and it had three components."

This quote emphasizes the importance of strategic planning in both sports team management and business development, outlining the three components used by the Celtics.

• Media scrutiny in sports is constant and can magnify every decision.
• Operating under the spotlight can pressure teams to make short-term decisions.
• Long-term strategy and ignoring media-driven decisions is advised for sports team success.
• Consistency in management and strategy is key, as demonstrated by the Celtics' approach.

"So if you do the slightest thing in a sports team, it gets magnified and criticized and promoted a thousand different ways."

This quote illustrates the intense scrutiny sports teams face from the media and the public, highlighting the challenges of maintaining a strategic focus amidst external pressures.

• Owners should trust their strategies and personnel despite external criticism.
• The example of the Celtics shows the benefits of sticking with a strategic plan and not succumbing to media pressure.
• Resilience in the face of scrutiny can lead to eventual success, as with the Celtics' championship win.

"Three years into our ownerships of 2006 or 2007, one of our star players, Paul Pierce, got hurt... The media, the fans were calling for us to fire Doc Rivers, to fire Danny a as the general manager of the coach."

This quote recounts a specific instance of scrutiny faced by the Celtics and how the owners dealt with it by trusting their personnel and strategy, leading to a championship victory.

• Recognition of growth potential in sports due to globalization and new media.
• Sports teams can now have global fan bases, increasing revenue and media contracts.
• Scarcity of iconic sports assets has driven up their value due to the influx of money.

"It's been probably about the last ten years or they recognized the growth potential. I would call it the globalization of sports."

The quote explains the increased interest and investment in sports teams, driven by the globalization of sports and the ability to reach a global audience.

• Globalization can lead to wealth concentration in top sports teams.
• Competitive balance is essential to maintain the value of all teams.
• Leagues are implementing rules like financial fair play to ensure fairness and competitiveness.

"The real issue is competitive balance. You're going to get that concentration if you have no competitive balance."

This quote addresses the challenge of wealth concentration in sports and the importance of maintaining competitive balance to prevent a few teams from dominating.

• Sports teams' valuations have been increasing, but future growth may face constraints.
• Globalization and fan base expansion continue to drive valuations up.
• The potential for growth exists, but it may not be as exponential as past trends.

"Is there that much capital to buy a team? How many people can buy a team from 30 billion?"

This quote questions the sustainability of the rapid increase in sports teams' valuations and whether there is enough capital to support such high prices in the future.

• Investing in lower-division teams with growth potential is a viable strategy.
• The approach to investment should align with the investor's strategy and capital.
• Not overpaying for assets is a critical investment principle.

"It's definitely a potential strategy. People are doing that and looking at certainly the system in Europe where you can buy a division three or division two team and move it up."

The quote suggests an alternative investment strategy in sports, focusing on acquiring and growing lower-division teams.

• The primary goal of sports club ownership is to win championships.
• Emotional challenges arise when making decisions that affect players personally.
• Balancing the goal of winning with personal relationships with players is difficult.

"The hardest thing is your duty when you own a club is to try to win a championship."

This quote captures the central challenge of sports club ownership, which is the responsibility to make decisions that prioritize winning, even when they are emotionally difficult.

• Player trades can be emotionally challenging due to established relationships.
• Traded players can still have successful careers elsewhere.
• Example given: Al was traded for Kevin Garnett, who is a highly respected NBA player.

"rookie that we drafted, and I love the guy and I still love him today, but he got traded for Kevin Garnett. Kevin Garnett was one of the best players in the history of the NBA."

This quote highlights the difficulty of trading players with whom team members have formed personal bonds, as well as the business aspect of sports where such trades can lead to acquiring valuable players like Kevin Garnett.

• Risk tolerance is influenced by personal diversification and lifestyle burn rate.
• Steve Pagliuca invests in high-risk areas like biotech with the potential for high impact.
• Diversified investment in risky sectors is balanced by a stable financial base.

"I've always believed in being diversified, and so I'm highly diversified and I don't have a large burn rate in my lifestyle."

Steve Pagliuca explains that a diversified investment portfolio and a modest lifestyle give him the flexibility to take on more risk, which is particularly relevant in his investments in biotech and other high-risk industries.

• A great sense of humor is essential.
• Shared values and mutual sacrifice are key components.
• Mutual respect and willingness to support each other's careers and family responsibilities are crucial.

"Probably a great sense of humor, number one. And you have to have shared values."

Steve Pagliuca believes that a great sense of humor and shared values are fundamental to a loving and successful marriage, highlighting the importance of compatibility and the ability to navigate life together.

• Steve Pagliuca enjoys history books, especially about influential historical figures.
• "John Adams" is recommended for its insight into the founding of the United States and the creation of its democratic system.

"One of my favorite ones is John Adams, who was one of the founding fathers of America."

The quote indicates Steve Pagliuca's interest in historical literature, particularly the biography of John Adams, which provides a deeper understanding of American history and its governance.

• Steve Pagliuca is optimistic about the future, expecting improvements in the economy.
• Employment and inflation are key indicators of economic health.
• External factors like the Russia-Ukraine conflict and China's situation can influence the economic outlook.

"I'm an optimist I think we're going to be better."

This quote reflects Steve Pagliuca's optimistic view of the economy for December 2023, suggesting that despite current challenges, there will be positive developments.

• The current generation has a stronger sense of purpose and is driving positive changes.
• Private equity is becoming more diverse due to demands from younger employees.
• Concerns about global issues like warming and income inequality are more pronounced.

"I'm really optimistic about this current generation."

Steve Pagliuca expresses his optimism for the current generation's commitment to purpose, diversity, and global issues, indicating a shift in priorities compared to previous generations.

• The current generation works hard but prioritizes balance and efficiency.
• There is a belief that a balanced approach can lead to better judgment and investment decisions.
• The younger generation's focus on global issues is seen as a positive force for change.

"I think they're just much more judicious about how they use their time."

This quote suggests that while the current generation values hard work, they also seek to use their time more effectively, balancing professional and personal life for overall well-being.

• Passion for the investment field and a desire to perform well for investors are key traits sought in emerging managers.
• The focus should be on building great companies and achieving success for all stakeholders, not just personal gain.

"Steve the first I look for is they have to have a passion for what they're investing into."

Steve Pagliuca emphasizes the importance of passion and commitment to investors' success when evaluating potential managers, indicating a preference for those who prioritize the broader impact of their investments.

• Steve Pagliuca plans to continue his involvement with Bain Capital and sports group.
• He aims to invest in ventures that can have a lasting impact, such as biotech, AI, and space.
• The Ubuntu philosophy of mutual support and community underpins his approach to investing and life.

"I'll always be affiliated in some way with Bain Capital, helping Bain Capital."

This quote conveys Steve Pagliuca's commitment to Bain Capital and his intention to continue supporting and building various ventures, with a focus on creating a positive and lasting impact.

• Steve Pagliuca is recognized for his humility and grace.
• The interview reflects an appreciation for open and honest conversations and the value of personal interactions.

"Steve, before the show, everyone just told me how humble, graceful and elegant you are as person."

This quote captures the host's admiration for Steve Pagliuca's personal qualities, which have been highlighted by others prior to the interview, and expresses gratitude for the opportunity to engage in a meaningful dialogue.