MLSE preaches patience

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Even with an engineering degree from the University of Toronto, a business degree from the London Business School and hours of ball hockey on the streets of Scarborough in eastern Toronto under his belt, Erol Uzumeri felt unprepared when he was offered the opportunity to help run Canada's largest sports and entertainment company in 2008.

So true to the habits that have made him one of Bay Street's most notable young executives, Uzumeri put himself to school in the months leading up to his 2008 appointment to the board of Maple Leaf Sports and Entertainment Ltd., the parent company that owns the Toronto Maple Leafs of the NHL, the Toronto Raptors of the NBA and Major League Soccer franchise Toronto FC.

"I really tried to understand: Why aren't we winning?" he said in his first interview about his role representing the interests of Ontario Teachers' Pension Plan, the $100-billion fund that owns a 66-per-cent stake in MLSE, on the board of the sports and entertainment conglomerate. "The Leafs are kind of sacred in Toronto and to have them not winning is just a disaster."

He visited with owners and executives around the NHL, NBA, NFL and Major League Baseball, seeking out those who had been part of winning franchises and tried to coax from them the ingredients of winning's "secret sauce," as he calls it.

Uzumeri can't claim any particular success under his watch. The Leafs continued a run of five successive seasons out of the playoffs, the Raptors slid consistently backward and TFC floundered as an expansion team while its franchise value increased by nearly tenfold to approximately $100-million.

But if he did learn anything, he said, it's that whatever the recipe for winning might be, it requires a slow cooker to be fully realized.

Sitting in a bare-walled office with a laptop and a desk as its only significant features in an office tower barely a rink's length from the Air Canada Centre, where the Leafs and Raptors play, Uzumeri, 41, is bursting to set the record straight about what ails MLSE.

His message?

That ownership - specifically being majority-owned by a pension plan with a fiduciary duty to look out for the interests of its members first and hard-done-by fans of the Leafs, Raptors and TFC second - is not the problem.

"I can't emphasize it enough," said Uzumeri, who left Teachers and the MLSE board in May to start his own investment company. "There is nothing more the board wants than to win, and from a financial perspective they have all the resources in the world to achieve that. People have a backward view of what's going on."

Part of the problem is that real glimpses into what goes on behind the scenes are hard to come by. Uzumeri described MLSE as the most public private company in the world, but it's still private, and during his three years on the board, he never granted an interview about MLSE because he didn't see the point.

"It's not [a story]to say these guys are trying really hard or have a passion for success," he said. "It's news to say the suits are focused on the bottom line. If you're actually in the boardroom you see how different the focus is."

Now that he's no longer in the boardroom, he feels an obligation to stand up for what have become an easy target - his corporate brethren at Teachers and Larry Tanenbaum, the only individual shareholder in MLSE and the company chairman.

What emerges upon discussion, however, is that MLSE is not the same owner it was five or even three years ago. It has improved.

"I really think the ownership has gotten better," said one source with ties to the MLSE board. "It's like any business, it takes a while to understand it, I think. But if you're smart you learn as you go and you learn from your mistakes and owning a team is no different."

Insiders describe a hands-on, corporate environment after Teachers became majority owner in 2003, pushing out former owner Steve Stavro. Accustomed to reporting to Stavro, former general manager Pat Quinn, for example, kept the inner workings of the hockey operations to himself. Then-newcomers John Ferguson, the Leafs GM, and Rob Babcock, the Raptors GM, both rookies, were expected to behave as executives in a growing, multibillion-dollar company rather than simply run their respective teams.

While money was never an issue, insiders describe a cumbersome corporate protocol after Teachers took over, one monitored by Richard Peddie, MLSE's long-time chief executive officer. It was an environment in which season projections were 50-page PowerPoint presentations and trades of any significance had to be presented to ownership first.

"It was like doing an all-night term paper in college. You had to put together this whole thing with pros and cons, financial projections and e-mail it to all directors and have them read it, then set up a conference call where everyone puts in their two cents," one insider said. "Sometimes you have 30 minutes to do a deal or it's off the table."

Uzumeri swears that kind of micromanaging, to the extent it happened, is a thing of the past.

"One thing I learned [from winning]teams is that for the most part there was one or two people in the organization calling the shots, and it wasn't the owners and that's consistent with what we're doing," he said.

They had seen the benefits provided by putting their basketball operations in the hands of Bryan Colangelo, a two-time NBA executive of the year hired away from the Phoenix Suns with a lucrative four-year, $16-million (U.S.) contract in March of 2006. Insiders suggest that it's that pedigree and a new-found sense of patience internally that will allow Colangelo the opportunity to sign a new contract even as the Raptors have struggled of late.

The hire-the-best mantra led MLSE on its extended courtship of Brian Burke for Leafs GM in the winter and summer of 2008, and a move likely to be imitated on the soccer side after they cleaned house last month.

Competitors have taken notice of the new approach.

"Brian Burke is as good a GM in the league as there is, and [the MLSE board]is now on the same page on their philosophy," said Tim Leiweke, president of Anschutz Entertainment Group, which, like MLSE, own franchises in the NHL, NBA and MLS, among others. "They are not only doing it the right way but with the resources Burke has up there and with that organization, they're scary. They are going to be really good in the next couple of years."

Fans of the Leafs, Raptors and TFC had better hope that the view inside the sports industry - where MLSE is a forward-looking ownership group to be envied and respected - is an accurate one, and that eventually solid ownership, good management and time will deliver winning teams.

The chances are slim that Teachers will step away any time soon from an investment that has increased 15-fold under its watch and generates nearly $500-million in revenue annually - and not because Teachers executives enjoy the perks of ownership too much, as some on Bay Street scoff. Owning three of Toronto's major sports franchises and one of the busiest arenas in North America, among other assets, continues to be good business for a pension fund trying to keep up with the growing retirement needs of an aging teaching population.

A brief inquiry into the possibility of purchasing an English Premier League soccer franchise helped convince Teachers how good it had it. The possibility was nixed when it became clear that the Premiership's lack of a salary-cap structure was a ticket to financial risks Teachers was unwilling to take.

But it drove home the advantage Teachers and MLSE have owning franchises in a large, rich market in leagues where spending on player salaries is capped. While Manchester United of the English Premier League has run up a reported $1.7-billion debt, MLSE is cash rich, owns its building outright and has new revenue sources poised to come on stream - a state-of-the-art sports bar with a Las Vegas-type sheen, a gourmet restaurant, a hotel, and perhaps a wholly owned sports channel.

To Uzumeri, it means Teachers can act responsibly as an owner and focus on generating a handsome return for its members, while also delivering competitive - even championship - teams.

"The way the leagues are structured in North America, you can do both, be fiduciary and a winner," he said.

And are the two goals complementary? Does being owned by a pension plan somehow hobble the product on the ice, floor or field? Or is winning MLSE's final corporate frontier?

"Look, we have decent financial people at MLSE, it's not some dusty company with one guy in the back with a calculator," Uzumeri says. "We know very close what the short-term impact [of a championship] but the value in some ways is priceless. You create a Stanley Cup champion and it's my kids, 20 years from now, who will be the ones buying the season tickets. It creates long-term franchise value.

"Can you imagine Toronto if you had a team contending for the Stanley Cup?"