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

Steve Pagliuca is a Senior Advisor at Bain Capital, the firm he joined in 1982 and as a Managing Director of Bain Capital, he has helped build the firm into one of the world’s leading investment companies with over $160 billion in assets under management. Steve is also a Managing Partner and Co-Owner of the World Championship Boston Celtics Basketball franchise. Steve is also co-owner and co-chairman of the Serie A professional football club, Atalanta Bergamasca Calcio. If that was not enough, Steve currently, serves on the Board of Directors of Burger King, Gartner Group, HCA, Warner Chilcott, and FCI. Huge thanks to Moshe @ Shrug Capital for making the intro. In Today's Episode with Steve Pagliuca We Discuss: 1.) From Duffel Bags at Duke to Buying Sports Teams: How Steve went from having a single duffel bag arriving at Duke University to entering the world of private equity with the founding of Bain's PE funds? Did Steve always know he would be successful? What does Steve think about the importance between luck and timing? How did Steve's mother impact how he approaches parenting and self-belief with his children? 2.) Buying Sports Teams: Not So Different to Companies: When buying and running a sports team, what is the same, and what is different from buying and running a company? What is Steve's biggest advice to new owners of sports teams? What are the single biggest mistakes sports team owners make when they buy a team? What happened with the Chelsea bid? Why did Steve lose? How did debt change the deal? 3.) The Future of Sports Ownership: Why does Steve believe we have seen a massive rise in American and private equity buyers of both global sports teams but also European sports teams? How has "new media" changed the inherent value that can be placed on a team? Why does it change the value? Which forms of "new media" are most important? How much further can the value of these sports teams increase? Does this massive increase in the price and assets of certain clubs not lead to a massive inequality in sports? What can be done to prevent this imbalance? 4.) Steve Pagliuca: The Person and Capital Allocator: What is the single best investment advice Steve has ever received? How does Steve think about his relationship to wealth today? How has it changed over time? What does it take to have an amazing marriage and be at the top of your profession? What were 1-2 elements that made Bain able to scale to the proportions of AUM that they have done? What would he have done differently?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  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. So the only thing worse than losing a deal is doing a bad deal. 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 want to back off.

• 0:18Harry Stebbings?

  This is 20 VC with me, Harry Stebbings. And you can see all 20 VC episodes on YouTube by searching for 20 VC. But to our episode today, and this is one of the most humble guests I've had the chance to have on the show, an OG of the business, and I'm thrilled to welcome Steve Pagliuca, Senior Advisor at Bain Capital, the firm he joined in 1982. And as Managing Director of Bain Capital, he's helped build the firm into one of the world's leading investment companies with over $160 billion in assets under management. Steve's also a co-owner of the Boston Celtics and co-owner of Atlanta in Italy's Serie A football division. If that wasn't enough, Steve Carney serves on the Board of Directors of Burger King, Gartner Group, HCA, Warner Chilcott and FCI. And I want to say a huge thank you to Moshi at Shrug Capital for making the intro today.

• 1:02Harry Stebbings?

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• 1:46Harry Stebbings?

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• 2:10Harry Stebbings?

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• 2:54Harry Stebbings?

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• 3:36Harry Stebbings?

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• 4:03Speaker 02

  You have now arrived at your destination.

• 4:06Harry Stebbings?

  Steve, I am so excited for this. I heard so many great things from Niv and Monsieur Shruggs. So, thank you so much for joining me today.

• 4:13Speaker 00

  It's great to be here, Harriet. It's fantastic. Across the seas.

• 4:16Harry Stebbings?

  Across the pond. Listen, I was listening to your fantastic talk. I think it was a Goldman event, and you were talking about rocking up to Duke for your first day with nothing but a green duffel bag. And so I wanted to start on that. Tell me about that moment and just take me there because I loved that story.

• 4:31Speaker 00

  Oh, that seems like yesterday is a long time ago, but it was a very sunny day. I'd never been to Duke University, and I was amazed when we pulled up. I had offered to loan up a truck, a moving van with furniture. I'd worked here in the summer, and they said they would give me a ride to college. So, we loaned up the truck, a 45-foot truck, all sorts of furniture. And the very last thing was my one duffel bag. That was 100% what I owned at the time. I think I had a lamp in there and three pairs of jeans and the top kit and a green duffel bag. And so, we pulled up to Duke and all these people were pulling up. My family had moved to Tokyo, so I was on my own. And he opened up the back of the truck, and people were staring at us. It was a 45-foot van. And I pulled my duffel bag out, and they looked around, and I said, "I'll get the rest of the stuff later." And I proceeded down to the dorm. So, that was my grand entry into Duke on a moving van.

• 5:13Harry Stebbings?

  Can I ask, when you look back to those days in your early days, did you always believe that you would be a success? Did you know that, you may not know in how, but did you know that you would be a success?

• 5:23Speaker 00

  That's not clear that I'm a success yet. So, I think that's only measured when you're gone, and it's probably measured by the people who you impacted. 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. She gave me a lot of confidence. So, I didn't know I'd be successful, but I thought I had a chance, and they got me a great education. And she was always supportive till the day she died and everything that I was doing, whether it was Bain Capital or charity events or anything like that. It's great to have a mother like that.

• 5:49Harry Stebbings?

  Did she impact how you think about parenting with your children?

• 5:52Speaker 00

  Yeah, absolutely. Both my parents did, and it's a crazy business of investing in since we're an investor. Things don't always go to plan, and you have to be certain places and be all over the place. But I think the major thing I've tried to do is get back on the weekends at least. And I'm most proud of the fact that I think I've been to almost every 99% of my children, four children, basketball games, soccer games, hockey games. School plays. I have a great track record of that and I've actually coached over a hundred teams that they've been on. You really have to make it a priority and be there. I think I could have done better looking back because you get wrapped up in this crazy deal world, but I've tried very hard.

• 6:25Harry Stebbings?

  You said very humbly, you don't know if you're a success yet. My question to you is, we all have big breaks in careers. We hope for them. What would you say was your really big break?

• 6:33Speaker 00

  Clearly, my biggest break was in the summer of eighty one. I applied for a summer job at Bain and Company, the consulting firm at the time. There was no Bain Capital at the time. And I did that because I was actually trying to get a doctorate in economics at Harvard. I was gonna try to be a teacher, but I couldn't afford it. So I needed to get a summer job. I looked at the list and the highest paying job was Bain and Company. I didn't even know what it did. So I did the interviews. They were great people and they hired me for the summer. And that was really transformational for me because the folks at Bain really opened my eyes to business transformation, the latest techniques. Back then, it was very exciting, the experience curve, growth share matrix. And so I really had a fantastic summer. And they convinced me to come back and said they would help fund my doctoral program later. I could work there for three or four years and then go back and get a doctorate, just get the MBA.

• 7:18Speaker 00

  And so I accepted that offer. So that was very transformational to me. I had two fantastic bosses who are still mentoring me today, Harry Strachan and Mike D'Amato. So I feel very blessed. They taught me all the ropes and I still call on them today when there's a really important problem or question, I still call both of them and say, what do you think about this? Because they were incredible mentors.

• 7:34Harry Stebbings?

  If you were to say there's one or two things that stuck with you from that mentorship, is there any that ring true?

• 7:39Speaker 00

  Harry Strachan said to me, and 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. So when people come in and talk to your assistant and they don't talk to them in a great way, people are watching that. So I advise all of my mentees that they have to carry themselves with respect and appropriate ways with people. Because all the world's a stage and that comes from your side of the pond, William Shakespeare.

• 8:04Harry Stebbings?

  As you became more and more successful, how did you not gain an ego? How did you retain humility? I think it's easy to say and difficult to do. How did you do that?

• 8:13Speaker 00

  I have an ego just in any business. You can't be successful in this business without an ego. But I would say that my grandfather was a shoemaker. He made eight dollars a week and came out and worked on our yard. Worked with my father. So I grew up in a kind of an Italian family, immigrant family. I don't think I've ever left that mentality. They had a depression mentality. The reason I was an accountant was because my father and grandfather said, you have to be an accountant when you go to school. And I didn't like accounting because they were the only people employed during the depression. So every year of my life, probably until they died, they thought the depression was coming. They thought the depression was right around the corner, but I would be employed because I was an accountant. So when you come from that background, I think it's hard to think you're better than everybody else. It's a world of opportunity. And Harry told me the same thing. There are so many smart people out there that they're just as smart as we are, but we've just had opportunities and serendipity and luck.

• 8:57Speaker 00

  And I think the Bain culture, the Bain and Company culture, when I came to Bain and Company, we always treated the clients. Bill Bain always said, you need to treat the clients with great respect. From the person who opens the door all the way to the CEO, you've got to be very respectful of the client. I think ethic has stuck and it even translated over to Bain Capital. It's a lower key, people oriented private equity.

• 9:15Harry Stebbings?

  You mentioned that mentality, seeing your grandfather making eight dollars a week and working with your father. And my family lost everything when I was young and it really shaped my mindset on safety and security to the extent that I think it negatively impacted how I ran the media company. Cause I didn't invest in it, took cash off the table because safety for your family is everything. And that was the most important thing, but it was a mistake. Did you have that downside protectionist mindset?

• 9:39Speaker 00

  Yes, we're two peas in a pod in that respect. I struggle sometimes to spend money.

• 9:46Speaker 00

  Because it, yeah, it's highly agreeing that you've really got to feed your family and you've got to be secure. That definitely has impacted my life.

• 9:52Harry Stebbings?

  But then you buy sports teams, Steve. Help me understand that juxtaposition.

• 9:56Speaker 00

  That was a labor of love. There was a community asset, the Celtics, and they weren't doing that well. And with Grossbeck, who was a good friend, called me and said, he had a line into buying the Celtics. Would I like to be his partner? And I've been a lifelong basketball fan and sports fan and all of sports. And so I thought that was a potential dream come true. And I did struggle with the decision. I talked to my wife Judy and said, should we do this? Should we invest in this team? And I decided I was passionate about it. Then it overcame that fear and I invested in the team. The best things I've ever done. It's been a fantastic run. It's been 20 years now.

• 10:26Harry Stebbings?

  You know, I spoke to a mentor the other day and he said, you should, when you have allocation decisions like this, you should spend time with your CFO, with your accounting team, really analyze it. And then you should go home to your wife and whatever she says you should do.

• 10:38Speaker 00

  There you go.

• 10:39Harry Stebbings?

  There you go. I love that. You mentioned the Celtics there. Speaking of going back to what we said, high performance, what does high performance mean to you, both with the business and the sports mindset had on?

• 10:49Speaker 00

  High performance means leaving it all out on the field, as they say, doing the best you possibly can, going the extra mile. The high performance teams at Bain, at the Celtics, the teams we've had, they look at every detail. If you ask them for a two slide presentation, they bring you a five slide presentation. High performance teams go above and beyond.

• 11:05Harry Stebbings?

  So if high performance teams go above and beyond, can I ask you on people, I'm literally using this as a counselling and a landing session, so you should invoice me afterwards. Would you start with full trust? Or do you start with no trust and it's there to be gained?

• 11:19Speaker 00

  I'm a believer in people, so I believe in the full trust model. It's all true, wrong. And most people are very trustworthy.

• 11:24Harry Stebbings?

  But you mentioned the people and you mentioned the diligence there. With the excess supply of capital that we saw in 2022 and 2021 in particular, we saw not that much diligence done, but quite a lot of capital flowing into some companies. Nivamosh is asked, what do you think will happen to these companies that have very little to show, but huge balance sheets and huge valuations?

• 11:45Speaker 00

  I've been doing this for close to four decades now and the crash of 87, the 99 tech crash, the internet, back in those days, the financial crisis. And it just seems like the world goes through periods of exuberance and then periods of doom. And we certainly had an exuberant period here where the model was slipped on its head. And in fact, it worked. It worked in several cases. A company like Amazon lost money for years and years until it made a lot of money. But then in capitalism, sometimes there's that over exuberance and irrational, you have to say, okay, every company can do that. And we basically have come out from a phase of that happening for probably the last 10 or so years. And it reminded me back in 99 with the internet, people would come in with a term sheet and say, you have a day to decide, here's our terms and we're going to the other people, so you have 24 hours to decide.

• 12:30Speaker 00

  And many venture firms backed companies like that somewhere. Successful. Most were, and there were a few winners. So we're really coming out of a period now where, over a long period of time, because of low interest rates, because of the success of some of the unicorns, Amazon, and all that, there was an investment mentality that said, we can lose lots of money forever and there'll be a pot of gold in the other rainbow. Unfortunately, that is for a very few specific circumstances. There are not that many unicorns that will be created. And so now you're seeing a lot of companies that have to go back to basics and figure out how to deliver profits or have a plan that will deliver profits. There's just been a lot of overinvestment in that philosophy saying, a hoard of cash and buying market share could get you a great business at the end. And that is just not true for 90% of them.

• 13:10Harry Stebbings?

  My question to you is, how does this compare? Is this as bad as the media seem? I think we have a tendency to dramatize, especially if we haven't seen it before. How does this compare?

• 13:18Speaker 00

  The positive side of this is all equity dollars mainly invested. Where you go to a real problem, the crash of 2008 was based on just too much leverage everywhere. When the leverage gets pulled out, you have a crisis. Equity dollars are just lost. You're not loaning it to somebody else. You just lose your equity dollar. So there'll be a carnage of some firms that overinvested in this overexuberance. But that will not move the needle like the crash did in 2008 because that was driven by debt, which has a multiplier effect.

• 13:45Harry Stebbings?

  I'm intrigued from your perspective. I think you learn a lot investing wise from your biggest wins and also your biggest misses. When you think about your biggest win, what is it? How did that change your investing mindset?

• 13:55Speaker 00

  Depends on how you measure a biggest win. But one investment that I'm very fond of and I'm still involved with today, it was actually this, I think, the second or third investment I did in my career in 1991 is called The Gargert Group. And you may know, it's an information services company that provides data about technology, which technology you should buy and how they work. And back in 1991, that was a 50, 60 million dollar sales company. It was owned by an advertising agency in the UK, Sachi and Sachi, a non-core business, and it was losing money. And they had their own issues, so they had to sell it. And we actually came in and Information Partners Bank bought the company with the management team. Today, that company is basically gone from a 70, I think we bought it for 70 million, is worth over 20 billion today.

• 14:35Speaker 00

  And I'm still on the board. So it's been an incredible run. And because technology has grown, the need for technology, information has grown. It basically built that. Business from 70 million in sales to multiple billions now and over 20 billion market cap. It really taught me that there's huge value to investing in companies that have a growth path. And our thesis in investing into Gartner was that technology was going to get more and more complicated. That people would need more information. We thought it could expand globally. We thought it should have thousands of Salesforce people instead of the 25 that they had. And so that thesis panned out. And there's a misnomer about private equity because I think way back when it first started in the 70s, it wasn't called private equity. It was called leveraged buyouts. A lot of those deals were taking companies that had generous pension programs

• 15:19Speaker 00

  and were way too fat companies that had jets and cost reducing. There was a mental model that that's what private equity was. Actually, it's really hard to do that because companies are well-run today and have been well-run since the 80s. Really, where you do well in private equities, you identify growth opportunities. So Bain Capital has been highly focused for the last 30 years on can we build and grow companies? And can the company be different 10 years from now than it is today? Can it develop new products? Can it go to Europe? Can it go to China? Can you expand it? And the next investor, the public or whoever buys the company, they're looking for growth. So you can't just come in and cut costs out and cut benefits and then actually make money on the investment because people don't want something that is declining in sales. The lesson I learned from Gartner very early on is if you can find a growth opportunity

• 16:03Speaker 00

  that's very valuable and look for growth companies. So I focused on technology and medical, both of which has been growth areas for the last 40 years.

• 16:10Harry Stebbings?

  On the flip side, we all have made mistakes in investing. I certainly have done. Tell me, what's been your single biggest investment loss? And how did that change your mindset? Because I feel that really changed mine.

• 16:21Speaker 00

  I invested in a company back around the period, a little after Gartner called PQC, which was Physicians Quality Care. And we had done a study and found there was a market developing where physicians would band together and you could deliver a better service, a better quality to patients. If you centralized the equipment and the X-ray equipment you needed, if you centralized purchasing, the physicians would do better, the patients would do better, and you could schedule that with software used. So the economy of scale of putting physicians together was, I thought, a great idea. We thought a great idea. We did a white paper on it. And we found a group in Baltimore to invest behind, but it turned Back in the day, whatever that was, 1992 or 93, they really couldn't work together. They couldn't centralize things. The software wasn't there to make it. And so it was basically venture investment going bad.

• 17:04Speaker 00

  So what I learned from that is it was a great idea, but it was ahead of its time. And it was really hard to execute that idea. In fact, 20, 30 years later, now there are large doctor, good collaborators, all the things that were in that paper are true. It just took another 20 years for the technology and the infrastructure to be there for it to happen. So it was an idea ahead of its time.

• 17:21Harry Stebbings?

  Do you really think about market timing now and making investments?

• 17:24Speaker 00

  I wouldn't call it market timing. I would call it stepping back and saying, what is the macro trend? What's the macro trend? Bain Capital, we've always been micro economists. And I think we've learned in the last 20 years, we've been much more looking at, okay, that's what we can do for a micro basis, but what's going to be the macro effect of it?

• 17:40Harry Stebbings?

  I totally agree. And I almost think actually some of the best venture investors are both macro and micro economists at the same time. When you think about one or two of the elements that made Bain so successful over such a long period of time, what do you think are the one or two elements that made Bain so successful with reflection?

• 17:55Speaker 00

  I think the first element was the idea of taking the consulting skills developed at Bain and Company and applying that to actually owning the businesses. Bain and Company had been a very successful consulting firm, growing great businesses and great clients globally. And the idea that Bill Bain had was if we could own those companies, we could do that even faster, better. It helped them with these analytic resources. We're a huge tool to these companies. It turns out that that philosophy worked really well. In fact, most of the industry is adopting that now. They hire Bain and Company and McKinsey to do what we do internally at Bain Capital. The second critical piece was alignment with investors. So when Bain Capital was formed, a lot of the investment came in from the Bain partners, the people themselves. We've really helped firm to that today where, let's say, our last $12 billion fund, over a billion of capital, has come from all the people at the company.

• 18:40Speaker 00

  That is 100 times more in terms of percentage than most investor firms out there. So high alignment with our investors was a second aspect of it.

• 18:48Harry Stebbings?

  If you had a magic wand and you could change a couple of elements that you did, strategic decisions, what would you change that you think negatively impacted the core social structure of Bain?

• 18:57Speaker 00

  What I think we maybe could have done is applied the model earlier globally. We recognized the value of a global network. Bank Capital started in eighty four and we really didn't take the model globally until two thousand or so where we opened up in London. So we formed an office in London and we thought the model of improving companies and building companies would apply to other geographic areas and it turns out it did. I think we could have done it earlier.

• 19:20Harry Stebbings?

  You mentioned that global network. I heard you say on the GS talk about going from a local business to a mid-market buyout and going global. When we look at the scaling to, I think it's a hundred and sixty billion AUM, you'll probably correct me, but round about a hundred and sixty billion AUM. What are the one or two biggest challenges that one faces in scaling a firm to that proportion?

• 19:39Speaker 00

  It's maintaining the investment discipline and the culture of the firm. And the way we've done that is we have a investment committee that basically looks at every investment. It's the kind of the top partners, the company look at every investment, whether it's investment in a company in Rhode Island or a company in Malaysia. So we're trying to maintain that that discipline and the culture of really trying to do good investments and build companies that have a high performance culture. You don't want to view yourself as an asset gatherer. If you measure yourself by the amount of money you put out the door, we believe it causes real trouble. You want to measure yourself by the performance and the value that you create investing that money.

• 20:12Harry Stebbings?

  With the concentrated power of those ICs, does it not mean that they've become a bottleneck? When you think about the speed of decisions that need to be made, especially in markets today, you'd be meeting every day for your IC, given the size of these vehicles. How do you not be a bottleneck but have that decision-making structure?

• 20:27Speaker 00

  That's a great question. Unfortunately, that involves a lot of late night work and a lot of work at Bank Capital has a huge work ethic. And I would honestly say that we've never lost a deal because of an IC bottleneck. And if we need to have an IC at two in the morning on Monday morning or Sunday night, that's what we do.

• 20:42Harry Stebbings?

  Steve, what makes an effective IC and how do you ensure that it feels safe for newer slash younger partners to really share how they feel, to challenge, to champion, to be themselves?

• 20:55Speaker 00

  That's a really great question. 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. So we hammer that in the culture. And I know one investment that I brought to committee that I thought we were going to do, I won't mention the name of it, but one of the principal analysts in the room raised a question. About how we were looking at the valuation and that if you looked at on a cash EPS basis versus the EBS basis, it would be shaky. And he was compelling enough that we basically shut the whole investment down. And I thought when I walked into that thing, there was about a 90% chance we were going to do it. And we didn't do it. And that upset a few people on the team. I was on that team. It upset me. But actually, it turned out to be a very good decision. And we use that as an example to say, you know, the speaking up and saying the right thing. That's

• 21:39Speaker 00

  what we want you to do. We want decision. You also don't have to have 100% of the people for the investment because you don't want to have a situation where one view dicks stays. But we want those one views because they actually help us also in designing the plan for how you're going to build the company going forward. So people that can poke the holes in it. If we're going to still do the investment, it's good to identify those holes and then fix them as soon as you can.

• 21:58Harry Stebbings?

  Can I ask, do you think disagree and commit works? People often say it, but I find when someone disagrees, they quietly discommit, where they might do it, but they'll do it the day after because they never really agreed that it was a good investment. So do you agree disagree and commit works?

• 22:14Speaker 00

  It's worked for us. I think it's like a basketball team. You make a decision, you call a play, and sometimes it works and sometimes it doesn't. But you have to go out there and execute the play.

• 22:21Harry Stebbings?

  I love the sports analogy. It takes me brilliantly to blunder this very important part of sport in your life. When we think about owning sports teams and then obviously business building, as we've discussed with Bain, how does it compare when you think about building a sports team and a franchise and compare that to building a business? What's the same? What's different?

• 22:39Speaker 00

  There's a lot of similarities. One of the similarities is we went into the Celtics. We had a strategic plan. It had three components. The first component was fundamental to build a championship team because Boston wants championships and that's how you drive engagement. The second to be the best community asset that it could be. So we formed the Boston Celtic Sharemark Foundation and used the power of sports to actually give millions of dollars to charities and kids things. And that created a virtuous circle because our fans love the fact that we're supporting kids that need support. And the players go out and go to the hospitals and go to the educational institutions and put in technology centers. So they get highly involved. And then the third part of the plan was to make it a better fan experience. So when we purchased the club, they really didn't have even emails, the fan engagement. There was no internet.

• 23:23Speaker 00

  Speak of at that point, but they weren't engaged with the fans. So we wanted to make it a much better fan experience. And we brought in music. We brought in dancing teams, all those kinds of things to make it a better experience for the fans. But that's very similar to the investment process where you say there's two or three things you need to do to transform a company to make it a better company five years or 10 years from now than it is today. The huge difference is that when we're working at Gartner Group or one of the great companies to make them great, we are not under media and radio and television and now Twitter and Instagram scrutiny every five seconds for everything that you do. So if you do the slightest thing in a sports team, it gets magnified and criticized and promoted a thousand different ways. So you're really operating under the spotlight.

• 24:05Speaker 00

  And I would say if I advise other sports owners, when new owners come in, I say the worst thing you can do is run your team based on the media or based on what the media is saying that you should do. And unfortunately, a lot of times people come in and say, okay, we've got to win. We want action. So they'll pay $20 million for a player who's 35 years old that might have the six months left of decent play. And they win a few more games, but then the next year, everything goes down and they're losing even more money because you paid that player. So what we try to do with the Celtics is we take the same approach as Ben Calvert-Grossbeck, who was a great CEO, partner and owner who runs the club. Basically, we've only had, I think, three coaches in 20 years and we've had the same general manager for 19 years. He retired.

• 24:47Speaker 00

  And we replaced him with a coach who was Brad Stevens. So we have continuity. So we've had the most continuity of any sports franchise and we've had the same CFO and head of marketing the whole 20 years. So that consistency of really having a strategy and backing the players works. If you start deviating because you were driving down the highway and they said Celtics made a terrible decision. They got this guy or they shouldn't get that guy. And you start to listen to this one, you're going to have a problem. So the media scrutiny is a big thing in sports.

• 25:12Harry Stebbings?

  Can I be very blunt here, which is I'm sitting in the UK. I'm a big Chelsea fan and Todd is getting a lot of scrutiny right now. My question to you is, have you had the similar scrutiny at any point in your ownership of Atlanta, of the Celtics? And how did you deal with it? And how would you advise other sports owners when they are getting?

• 25:30Speaker 00

  That's a great question here. Absolutely, we've had that. I have a very vivid memory of that. Three years into our ownerships of 2006 or 2007, one of our star players, Paul Pierce, got hurt and he was 30% of the offense. And so, we ended up losing over 50 games that year. So, we won 30 games out of 82. The media, the fans were calling for us to fire Doc Rivers, to fire Danny A, the general manager, or the coach. And we had a meeting and we looked at the metrics and how the coaches were coaching and how Danny was doing his job. And we said, "These guys are A-plus players." And so, they said, "There's no way we're gonna fire them." Then you look up, a year and a half later, we win the championship. Had we fired those guys, we'd be nowhere. And those guys went on to be in the conference finals. They're two of the best people in the business. So, I always remember that when there's a big headline, "These guys are idiots, fire the

• 26:15Speaker 00

  coach." And I said to the media, "If we keep losing like this, we should fire the owners, not the coach, and not the general manager, because they're doing an absolutely fantastic job."

• 26:22Harry Stebbings?

  Speaking of the owners here, we've seen over the last few years, this incredible rise of, by the US P firms and just US owners, into European sports organizations and franchises. Why is so much money pouring in from the US, both P firms and individuals, over the last few years?

• 26:38Speaker 00

  I think they've recognized, and it's been probably over the last 10 years, they've recognized the growth potential. I would call it the globalization of sports. So, the new media, Instagram, Twitter, the ability to stream on demand, it's changed the whole landscape so that a fan can be a global fan. You're used to measure fan counts in the hundreds of thousands or millions, and now they can be measured in hundreds of millions. And Chelsea has 400 million, Manchester United, 400 million fans out there. And you're especially seeing that in the global sports, like basketball and you would call it football slash soccer. And that dynamic has led to more revenues, giant increases in media contracts, and more value. And those investment firms have invested behind that successfully. Secondly, there's been a dynamic with so much money coming into the system, all what

• 27:23Speaker 00

  I'll call artwork-type assets, scarce assets. Many scarce assets are really going up in value because there's a lot of money out there chasing those scarce assets. So, a component of the value of sports teams have been the great performance, the technology that's allowed it to have a bigger fan base, more monetization, higher revenues, and that ongoing. Money coming into the system that's caused scarce assets to go up in value has been a very attractive way to business sports.

• 27:46Harry Stebbings?

  I am fascinated. You said about the globalization of fans there and totally with you where like normally it would just be local fans who supported and now you have Taiwanese fans who support Chelsea. My question to you is, does this not create kind of the concentration of wealth? And what I mean by that is it's like any business, especially a creator economy of which I'm in, but like the top 1% earn 99% of the money. Do we not see that in sports though, which is the globalization is concentrated fan bases where Lewis Hamilton F1, Chelsea, Real Madrid, Barcelona? And the wealth really concentrates like never before. Do you think it's like that or is it a more even distribution?

• 28:20Speaker 00

  I think it's an issue and what the organizations, the leagues have to do and they are doing this, come in with a set of rules to have competitive balance. So the real issue is competitive balance. You're going to get that concentration if you have no competitive balance and eventually that I think diminishes the value of all the teams. Because no one wants to see one team win everything every year. You've got to have some competitive balance. And so they're putting in financial fair play rules in football. That's going in the right direction. The NBA has a fantastic partnership with the players where the players are guaranteed half the revenues and the owners get half the revenues. That's been a very successful deal because every time we increase revenues, the players benefit by that.

• 28:57Speaker 00

  So we've had very little strikes and we've had pretty good competitive balance, but that's the key for these leagues for the long-term value is to come up with systems that are fair to players and fair to fans, but allow every team to compete.

• 29:08Harry Stebbings?

  You mentioned the appreciation and value of some of these kind of rare assets. We're seeing some of these franchises and clubs at 2 billion to 6 billion. Where does this go from here, Steve, do you think? Is there still room for it to run further? Will this be 25 billion, 50 billion dollar clubs? How should we forecast this out?

• 29:23Speaker 00

  It's been really high up and to the right for now. So the question is, can you go up 10 times from a 3 billion valuation to 30? It may be possible, but I think they'll still have a good run, but you run into this multiplier effect with that much money. Is there that much capital to buy a team? How many people can buy a team for 30 billion? It's the same thing with artwork. Scarcity is only driven by the amount of money that can come in to buy the asset. So is it inconceivable? No. Will it keep going up? I think it'll keep going up because there's fundamental global. And more monetization and more fan base being created as long as the leagues can keep that competitive balance and keep the product exciting. And so that's going to be the dynamic tension.

• 29:59Harry Stebbings?

  I feel this a bit like growth investing now, which is yeah, the Harreni is a little bit capped. You might get your three to five X if you do it well, but like the upside is capped. So is the option not go earlier? Do a Ryan Reynolds to take Wrexham at whatever five million dollars. And actually, if he turns it into a billion dollar club, which he could do with his distribution channels. That's a 995 million dollar net gain. It's pretty good. Is it not just go earlier?

• 30:22Speaker 00

  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. There's a lot of value there.

• 30:30Harry Stebbings?

  I totally get you. Can I ask you on Chelsea? I am a Chelsea fan. I know you were part of the bidding process. What happened, Steve?

• 30:38Speaker 00

  I'm a Chelsea fan is why I became a Chelsea fan because I spent so much time with the people there and I loved meeting people representing the women's team and the pitch association. It was a fantastic process and met great people in that process. So I'll be a Chelsea fan as well. Chelsea was an iconic asset and what we do with the packs group is my sports organization is we want to buy iconic assets that have really like the Celtics that have a strong fan base that have potential to grow. And we view ourselves as stewards of these assets. You're really a steward. It's not buying a company where you're trying to make more widgets. It's a company that is so ingrained in the community. So we really take a stewardship approach to this and we believe good things will happen. So I really love Chelsea for that aspect. I had had an apartment in London, as I said, in the early days of Bain.

• 31:19Speaker 00

  So I was very excited about it and we thought we had a great chance to win because the original RFP came out to say that they're only going to have a few groups and they want a great steward. And they don't want any debt on the business, zero debt. But that's a high hurdle because you're talking about purchase prices of two to three billion pounds with no debt. And we had a group that came up with that money and what was a very rich price. And unfortunately, at the last minute, they went away from that model and they allowed debt to debt go in the business. And they asked for a much higher price than what we were talking about. So we had to drop out. And our issue was we wanted to wait. We and could be a very good investment, but the way we do business is we want to prepare for the worst and hope for the best. And we thought there'd be a big investment into the stadium. There need to be a big investment into improvement of the facilities.

• 32:01Speaker 00

  We wanted to invest in players and we just determined that at the price that it was at, it was going to be hard to make the kinds of investments that we wanted to do. That was our strategy and the folks that bought it, their strategy could work. It may be a different strategy, but it didn't work in the context of what we were trying to accomplish.

• 32:15Harry Stebbings?

  Do you regret not paying up?

• 32:17Speaker 00

  No, because a piece of investment advice that was given to me by someone very early in my career was the only thing worse than losing a deal is doing a bad deal. 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. And I don't regret that. Although it could be a very good investment. It's an iconic franchise and everyone has a different view of price or where their limit is and where their capital is. And we just felt for our strategy, it didn't work.

• 32:40Harry Stebbings?

  What's the hardest thing about owning a club? What is like the single biggest challenge? The politics, you name it, the media scrutiny, what's the hardest?

• 32:48Speaker 00

  The hardest thing is your duty when you own a club is to try to win a championship. I'm a huge fan as well as an owner. I love all the players at Atalanta. I love all the players in Celtics and I get to know these players personally and we help each other with various things. And then the general manager comes in and says, look, we can't win the championship unless we have a new center or we need a striker. And then they have to trade other players or sell other players. And that's very emotional because these are people, these are people you've been friends with and it's hard. Now, the good news is both Atalanta and the Celtics is we take a lot of care in trying to take players in. We tell them, look, our duty is to win here and all the players are great. So for example, we traded Al Jefferson. He was a rookie that we drafted and I love the guy and I still love him today, but he got traded for Kevin Garnett. Kevin Garnett

• 33:31Speaker 00

  was one of the best players in the history of the NBA. So we said, Al, we have an opportunity. They want young players. Kevin Garnett wants to come here. So it's an honor for you to be traded for one of the best players ever in the NBA. And Al went on to have a great career at many offices himself. But the hardest part is having those relationships and then seeing them go to another team.

• 33:47Harry Stebbings?

  Risk mindset is a tough one that we touched on earlier. How do you analyze your mindset to risk? Having been through all you have done with Bain, with only sports teams, how do you analyze your risk mindset today and how has it changed over time?

• 33:58Speaker 00

  It's changed a bit over time. 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. So I have tolerance for more risk because I can feed my family. But where do you spend that risk? I'm looking at things like biotech at this phase of my career. That's highly risky, but that can do great things for mankind. So our family office has done about over 50 biotech investments. And the game there is you have to do a diversified portfolio. Hopefully two or three of them will hit. So that's very gratifying to see that you can actually. Invest and have a good return on your money and then save lives. So risk you our investments towards these riskier areas that can actually be very exciting. Same thing in technology, artificial intelligence, the space world. There's a whole area out there that I'm investing in now that I probably wouldn't have invested into unless I had a diversified base.

• 34:43Harry Stebbings?

  Steve, final one before a quick fire. You have a very loving and successful relationship and marriage. I've learned so much from you this interview. I'm hoping you teach me here. What are the secrets to a loving and successful marriage?

• 34:55Speaker 00

  Probably a great sense of humor, number one, and you have to have shared values. And like any partnership, you have to be willing to sacrifice for each other. My wife has been amazing in terms of she was a fund manager at Fidelity and Harvard MBA. Has taken a large responsibility for managing four kids and as well as do all the business things in biotech. I think the key is mutual respect and shared values and follow us, Phil, is a great sense of humor.

• 35:16Harry Stebbings?

  Great sense of humor, absolutely crucial. But we're going to do a quick fire round, Steve. So I say a short statement, you give me your immediate thoughts. Does that sound okay?

• 35:23Speaker 00

  Great.

• 35:24Harry Stebbings?

  So what's the most recommended book? What should I read? What do you love?

• 35:28Speaker 00

  You might not love these books, but I love, my mother was a history teacher, so I love history books. One of my favorite ones is John Adams, who was one of the founding fathers of America. He's the unsung hero of America because he's the guy behind the scenes, a crusty old New England guy that designed the kind of the state and democratic system and the constitution. He was the brains behind all that. He'd studied all the government civilization things from Greek and Locke and all the philosophies. And he came up with this checks and balances thing that worked so well for America for so many years. It's amazing to learn of the electoral firepower that he had and how he really was fundamental to putting this whole country together.

• 36:01Harry Stebbings?

  December 2023, will we be better or worse macro wise than we are today?

• 36:07Speaker 00

  I'm an optimist, so I think we're going to be better. I could be wrong, but I think we're going to be better. We'll get through, we've had the tech bubble set in and people are going back to basics. Employment in the U.S. is at a good pace right now. Inflation is down. The big wild card is going to be the Russia-Ukraine situation. Does that spin out of the polarization that's happening in clean nations? We're hearing better news out of China. Hopefully we'll be in a better place. So I'd say we're going to be markedly better, not out of the woods, but markedly better.

• 36:30Harry Stebbings?

  You mentioned you're an optimist. What are you most optimistic and hopeful for today?

• 36:35Speaker 00

  I'm really optimistic about. This current generation, the folks that we interview and hire into Bain Capital, they really have more of a sense of purpose that we have. Maybe because we came out of this depression mentality that all we had to do is feed the family. And so they are driving things that we wanted to do for a long period of time. They're actually demanding and driving that. The industry of private equity is trying to become more diverse. We're actually becoming more diverse now because the people you hire are demanding it. We're a better organization for that. So we're only in the early innings of that. But we've been trying to do that for years, but we're actually starting to accomplish the early stages of that. We need to invest even more. That's going to be successful because of the belief of the people. They're also concerned about the planet, global warming. They are much more concerned about the quality of life. People sometimes say that's a bad thing, but I think that's a good thing. And the firms are responding to that.

• 37:20Speaker 00

  And I find it very energizing and very optimistic, even though there's daunting challenges like global warming, income equality, facing that. But this generation has really put that on the forefront much more than we had done. Because I think our mindset was I've got to make sure that my family is secure. They have a broader horizon, older vision than we do. So I'm very uplifted by that.

• 37:38Harry Stebbings?

  Can we be honest? I think they're the most entitled generation. They want the salaries, they want the holidays, they want all the benefits. But actually, they want the super nine to five work-life balance and finding oneself in Bali. Steve, the reason I've been successful and you far more is because I worked seven days a week for years. I'm young, but I look old. It's just about grinding. And I don't find this generation grinds like I think it is needed. Am I being unfair? Am I too old?

• 38:04Speaker 00

  I think we may have gotten the grinding too far. The people we hire at Bain Capital, they work extremely hard. I think they're just much more judicious about how they use their time. And some of the grinding is not necessary. Like some of the grinding of getting the extra spreadsheet that only relates to 0.2% of the business. Some of that stuff is not. So I think these people work as hard as ever, but they've made it priority to be more balanced. And I think that balance will be a good thing for making judgment and investment decisions and having a great life. So I'm very optimistic about this. And I see it at our company and the whole industry. Hopefully, it's going to result because we won't have a planet here unless we start focusing on people working together to solve global warming, to solve income equality. We're going to have a lot of stripes. My optimism is that this generation is where we picked up on. And they criticize the generation of the sixties as well, the one that came before me.

• 38:50Speaker 00

  But they made a lot of positive change on civil rights as well. But this generation, I think, is really committed to that.

• 38:54Harry Stebbings?

  Yeah, I totally agree with you. So I feel terrible now for my critique. Tell me, what do you believe that most around you disbelieve?

• 39:00Speaker 00

  The Celtics will win the NBA championship.

• 39:02Harry Stebbings?

  What do you know now that you wish you'd known when you started investing?

• 39:05Speaker 00

  I learned over time in investing that the people dimension is just as important, maybe more important than the analysis dimension. We grew up on the analysis heavy culture of Bain and Company. And we brought that over to Bain Capital. But I think we've realized over time, it's the combination of those two and the balance of those two that breaks success.

• 39:21Harry Stebbings?

  It was Shraddh Nevin-Moody that introduced us. What do you look for in emerging managers, Steve?

• 39:26Speaker 00

  First I look for is they have to have a passion for what they're investing into. And their passion has to extend to say they want to do a great job for investors. So when someone comes in with a pitch and says, I want to do this and I want to get a 20% carry. And that's the ones I shy away from, the ones that say, I want to build the best set of biotech companies. And I want our investors to be with me in that and co-invest with me. If our investors do well, I want to do well. But those are the folks that I like.

• 39:50Harry Stebbings?

  Tell me, next five years, what are the plans? We do this show in 2028. How old Steve Pagliu should be then?

• 39:56Speaker 00

  Hopefully alive.

• 40:01Harry Stebbings?

  You look in fine shape, my friend. For five year plan, what would you like?

• 40:04Speaker 00

  I'll always be affiliated in some way with Bain Capital, helping Bain Capital. I'm going to continue to build the sports group, which I love. And then continue to invest in these areas like biotech and artificial intelligence and space on a venture basis, where we can create great companies, but also be the lasting impact. I don't think there's ever a real point where I'm going to, I wish I was better at golf, but I'm not going to become a golf pro anytime soon. So I really am curious about all these areas and love working with the people and developing the next generation. There's a concept that Doc Rivers pioneered that the Celtics called, I don't know if you've heard of it, it's called a buntu. And we won the championship with the buntu culture in 2008. Buntu is an African word that means that you are only here because other people have helped you get there.

• 40:48Speaker 00

  And so you need to help other people to get there. So we are all part of a system and we only succeed or fail based on how others help us. I think our investing, we can have a win-win. Our investing can actually help a lot of people. It can be fun to matter to those people and leave something of lasting impact. And that's what we want to do with Bank Capital. That's what I'd like to do with my family office going forward. Hopefully I'll still be alive those five years to get that done and keep moving on.

• 41:10Harry Stebbings?

  Steve, before the show, everyone just told me how humble, graceful and elegant you are as a person. I love doing this. It's shows like this which make me so grateful to do what I do. So thank you so much for joining me. Thank you so much for being so open and honest and I've really loved this.

• 41:24Speaker 00

  I appreciate it and great to see you. You're certainly enthusiastic about this area. So I'm in your top 2,700 now or which interview is this?

• 41:31Harry Stebbings?

  Yeah, 2,697.

• 41:33Speaker 00

  Okay, I'm only three short of the 2,700 mark.

• 41:39Harry Stebbings?

  I mean, what an incredible, humble, awesome dude. Steve, thank you so much for being such a great guest on the show. If you'd like to see more from us, of course you can on 20vc.com. But before we leave you today, the single most important element of any team is their ability to work together in the best and most efficient way. And Coda is the doc where teams can work on entire projects from start to finish with everything they need all in one place. Think about the way your team works today. If all the work is spread across different documents, spreadsheets and a stack of workflow tools like they are in all of my teams, it's tougher to focus on getting things done, let alone getting them done together. And that's why I realized that I had to have Coda and why you need Coda.

• 42:19Harry Stebbings?

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• 43:02Harry Stebbings?

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• 43:40Harry Stebbings?

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• 44:21Harry Stebbings?

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