Net Gains

| FROM THE PRINT EDITION |
 
 

In a professional sports world where attendance has declined across the board and player lockouts have become dinner-table discussion topics, the Seattle Storm has experienced an increase in attendance and season-ticketholder retention. According to the organization, gross revenues have risen 76 percent in three years. Corporate sponsorship of the team has similarly increased, and the organization touts strong community partnerships. But the real thrill and challenge in the niche-market Women’s National Basketball Association—since its teams already play the best women’s basketball in the country—is to make the league a viable, respected, enduring business.

The women-owned Storm franchise is pulling its share of the load. And, says co-owner Dawn Trudeau of the organization’s business model, “It’s working.”

Having recently completed its 15th season, the WNBA, for better or worse, is stepping from the shadow of its fostering organization, the NBA. Even with big brother’s backing, the story of the league has been one of indigence and impermanence. Six WNBA teams have folded and three others have relocated as the league expanded from eight teams to 16 and then contracted to the current 12. Franchises shift regularly, often resulting in diluted talent and weak footholds in the cities where the teams play. Only three franchises—the New York Liberty, Los Angeles Sparks and Phoenix Mercury—remain in their original cities from the eight-team league that began play in 1997.

According to Jim Copacino, the Seattle-based ad wizard whose firm Copacino + Fujikado is behind much of the Seattle Mariners’ popular television advertising, the biggest challenge to the Storm’s future is the financial stability of the WNBA as a whole. “If every team were in Seattle’s position,” Copacino says, “I think you’d have a healthy and viable league. But we know that isn’t the case.” The WNBA’s new president, Laurel Richie, is optimistic, however. “When we have teams that are strong and steady and stable and growing,” she says, “then, by definition, so goes the league.”

The Storm’s business leadership understands and embraces this mandate. “Our goal is to play our part, however small or big that may be, in securing the financial viability of the WNBA,” says Storm president and CEO Karen Bryant, who was named Executive of the Year by the Seattle Sports Commission at the group’s annual Sports Star of the Year event last January. “And we think the most compelling way for us to do that is to build the model and make it happen.”

From the beginning, Force 10 Hoops, which bought the Storm from Clay Bennett in 2008 for $10 million, has strived to operate in the black. While it also measures success through ticket sales, sponsorships and fan engagement, its ultimate goal has always been profitability. “In order for our team to survive long term,” says co-owner Ginny Gilder, “it needs to be an operable, viable business.”

Still, while the Storm is seeing increases in almost all of its major metrics, Bryant says the team is two to three years away from profitability. This, she adds, puts the company slightly “ahead of schedule” for operating in the black by 2014, which the ownership group had been told was a reasonable expectation when it bought the team from Bennett.

One way Bryant and Force 10 hope to grow revenue is by generating income in the off-season. Because the WNBA season runs from June through September (and into October if the team is in the playoffs), the Storm’s revenue flow fluctuates greatly. Bryant, confident in the Storm’s popularity on and off the court, is trying to figure out ways to market the team year round.

The recent history of that team is familiar to many Seattleites and fans of Washington basketball. In 2008, as the Seattle SuperSonics picked up and moved to Oklahoma under new owner Bennett, four women calling themselves Force 10 Hoops stepped in to assume ownership of the local WNBA franchise—and keep it in Seattle. Dawn Trudeau, Lisa Brummel, Ginny Gilder and Anne Levinson—Levinson is no longer with Force 10—bought what was then an 8-year-old team.

When Force 10 acquired the Storm, it avoided the bare-bones, cost-cutting model typical of many WNBA franchises. It also made Bryant the CEO. Bryant had been with the Storm since its inception in 1999 in advance of the 2000 season, first as vice president of business operations and then as chief operating officer. Before joining the Storm, she had been assistant general manager of the Seattle Reign in the now-defunct women’s American Basketball League.

From the beginning, Bryant and the owners agreed that hiring talented staff was the key to success. “You have to execute,” notes Trudeau. Bryant says that in three years, she and Force 10 have effectively doubled the staff of the organization from its original complement of 16.

Next, the Storm amped up television coverage by negotiating deals with local broadcasters in 2010. While WNBA games don’t generate NBA-type dollars, the Storm benefits from dial position when its games are on KONG-TV and from the ability to control content by producing its own broadcasts. Seeing the Storm on TV allows someone to sample the team and decide whether to attend a game, says Bryant, who believes TV coverage is “the single biggest thing in terms of the long-term success of women’s basketball.”

“Once people see us, they like us and they want to come back,” adds Trudeau. Season ticket figures don’t lie: The Storm’s season ticket retention for 2011 approached 90 percent, having exceeded 80 percent in each of the previous two seasons. (The NBA pushes for retention rates of 85 percent with its franchises.)

Of course, it helps that the Storm captured its second WNBA championship in 2010, winning every game it played at home and generating the sort of community buzz most sports-team owners only dream about. The Storm caters to a primarily female and family-oriented demographic, but it hopes to expand its fan base through continued marketing. “The fact that we’ve really built this business from the fan’s point of view, I think, is extremely noticeable,” says Bryant. Copacino and Gilder agree, pointing to a widespread sense that Storm players are not that far removed from the general public, and that there’s a feeling of intimacy and excitement generated inside KeyArena, the team’s home court.

The enthusiasm of the fans is what drove the Storm’s latest ad campaign and website redesign, developed by Wunderman Seattle. The ads feature photos of players and fans caught up in the fervor of a game. Each photo is labeled with words like “Pride,” “Drive” and “Yours.” “The biggest business challenge is simply getting new people to come in and experience a game,” says Sean Howard, Wunderman’s global client services director. “Once you go to a game, most people are really kind of hooked.”

Howard believes that attracting fans to KeyArena goes beyond ticket sales. He says Force 10 and Bryant have a “level of sophistication of how they think about their particular brand and what they are trying to do with it, [and] what they are trying to inspire in the community.” Promoting those ideals, he says, shows “a level of thinking and leadership that is league leading within the WNBA.”

This level of thinking includes early decisions made with long-term goals in mind. “Our goal is eventually to make money,” says Brummel, “but our goal [was] to get the team here [in Seattle] and sustain for the long term, more than anything else.”

Bryant shares the belief. “The Storm will live on long past us,” she says, “and we have the pleasure and privilege of being stewards here and now. But long after that, the relationships that we have are really what’s priceless.”

The real drivers of success, Bryant believes, are quality basketball and an enjoyable fan experience. “We’re all just working on packaging,” she says.

The product is exceptional in all 12 WNBA markets, she adds. The Storm is merely one of the first franchises to invest so heavily in it and to be “nimble” enough to take advantage of its independent ownership.

“When the owners bought the team,” Bryant says, “they said, ‘We want to be a model franchise to illustrate to other teams that if you invest in this business, the return [on investment] is there.’”

Having won a WNBA championship in the third year of Force 10’s ownership, the Storm clearly demonstrated the sort of ROI that not only builds balance sheets, but also fan engagement. And having weathered a much more diffcult year this past season—at press time, the Storm was battling just to make the playoffs—Bryant and company know full well that true success in bringing women’s sports into the mainstream is as much about winning converts as it is about winning games.

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Sponsorship and success

The Seattle Storm has seen a 32 percent growth in sponsorship dollars year over year. Its sponsors include such local icons as Alaska Airlines, Virginia Mason, Seattle Children’s, Group Health, PCC and Ivar’s.

The Storm is one of five teams in the WNBA with a “marquee partnership,” something common in professional soccer but unusual in other American professional sports. Under the team’s agreement with Microsoft, the jerseys that Sue Bird, Swin Cash, Lauren Jackson and their teammates wear sport the logo of Microsoft’s Bing search engine. Ad executive Jim Copacino sees the brand association as particularly fitting. “The league and the Storm’s brand fit well with the Bing brand,” he noted. “It says, ‘We’re an alternative. We’re not the biggest. We’re scrappy and you should pay attention to us.’”

The Storm’s corporate sponsorships are steeped in community building. Storm players, coaches and staff make more than 100 appearances each year. Many players partner with nonprofit organizations in Saettle. The team carries out its multiple annual community programs under the banner of the Seattle Storm Foundation. —S.D.

Seattle Storm point guard Sue Bird is a fan favorite. Photo by Neil Enns/Seattle Storm

WNBA BY THE NUMBERS

12: teams

6: teams owned independent of NBA teams

3: teams with predominantly female ownership groups

3: teams operating in cities without an NBA franchise (Seattle, Connecticut, Tulsa)

1: team that has turned a profit (Connecticut, 2010)

$852,000: Team salary cap (NBA cap: $58 million)

$35,880: Starting Salary

$103,500: Maximum salary

Three Investors Who Believe in the Innovative Capabilities of Local Entrepreneurs

Three Investors Who Believe in the Innovative Capabilities of Local Entrepreneurs

Meet Matt McIlwain, Nick Hanauer and Dan Levitan.
FROM THE PRINT EDITION |
 
 

As much as we’d like to think otherwise, Seattle is not yet a hotbed of venture capital activity. Zillow CEO Spencer Rascoff said as much in an interview earlier this year with The Seattle Times. While discussing the healthy state of the region’s tech business, Rascoff observed, “From a technology landscape standpoint, I’m pleased with the vibrancy of the startup community, [but] I still think … Seattle needs more institutional venture capital. The fact that we have really only a handful of venture-capital firms based here is going to hold the region back from fulfilling its potential.”

Still, without capital from local investors, many of the companies that now form the backbone of the Puget Sound economy — from Amazon to Zulily, from Julep to Juno Therapeutics — might not exist, or might exist elsewhere.

So here’s to the venture capitalists who call Seattle home and who find promise and potential profit in betting on companies like Apptio and Avvo. Dato and Drugstore.com (acquired by Walgreen’s). Front Desk and FanNation.com (acquired by Sports Illustrated). Isilon Systems (acquired by EMC) and Insitu (acquired by Boeing). Moz and Modumetal. Redfin and Rover.com. Shippable and Spaceflight Services. Trupanion and Talyst. And plenty more.

On the pages that follow, we feature three prominent members of Seattle’s venture capital community who believe in the region’s ability to create viable, sustainable businesses here. Two have made Forbes magazine’s annual Midas List of the top 100 venture capitalists in the world. The other has become a civic activist dedicated to addressing — and solving — economic inequality.

DAN LEVITAN
Dan Levitan cofounded Maveron with Howard Schultz in 1998. Since then, he has been the key player on many of Maveron’s home runs, including Zulily. In 2014, Forbes magazine named him to its Midas List of the top 100 VCs in the world. Levitan is a graduate of Duke University and has an M.B.A. from the Harvard Business School.

Investment you’d characterize as your biggest success.  Zulily and eBay 

Company you passed on and now wish you had invested in. Blue Nile

Most important things to look for in a startup. The entrepreneur and his/her team; the size of the market; and a differentiated product/service

Best location for closing a deal. The CEO’s office

Kinds of companies you’re looking for and why. We specialize in identifying, financing and mentoring highly disruptive and immersive, consumer-facing companies. We love — and invest in — companies that integrate into the lives of consumers and make the world a better place.

The most effective entrepreneur you’ve encountered. Howard Schultz [of Starbucks], because he built one of the most respected brands in the world. 

Top two deal makers. Awesome entrepreneur, insanely driven to succeed

Top two deal breakers. Anything outside of consumer or anything too small

What do you do for fun? I go to Duke basketball games.

What kind of car do you drive? Tesla Model S 

You might not know. Levitan has climbed Mount Kilimanjaro and Mount Rainier. He found a mentor in Duke basketball coach Mike Krzyzewski, who taught Levitan the central lesson of Maveron’s consumer-focused success: Always ask, “Do you love your team?” 

NICK HANAUER
Nick Hanauer is an entrepreneur with a broad range of experience across manufacturing, retailing, e-commerce, digital media, advertising, software, aerospace, health care and finance. In 2015, he also founded Civic Ventures, a small group of political “troublemakers” devoted to ideas, policies and actions centering on significant social change. He holds a degree in philosophy from the University of Washington.

Investment you’d characterize as your biggest success. For sure, aQuantive. I founded it and funded a big part of it and sold it [to Microsoft] for $6.4 billion. Also, Amazon as a first-round investor.

Company you passed on and now wish you had invested in. Rich Barton asked me to invest in Glassdoor, but I was too lazy to do anything. That was a screw-up.

Most important things to look for in a startup. My first screen is “Nick’s rule of transformational value.” Every great business is predicated on a product or service that creates what I call transformational value — that is, it is either 10 times better or 10 times cheaper or, ideally, both. Second, of course, the quality of the people. Bad people can kill a great idea but great people can evolve a mediocre idea.

Best location for closing a deal. My office.

Kinds of companies you’re looking for and why. My partners and I look for very early-stage-ideas companies. We try to be hard core about them being headquartered locally, but have made exceptions for entrepreneurs we already knew and trusted. We are somewhat agnostic to industry, reasoning that it’s the stuff you have not considered before that may be the biggest opportunity. For example, one of our best and most exciting investments was Insitu [acquired by Boeing for $400 million], and they made drones before anyone knew what drones were. 

The most effective entrepreneur you’ve encountered. It’s hard to beat [Amazon’s] Jeff Bezos. My pal Rich Barton [of Zillow] comes close.  

Top two deal makers. Simplicity and focus

Top two deal breakers. Complexity and confusion

What do you do for fun? What don’t I do for fun? I believe that one of my finest and rarest qualities is my ability to efficiently convert money into fun.

What kind of car do you drive? Tesla Model S P90D

You might not know. Hanauer is a co-author (with Eric Liu) of two best-selling books in the political genre, The True Patriot and The Gardens of Democracy. He has been featured in two documentary films on economic inequality — American Winter and Inequality for All.

MATT MCILWAIN 

Matt McIlwain joined Madrona Venture Group in 2000 and focuses on a broad range of software-driven firms. Current investments include Apptio, Envelop VR and Smartsheet. A graduate of Dartmouth College, he holds an M.B.A. from the Harvard Business School and a master’s degree in public policy from Harvard’s Kennedy School of Government.  He was named to the Forbes Midas List in 2008, 2009 and 2011.

Investment you’d characterize as your biggest success. Isilon Systems [acquired by EMC for $2.25 billion]

Company you passed on and now wish you had invested in. Airbnb

Most important things to look for in a startup. Customer-driven problem/need; differentiated and technology-driven solution; compelling founding team that can build a great company

Best location for closing a deal. Coffee shop or a great restaurant

Kinds of companies you’re looking for and why. Virtual reality/augmented reality companies and “application intelligence” companies that leverage machine learning to make apps smarter

The most effective entrepreneur you’ve encountered. Sunny Gupta [of Apptio] is world class at customer focus, attracting great people and product-market fit.

Top two deal makers. Great judgment, passion for the opportunity

Top two deal breakers. Not focusing on the customer’s problem, lack of transparency

What do you do for fun? Travel, play (and watch) sports, discuss policy issues

What kind of car do you drive? 2011 BMW 535i

You might not know. McIlwain came to venture capital investing from an unlikely place: the Genuine Auto Parts Company in Atlanta, Georgia, which owns NAPA Auto Parts. He ended up spending a lot of time with venture capitalists and venture-backed companies that were interested in investing in the sector. He worked with Madrona on some projects and joined the firm in 1999.