Chris Zimmerman: Net Profits

netprofits_mar07_250.jpg

Chris Zimmerman sits across the boardroom table in the Orca Bay offices at General Motors Place on a Friday morning early in December. It’s the first face-to- face interview for the new president and CEO of Orca Bay Sports & Entertainment since arriving in Vancouver from New Hampshire, and his slightly stiff posture and carefully measured words give the impression that he’s already a little wary of the media here.

Or maybe it’s just his game face. Right upfront, he confesses he has not yet mapped out a strategy for the Canucks. “Employees, fans, sponsors, ownership… everyone’s got an opinion,” admits the 46-year-old Zimmerman, ready to take on the challenge. “But they know a lot more than me right now, and I can utilize that information to shape the future.” Zimmerman earned a BA in economics from the University of Vermont and an MBA from Babson College in Massachusetts. He joins Orca Bay, the company that controls B.C.’s favourite hockey team and its home, GM Place, after nine years in leadership roles with one of the largest sports brands in the world: initially as GM of Nike Golf USA and, most recently, as president and CEO of Nike Bauer Hockey. It’s the perfect fit: winning business credentials with a minor in hockey. His task now is to prove the skills he perfected in the marketing of hockey skates also apply to the teams themselves. “Obviously, Nike is highly visible in the sports world… but on a day-to-day basis, this position will have a much, much higher profile than anything I’ve ever done,” says Zimmerman. When it’s your job to come up with a strategy that ensures the future success of the Vancouver Canucks, the one guarantee is that everyone will be watching. Other than the degree of public attention, Zimmerman’s job is like that of any other president and CEO. He is responsible for the number at the bottom of the income statement at the end of the year, he sets strategic direction for the business and he is expected to be a public figurehead for the organization. All the VPs report to him, including senior VP and GM Dave Nonis, the man in charge of hockey operations and player personnel. Although some might say he has an unwritten responsibility to fans, Zimmerman ultimately answers to the Aquilini Investment Group (AIG), a family business consisting of brothers Francesco, Roberto and Paolo Aquilini. AIG bought 50 per cent of the Canucks in November 2004 and the remaining 50 per cent in late 2006 from Seattle billionaire John McCaw. As a privately owned company, Orca Bay doesn’t disclose financial information, but a 2006 report in Forbes magazine shows that Zimmerman will be expected to capitalize on an already strong business. According to Forbes, the Canucks franchise was worth US$192 million in the 2005/06 season, with revenues of US$80 million and EBITDA (earnings before interest, depreciation and amortization) of US$1 million – a far cry from 1999, when Forbes showed its EBITDA at US$14 million in the red. Until it was awarded to Zimmerman, the top seat at Orca Bay had remained vacant since August 2005, when Stan McCammon left the organization. Zimmerman’s predecessor, who had been appointed to the position in 1999 by previous owner John McCaw, had little experience with hockey, rarely spoke to the media and never moved to Vancouver from Seattle. It’s no wonder that few fans even knew who he was. “I think if you asked fans about Stan McCammon, they would say he was a great coach for the Canucks in the late ’80s, thinking you were talking about Bob McCammon,” says John Shorthouse, in his ninth year as play-by-play commentator for the Canucks on the TEAM 1040 AM radio station and pay-per-view CanucksTV. Ed Willes, who has covered the Canucks for more than eight years as a columnist for the Province newspaper, says McCammon was able to get away with a low profile because Brian Burke, the Canucks GM at the time, acted as the face of the organization in his absence. Since Burke’s contract was not renewed in May 2004, Willes believes it will be important for Zimmerman to step up. Referring to Burke’s replacement, Willes says, “Dave Nonis is an able man, but he’s not Brian Burke as far as being the face of the organization and getting out there and representing the team.” Willes believes Nonis lacks Burke’s charisma and community involvement. Zimmerman’s ability to connect with the public will likely be challenging because, like his predecessor, he is an American and relatively unfamiliar with Vancouver. Born in New York, the new Orca Bay leader has no known relatives north of the border and had only been to Vancouver six times prior to taking on his role with the Canucks. He won’t, however, try to fulfill his duties from abroad the way McCammon did. Zimmerman, his wife Emily, daughter Kate, 15, and son Ted, 11, made the permanent move to Vancouver in November. The kids started private school immediately after arriving and Zimmerman says the family is enjoying living in a Yaletown apartment while they wait for their home in New Hampshire to sell. If there’s one thing that will help Zimmerman connect with fans, it’s his passion for the sport. From the age of eight, when he began playing hockey in a town just north of New York City, hockey has been a part of Zimmerman’s life. While earning his BA, he spent four seasons playing National Collegiate Athletic Association Division I hockey at the University of Vermont, and while doing his MBA at Babson College, he was an assistant coach for the men’s hockey team. Still today, Zimmerman plays as much hockey as he can. He’s even laced up his Bauers a couple of times in Vancouver for the employees’ game- day pickup skate after the Canucks practice, dubbed the THL (Trainer’s Hockey League). “When you can bring together your passion and your vocation, that is a fortunate thing,” he says about his career path. [pagebreak] The first opportunity Zimmerman had to combine his love for hockey with his profession was with Nike Bauer in 2003. He was faced with an immediate challenge when Reebok acquired The Hockey Company (which owned brands including CCM, Jofa and KOHO), giving it the lead in hockey apparel and equipment sales. Zimmerman responded by introducing a new brand strategy and logo in 2005, and unifying the brands (which had operated separately since Nike acquired Bauer in 1995) into Nike Bauer. He also stepped up the company’s investment in R&D to combat the slip in quality and innovation that he claims attributed to Nike’s loss of market position. That investment resulted in the development of products such as the Nike Bauer Supreme One90, the lightest skate available in the marketplace and the first to carry the joint logo. His strategy proved successful; the company regained the No. 1 position in the hockey-equipment market and although Nike does not break out financial results of its divisions, Zimmerman says Nike Bauer showed a 30-per-cent increase in revenue over three years. Creating innovative, high-quality products was a focus for Zimmerman with the Nike Golf brand as well. When he came aboard in 1998, the product line was limited to apparel, shoes, gloves and bags. Zimmerman was instrumental in the decision to extend the product line to include balls in 1999 and clubs in 2002, believing that high- quality equipment would establish Nike’s credibility as a golf brand and would boost the sales of its other products as well. “In golf, it’s the equipment that connects you to the brand. And once that happens, they want to carry your bag, wear your cap and wear your apparel,” Zimmerman is quoted as saying in a 2002 Golfweek article. Overall, Zimmerman claims the new products helped increase revenue by 30 per cent over three years. A PGA.com article states that by the time Zimmerman left in 2003, Nike’s golf-ball market share had achieved a stunning 9.5 per cent. On the other hand, the acceptance of the Nike golf clubs has been slow and it wasn’t until early 2006 that the company created a top-selling driver, the SasQuatch (SQ) 460 Driver, with the help of Tiger Woods’ endorsement. The Province’s Ed Willes doesn’t think it odd for Zimmerman to have come from a background of businesses outside the NHL, explaining that it’s the GM position that usually requires a person to work their way up in a hockey organization. “I think fresh ideas and fresh perspectives are needed in professional sport,” says Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon and grandson of Irwin, for whom the Swangard Stadium in Burnaby was named. “And what’s great about Chris is that he brings a background from one of the great out-of-the-box-thinking brands of our time.” Zimmerman says the Canucks are in a healthier position than the brands he started with in his last two jobs. The Canucks sold out 142 straight games as of mid- December; the team has major sponsors including Tim Hortons, Coca-Cola and HSBC, and merchandise sales are verging on record levels. “The team is successful in many ways and the business is strong, but there’s a feeling that there is more that we can do with this brand,” says Zimmerman about his discussions with the ownership group. Forbes supports the theory that there is room for growth, since the value and operating income the magazine quotes for the Canucks remain below the average for the NHL (average team value of US$180 million and average EBITDA of US$4.2 million). “Quite honestly, it’s easier to come into a business that isn’t performing well,” Zimmerman says, pointing out that there is more room to make dramatic improvements. “I’m asked all the time: ‘You’ve sold every ticket, you’ve got lots of sponsors, what are you going to do?’” Zimmerman plans to apply many of the same practices he employed at Nike, building a long-term vision for the Vancouver Canucks brand and focusing on creating a high- quality product. He divulges very few specific details about how this will be achieved, leaving the issue open to speculation. Swangard, an expert on the business of sport, says there are five major areas of revenue generation for Orca Bay: the stadium (including event bookings, concession stands, etc.), licensing, ticket sales, media rights and sponsorship. “In terms of strategy, he’s better off spending his time on the big drivers of revenue – ticket sales, sponsorship and media,” opines Swangard. Since ticket sales are already maxed out and it is doubtful the market would bear much of an increase in ticket prices, he adds, that leaves sponsorship and media as a focus for growth. Rogers Sportsnet, TSN and CBC share the television rights with the CanucksTV pay-per-view (PPV) channel that was introduced by Orca Bay in December 1996. A network of radio stations across B.C., including the TEAM 1040 AM in Vancouver, have the radio rights to the games. One of the recent initiatives that could be expanded is distribution of PPV in Cineplex theatres. So far, fans can watch live PPV games at 13 theatres across B.C. Swangard also suggests there may be other creative ways to expand radio and television deals, such as televising pre-season games or portions of training camp. Sponsorship, the other revenue stream Swangard suggests Zimmerman might focus on, is critical in leveraging the Canucks brand, especially since NHL franchise marketing budgets are smaller than one might imagine. To increase sponsorship dollars, Swangard believes Orca Bay can seek opportunities to reach out to brands that have an interest in communicating with their fan base, pointing to the Florida Panthers’ Lexus-sponsored VIP parking area as an example. Although it’s still a challenge, dreaming up new ways for sponsors and media partners to spend their money will be easy compared to the effort and creativity needed to maintain and/or grow Orca Bay’s fan base – which is, after all, the sole reason companies are interested in partnering with the Canucks in the first place. The relationship with fans is the asset Orca Bay will have to strengthen the most. Zimmerman believes there is an opportunity to find new Canucks fans by appealing to cultures in our melting-pot province that haven’t traditionally followed hockey. Swangard suggests Orca Bay might encourage fans outside B.C. by including more exhibition games abroad, such as those played in Stockholm, Sweden, in 2000. Swangard warns, however, that “it’s always more expensive to go out and acquire a new customer than hold onto the ones you have.” As Zimmerman well understands from his days at Nike, keeping current consumers and attracting new ones starts with a high- quality product. According to Vancouver Giants president Ron Toigo, building a loyal fan base typically means a lot of checks in the “win” column. “People want to watch an entertaining team,” says Toigo. “And to be entertaining, you usually have to be winning.” The individual most responsible for building that winning team is GM Dave Nonis, and therefore Zimmerman’s authority to keep or replace him will be a crucial part of his role. “People are happy when the team is winning,” says 1040’s Shorthouse, as any fan – or anyone who’s walked into a sports bar on game night – well knows. An important part of Zimmerman’s evaluation of Nonis will be his effectiveness in operating under the salary cap put in place by the collective bargaining agreement that was ratified in July 2005 after the 2004-2005 lockout season. “There’s a little bit more strategy involved now, whereas in the old NHL it was all about finding more money to support a payroll of more talented players,” says Swangard. “The salary cap has resulted in a nice shift of talent around the league.” He admits that it may be frustrating in markets such as New York or Detroit, which enjoyed the luxury of big money to spend on players. [pagebreak] “I think the cap has limited the Canucks a little bit, but they never really demonstrated a willingness to spend much beyond that limit of $42 million to $45 million anyways. I don’t think they were ever going to be a team with a $60-million payroll,” says Willes. According to the NHL Players’ Association, the Canucks currently sit less than $200,000 beneath the salary cap of $44 million. If Nonis is not able to sustain a winning team, it may be difficult to maintain the fan base. Vancouver fans have a reputation for being fickle, too easily trading the time they spend watching Canucks games to follow another team or hit the slopes at Whistler when their team stops scoring. “I think people are really critical. If the team starts to slide, it’s going to be reflected in tandem,” says Willes. On the other hand, some say Canucks fans are simply vocal about losses but do continue to watch and support the team. For instance, the papers and radio programs were filled with fan complaints when the Canucks didn’t make the playoffs last season, yet the stadium still sold out. Either way, Zimmerman says, “I haven’t seen a passionate fan who doesn’t have some highs and lows as the team does. It just means they care and I’ll take that any day.” To soften the inevitable losses, Orca Bay can ensure that the fan in the stands has a memorable experience regardless of the score. Swangard says the Canucks have shown a commitment to enhancing the fan experience in the past and should continue to do so. He praises their recently upgraded scoreboard, the continuous introduction of new, creative promotions and activities for fans and their Prime Seat Club, whereby season ticket holders turn their seats in online and sell them to someone else, ensuring there are fewer no-shows at the game. Establishing an off-ice connection with fans can also create a more vested fan base that is willing to stand behind a team, win or lose. The Giants’ Toigo believes Orca Bay must remain committed to team involvement in community programs such as its Canucks for Kids Fund, which has contributed more than $20 million to children’s charities in B.C. over the past two decades, and Canuck Place Children’s Hospice, which has provided care for B.C. children with life-threatening conditions for more than 10 years. “Years ago when the guy on the ice was making twice that of the guy in the stands, there was a connection there. Now the guys on the ice are making more than 10 times what the guy in the stands is making and it can be tough for the fan to relate,” observes Toigo. “But when you get them out into the community, I think it brings the connection back.” Should they start feeling disconnected and unhappy with the game experience, fans do have alternatives. The Vancouver Giants have been successfully leading the Western Hockey League this season and their president, Ron Toigo, says their per-game attendance has increased by about 1,000 this season. “The guiding principle that we have is that a family of four should be able to come to our game, eat and take in the whole night for under $100. It’s got to be an affordable evening that they can do on a whim,” says Toigo, who has also advanced the interest level in junior hockey by helping bring last year’s World Junior Championships and the May 2007 Memorial Cup to Vancouver. A glance around GM Place, on the other hand, shows few children in the stands – not surprising given that the average price of a single Canucks ticket today is approximately $60, making it unaffordable for many families. Other than Giants hockey, there are many ways for the consumer to spend their entertainment dollar. “I think the most strategic of teams are the ones who really see their competition as both sports and entertainment, in the same way a food or beverage company would say that they are fighting for a share of stomach,” says Swangard. He also lists Grey Cup champions the BC Lions, W-League champions the Whitecaps Women’s soccer team, theatre events and Whistler Blackcomb skiing as competition for the Canucks. “If you’re not careful, success in sports can take bigger swings than in other businesses,” says Zimmerman, citing the profusion of competition and the constantly fluctuating quality of the product on the ice. “That is why you can never be complacent in the sports business. The relationship with your consumer, your sponsor, your media partner can be so fragile if taken for granted.” Even though Zimmerman is entering Orca Bay Sports & Entertainment during a period of strength, it doesn’t mean he’s got an easy job. There is an abundance of opinions about whether his strategy for capitalizing on the current business should include focusing on the relationship with fans, increasing sponsorships and/or stepping up media deals – and there will be just as many opinions about what unfolds. In six months’ time, Zimmerman will likely be tired of hearing the public input he welcomed in his first weeks with Orca Bay.