More often than not, the Rule Breaker Investing podcast's focus is on the "investing" side of the equation -- great stocks, companies that are challenging convention, smart ways to think about your money, and so forth.
But there's more than one way to be a rule breaker. For this episode, Motley Fool co-founder David Gardner brings you an interview with Phil de Picciotto, the visionary who built one of the world's greatest sports agencies, Octagon Worldwide. They'll talk about the foundational ideas of that organization, the future of sports, why having the right agent is so vital to an athlete, entrepreneurship, gambling, and much more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
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This video was recorded on May 15, 2019.
David Gardner: From amateur tennis player and tennis photographer, accompanied by a law degree from Penn, my special guest this week has built one of the great sports agency businesses of our time, Octagon Worldwide, which today is owned, is a division of Interpublic Group, IPG on the New York Stock Exchange. Phil De Picciotto has been in the business for decades. His firm today represents star athletes like, well, have you heard of the NBA's Stephen Curry? In addition to his entrepreneurial story, which we will cover this week, Phil is a visionary about the sports world. I'm equally interested in learning and sharing with you some of his thoughts about the future. So from a rule breaker in the sporting world, we get insights, inspiration, and fun only on Rule Breaker Investing.
Welcome back to Rule Breaker Investing! I've been talking about this interview for a few weeks leading up to it, and now, here we are. Here we are on, well, this comes out May 14th, 2019. Ironically, or interestingly, that is one year ago to the date that, well, New Jersey won its U.S. Supreme Court case, the majority of justices saying, quote, "The Federal ban on sports wagering is illegal." Now, we'll certainly be talking about that with my guest, Phil De Picciotto. We're not going to start there, though. But what a dynamic world the world, Phil, of sports is today. It's a big business, too.
Phil De Picciotto: It's a big business, that fans, I think, want to ignore sometimes so they can appreciate the action and engage in the social conversation around it. But it certainly has a universal language to it. And it's important in society.
Gardner: And you have made a career helping athletes and helping corporations meet athletes and linking those two together over, now, decades. I want to start with a much younger Phil De Picciotto. I'm not sure, Phil, what kind of an athlete you were as a little kid. Where did you grow up?
De Picciotto: I grew up in Manhattan, then went to college in Massachusetts and came down to D.C. just after that, not knowing exactly what I wanted to do.
Gardner: Were you a sports fan?
De Picciotto: I was always a sports fan! Loved it, tried to play it, not terribly well. I'm living my passion.
De Picciotto: Yankees. Knicks, Rangers, Giants.
Gardner: I hear you. I hear a little bit in your voice. You have maybe a slightly discernible New Yorker accent. But let me ask you just a couple of other things just about your childhood, Phil. How were you raised? What did your parents teach you? What did you think about the world when you were 9 or 10 years old?
De Picciotto: I was very fortunate that my parents brought me up in what I would say is the right way. Very traditional, but very modern at the same time. They were both born in Europe. I was the first in the family born in the United States. It was all about values, doing things the right way, treating people well, thinking long term, not cutting corners. I grew up in the middle of Manhattan at a time when the city was changing. The world was changing around it. And I had the opportunity to be in a very cosmopolitan setting, and was a globalist, I think, even at the age of nine.
Gardner: Do you remember your first ball game? Do you remember your first time going out and seeing the bright lights, maybe at a Yankees Stadium or something like that?
De Picciotto: Well, my most vivid sports memory when I was very young was my mom underhanded pitching baseballs to me in the backyard, and also pitching tennis balls to me. She would stand at the net tirelessly and let me run around and I guess use most of the energy I had for the day. But I developed a passion for that. And at the time, at least -- it's a little bit different now, maybe -- people who played sports also consumed sports by going to stadiums to watch, and then consumed sports either on the radio or through television, so media involvement as well.
Gardner: Now, I know you were a pretty good tennis player. You're probably being modest right now. Brag a little bit about your tennis career. Where were you at your height?
De Picciotto: There is nothing to brag about, I assure you! [laughs] The height of my tennis career was probably playing a tournament in Central Park, and during some of the changeovers, I would pull out a tutorial book to make my opponent think that I was actually trying to learn something to change tactics. Tennis is a sport for a lifetime. I was very fortunate to have been introduced to it at a young age. It just took me to other sports and an acknowledgement of fair play, and how to adapt to circumstances, which is one of the things that I think sports can uniquely teach.
Gardner: I really like that. In fact, I'm going to digress briefly just to say that one of my own really impressionable memories out there as a very poor athlete myself was on a tennis court. My friend Kimball Crossley, who'd gone to the University of North Carolina Chapel Hill a few years ahead of me, was playing tennis. He's a much better player than I was. I hit a shot that I thought was out. And he said it was in. And afterwards, I said, Kimball, that was out, right? And he's like, "I was trained to always give the benefit to the opponent. If it's ever close, I always say it was in for you." And I have to admit, up until that point in my life -- and I think I was probably 21 or 22 when I had that experience -- I didn't necessarily have that. I mean, I still make my best shot, but Kimball had this ethos that he would always give it to you. That's an example of how our experience, even as very poor athletes on a nondescript tennis court, can really shape who we are and how we live.
De Picciotto: And it also translates to business because it's essentially process versus result. Some people are so focused on a result that they will win at all costs. We still have that phrase in our common vocabulary. But in fact, the process is much more important than the result in any one moment in time. Because if you love what you do, and you do it often, then you will presumably get better at it. And you have to look long term. It can't just be about that point and a call that you try to finesse.
Gardner: We love that long-term message. That is very Rule Breaker-y. Thank you, Phil! It's already sounding great here on this podcast. Let me ask you one more question about your childhood. Were you an entrepreneur? I mean, a lot of people who start a business were trying to sell people their baseball cards when they were 11. Were you that kind of a guy or not?
De Picciotto: Magic shows. Magic shows, but the audience was small. Family only. They were a very kind audience.
Gardner: [laughs] Do you still do magic?
De Picciotto: I don't. I try to for our clients.
Gardner: I'm sure you do. Has Magic ever been a client?
De Picciotto: Magic has not been a client.
Gardner: [laughs] OK, so, some magic in your life, but maybe not enough Magic in your life.
De Picciotto: Yes.
Gardner: So far. So, Phil, I've only gotten to know you very recently. It's been a pleasure to get to know you a little bit through the Economic Club of Washington, which we're both members of. We see each other at those events. That's how we became friends. I didn't know you years and years ago, when you and a few business partners started what might have sounded like a crazy idea at the time, a sports agency. Could you tell the early entrepreneurial story of Octagon Worldwide today?
De Picciotto: Well, my beginnings in the industry were at a law firm. I had just finished my first year of law school and was given a summer internship opportunity -- which, by the way, I think reminds all of us that we each need to be given opportunities and then be able to give others opportunities. It's not automatic that somebody can find the passion in their work or be given even the possibility of pursuing it or learning about it to understand whether they want to do it or not.
Eventually, after I had finished law school, this firm dissolved. We were able to create our company, named Advantage International, out of that dissolution. Within a few weeks, we had to decide on the name of a company. We had to incorporate, hire people, rent offices, print business cards, and get on airplanes and start to build a business. Banking relationships had to be established. People relationships had to be established. We had to communicate what we were trying to do to the marketplace and how we were going to differentiate, because that's how brands have a chance to become established, as you know.
Gardner: What year was this, Phil? Roughly how old were you? Where were you in life at this point?
De Picciotto: The law firm dissolved on my 28th birthday. It was one of the biggest gifts, inadvertently, to me that anyone could have given. I was just 28 when we started this company.
Gardner: All right. So you were on planes. You're trying to do deals. It's all happening very suddenly. It sounds like you really were, speaking of planes, building the plane as you flew it. Is that accurate?
De Picciotto: We knew in what direction we wanted to fly. Then we had to execute, which is the same for every business. You can have the strategy, but you're only as good as your tactical execution.
Gardner: Was there an early moment where you thought, "This thing, this is going to work"? Was there a big signing? Advantage International, you were just starting, sounds like the day after your 28th birthday, what was an early win?
De Picciotto: An early win was when people started to recognize that we were offering something different to the marketplace than they were able to get elsewhere. The industry at the time was very small. But it was also rife with conflicts. And we made a decision then and there that we wanted to stay in business for the long term. We didn't want to build the business around any individual name or person. The world is just too unpredictable to do that. And we wanted to be completely client focused. We didn't want to trade at all for our own account. When we were able to tell that story to enough people, we got some early resonance, which gave us some confidence. I would call it maybe more naivete than confidence, because I remember the times that were more risky for our company than the times that enabled us. Yet we felt confident enough that we wanted to keep going.
Gardner: Phil, I think a lot of us have seen the movie Jerry Maguire, the movie about the sports agent fictionally played by Tom Cruise. Jerry Maguire. Cuba Gooding Jr. I think won Best Supporting Actor, I remember. I'm assuming, Phil, that you have seen the movie Jerry Maguire.
De Picciotto: I have seen the movie. And enjoyed the movie. But it's a love story. It's not really a sports story.
Gardner: Real quick, what would you say the movie got most right, to the extent that it was portraying an industry? I think was a fictional company, Sports Management International, SMI. What did the movie get most right, and what did the movie get most wrong?
De Picciotto: What the movie got right is that every talent -- athlete, entertainer -- needs a support system around him or her in order to perform properly. And if one doesn't have that, one can easily lose focus or lose confidence. Either loss is quite debilitating or limiting to a career. What it got wrong is, it's a movie, they wanted a sound bite. So their most famous soundbite, "Show me the money," is really a clipped sentence. The right one would be, "Show me the most money for a situation that's good for me." It's not only about the money. For all of your listeners, too, who are entrepreneurs, not all revenue is good revenue. You have to be in the right situation. And if you place yourself in the right situation, then more often than not, the revenue is going to follow that good decision.
Gardner: Who was one of your first early big-name signings? Who was a key relationship for the firm early on?
De Picciotto: On the individual talent side, Moses Malone, who had been the first player to come directly from high school to the pros. Everyone now thinks that that is commonplace and automatic. Back in the day, it wasn't. He was not only the first to do it, but he was the first to do it successfully. Many other high schoolers tried to do that in his footsteps and were not ready, in one way or the other, or the league wasn't ready to have them. So on the team sports side, it was Moses Malone.
On the individual sports side, I would say it was Steffi Graf, the great tennis player. In my view, the greatest ever for one statistical reason, which is that she's the only player to have won each of the Grand Slams in singles at least four times. Remarkable change of surfaces.
Gardner: I remember how dominant she was. I'm even just a casual tennis fan, but I can easily picture her, spell her name, and remember that she just owned the sport for the better part of a decade, it seems.
De Picciotto: She did, or even longer. And then in 1988, she not only won all four Grand Slams, but she won the Olympic Games. We were able to coin the phrase "golden slam" or "golden Grand Slam." And she helped us internationalize our company. But more importantly, she internationalized the sports world. And she created a platform where female athletes had someone to whom they could aspire.
Gardner: Let me step back a bit. Let's talk nuts and bolts a little bit before we keep going through the story. How does your firm make money? I'm going to position myself as a casual listener of the Rule Breaker Investing podcast, which often I am. I don't know that much about the sports world, Phil. I'm assuming you as an agent, as an agency, I know one thing -- you're representing the athletes and you're trying to get them better contracts with the teams. Presumably there are also things like shoe contracts that are subsidiary to the main thing. And then I also know -- part of it, we don't have to go there yet -- that you also help the companies themselves, corporations, link themselves to athletes. I'd like to talk about both of those. But do I have it right, roughly, in terms of how you make money?
De Picciotto: The largest part of our business is corporate representation. We strategize with our corporate clients as to how best to use the sports and entertainment world as a platform to better promote and sell their goods and services.
Gardner: OK, outside in. Really interesting.
De Picciotto: That is largely a retainer-based business. It's very strategic, but we go all the way down to the execution and the tactical level as well. On the talent side, which is an entirely different business, that's more advisory and on the sale side, because we're pitching them for endorsement partnerships, licensing deals, and of course, when they're playing in a team sport, for their team contracts. And that is more of a commission business. So it's an "eat what you kill, you have to produce in order to get paid at all."
Where talent and corporations or governments or other entities meet is very often in the events arena. We don't own facilities, but we do execute, operate, own a lot of events. And the events get distributed largely by media. So we're in the media advisory and media business generally as well.
Gardner: Thank you for straightening me out there! Shows how little I know about the world. Phil, you butter your bread mainly on the corporate representation side. I definitely want to ask a question or two about that. And then talent, a whole separate business, as you mentioned. Where they meet each other, what a brilliant business model, that you've been in there doing that. Advantage International, the firm that you started, the agency you started, was it corporate representation first, even back then?
De Picciotto: Yes. And there was a logic to that, which is, corporations are around forever or almost forever. They are much more steady and stable. They tend to be global. It helped us to establish our footprint. And we were also one of the first firms, or only firms in our space, who could really offer them worldwide insights at the time.
And then on the talent side, everybody wants to hear about them, but careers were short, even back then, and getting even shorter. There's a reason to have talent representation alongside corporate representation. But they really serve completely different purposes.
Gardner: Phil, how about an example, either back in the day or these days, give me an example of a corporation you've partnered with, how you made a strategy, and who showed up to make that strategy happen.
De Picciotto: When Winston withdrew from their NASCAR title sponsorship, because tobacco was being legislated against, we brought Nextel to NASCAR. And even through its life cycle, where it transformed into Sprint, we were executing that sponsorship for them for many, many years as title sponsor of NASCAR.
Gardner: You're covering all the sports. I like to think I'm a big sports fan, but I really don't know NASCAR that well. It reminds me, Phil, just how expansive your view of the world is, and all the many different relationships you have had and must have today, which is pretty awesome.
Let's fast forward a little bit, because I know Advantage International, the company that you started, that's not the name it's known by today. I called it, I hope I have it right, Octagon Worldwide. It's a beautiful website with lots of stars represented and lots of corporations that you work with. Phil, how did Advantage International become Octagon Worldwide?
De Picciotto: In 1997, we all understood that the world was expanding. It had been quite closed before with the Soviet Union, with China, with other areas that really were not engaged in global commerce to the extent that they are now. But there were opportunities awaiting. We wanted to be the first one on that train, to have capital and to have the resources to connect with Fortune 500 brands to a greater extent than we were doing already. Interpublic was a very willing partner. They saw the world the same way. They did a little bit of a beauty contest and chose us as their sports entertainment platform. We were very grateful, and we jumped in, and we're there very happily today.
And shortly after that acquisition, we got together and decided that we had begun to grow so fast that, somewhat by acquisition, that we wanted to create a new platform with a new brand name so that everybody would feel that we were building from the early days. Hence, an outside firm decided that Octagon would be a good name for us.
Gardner: Now, in a private conversation you and I had weeks ago, you were just talking more casually. I'm an entrepreneur, too, and I'm younger than you, and I look up to somebody like you as somebody who knows a lot about the world. I think, Phil, I remember you saying something like, "Hey, here's one bit of advice I have for you. Don't sell!" [laughs]
De Picciotto: I did say that! Your entrepreneurial spirit is unparalleled. I think you've got a very long runway where you don't need to sell. There aren't any specific advantages to selling. Of course, I don't know your business as well as you. And you may decide that I'm completely wrong. But at our point, in 1997, in our life cycle, we really made the calculation that the structure didn't matter. We did want to be even more global than we were. But the most important thing for us was to be around people who had the same vision. Aligned vision, shared vision, is critically important for a company. We were very fortunate, and we found that within Interpublic. And it's been exemplified over the years. We're still very happily performing for them today. But it isn't always the case. We had no ulterior motives. Again, we didn't make that move for financial reasons or personal reasons in any way. We really wanted to establish a legacy brand. We thought that being part of one of the biggest marketing communications conglomerates in the world gave us the best chance to do that.
Gardner: Before I ask you just about a couple of entrepreneurial lessons, we have a lot of small business owners listening to Rule Breaker Investing globally. I'd love to hear advice that you have for us. But before we go there, I have to ask you, probably the investing part of our Rule Breaker Investing podcast, compulsory question. Often, we hear that public companies are hard to work with, they're managing quarterly earnings expectations, they're too short-term focused. I'm guessing Interpublic is probably not one of those kinds of companies. 22 years later, I think you're the president of the company, Phil, you're still right in there working with them as an aligned partner. Any reflections on what it's like to work within a division of a larger public company?
De Picciotto: Interpublic is certainly focused on its investor community and shareholder value. That requires, in this day and age, looking short term. But you can't create a long term simply by amalgamating quarter after quarter of unpredictable events. There needs to be a mix, and there needs to be a trust factor. How much are you going to focus on the short term with urgency? How much are you going to focus on the longer term with patience? And that's a lesson for all of us in any size company, I think. We have to make decisions all day long as to what we predict an action today will lead to tomorrow, because what looks like long term for us now is going to end up being very short term.
Gardner: We're about to shift to one of my favorite topics of all sports in the sports world, and insights about that, baseball, football, etc. But before we go there, Phil, any final thoughts for entrepreneurs listening?
De Picciotto: Everything in the world has connections to everything else. You just have to find them. And most businesses, whatever we're all doing, buying or selling or servicing or a combination, are built on a fundamental value that we all share, which is trust. If people don't trust you, they're not going to give you the opportunity to showcase your skills and perform services for them and help them with solutions. So I think trust is the key that crosses over. And investment, again, is important. You have to decide not only where you're going to invest your money, but also where you're going to invest your time. Stedman Graham likes to say the only way in which human beings are all truly equal is that we each have 24 hours a day to live. We don't have a minute more, we don't have a minute less. The most important investment that each of us can make, I think, is how we're going to allocate our 24 hours each day.
Gardner: Phil, in advance of this interview, I put it out there on Twitter, saying I'm talking to the man here this week, so what are your questions, people? And I also asked people internally. Came up with a number of subjects. Let's touch on them. Let's start with baseball. It's that baseball time of year, and I got a number of questions that went something like this, this one from my friend, David Forest, @DavidForest on Twitter. He said, "What do we do about baseball?" This is how he characterizes it. He says half the teams are tanking already, viewership is down, there isn't a single player in the top 100 most famous athletes. And then he halts, having shown a link to an ESPN listing of the World Fame 100, which you may well know. I'm sure you know a lot better than I do, Phil. The 100 most famous worldwide athletes. Apparently, Bryce Harper of the Philadelphia Phillies is No. 99. But that's the only appearance in the world of baseball. I have a number of other people concerned about baseball. I love baseball. I know you love baseball. What do you think about baseball these days?
De Picciotto: I think baseball is our national pastime for very good reason and will probably continue to be so for a very long time to come. I mean, it's a summer sport. We rise up with it in the springtime, it gives us all hope. Bart Giamatti wrote about that. And then in the fall, by the time it turns toward winter, we're also putting away the baseball gloves and not watching any games for a while.
One of the reasons that baseball may not contribute as many top athletes to these lists is that it truly is a team sport while also being an individual sport. If one looks at basketball, for example, you have five players per team on the court at a time, and one or two truly impactful players will be on the court every game, and they will become very well known. Kids around the world can play basketball. It just requires a basketball, even just a trash can. It's an inexpensive sport. Baseball, with 25 players, not every player playing every day, really requires a team. I think that the affinity in baseball is very strongly team linked and sometimes may not be so player linked.
Gardner: Now, I like to think I love baseball as much as anybody, I have heard the viewership is down. Sometimes they're talking about ticket sales. I don't think they're talking about TV, but I'm not exactly sure. Phil, taking the temperature of the business of baseball right now, what do you see?
De Picciotto: The business of baseball is very healthy, from what we can see. The market has changed, particularly with free agency. Teams are deciding whether their option B is sufficiently cheaper than their option A if they shouldn't overspend. Also, in baseball, contracts are guaranteed. There was a trend for a while for those contracts to be very long and very lucrative. Many of those contracts didn't pay out for the team. So the teams are getting smarter, especially because of analytics, also a younger generation of general managers and team presidents.
Gardner: I love it, you bet!
De Picciotto: It's becoming a very well-run business throughout the League.
Gardner: I know some people want to prevent some of the shifting going on, particularly infielders, these days. You look, and the shortstop's no longer playing shortstop. And yet I have to say, I hope that's never banned or in any way curbed, because it's just a natural response innovating to try to win. I think it's actually really cool when I see someone with four infielders on just one side of the field.
De Picciotto: In any business, one has to have a plan, and then one has to be flexible in terms of operating your plan. The world throws things at us all the time in whatever we're doing. And in baseball, that shift is one way that a team can react to try to force a change in their competition's habits. The truly great players, I've always believed, will adapt to that. They're either simply better and they'll overcome a shift, or they will learn to hit where the ball isn't. Either way, I think it's healthy for the sport.
One has to remember that in the earliest days, baseball was a completely different game. It was even called round ball or other such names. I believe at the beginning, a batter could hit 360 degrees. A batter could even hit behind them. Balls could be thrown at a runner to get the runner out. Evolution is not necessarily a bad thing.
Gardner: @TommyJohn3 wondering, would shortening the regular season help baseball in its future? He's pointing out that it wasn't necessarily meant to be played in snow, during March and October, which is, as a Minnesota Twins fan, I was watching some snow games these last few years. What do you think about just the length of the season for baseball?
De Picciotto: I think the length of the season is too long in every sport. Possibly not NFL. But not only is it a revenue issue and a media issue, but it's also a player health issue. Once these players establish themselves as good players, and they get to their second or third contracts, it's really in everybody's interest to extend their playing careers. One way of doing that is not having them overplay or play in too concentrated a fashion. So I would be in favor of finding a way to shorten the regular season.
Gardner: One other friend, Austin Lieberman, @AustinLieb on Twitter, said, "Would love for you both to talk about," as a diehard fan my entire life myself, he says he's scared "the game isn't exciting enough for younger fans because of how long the games and seasons are and how much the tiny details matter." Do you agree?
De Picciotto: There has been a trend in all professional sports to feature offense over defense, which in other words means action over inaction. There are two schools of thought on that. One is it's exciting, it's geared for the times, let's focus on offense, more scoring is better, it attracts viewership. The other school of thought is, it takes away from the traditional balance in a game. This is what the commissioners in each sport and their staffs have to continually consider. That's more complicated now by the advent of sports betting. Sports betting enables people to stay involved more deeply and more broadly in a sport, even if the score in a particular game no longer matters.
Gardner: We're going to put a flag in that, because we're definitely going to return to betting in just a little while. But sticking with competitive sports for a sec, before the very interesting topic of betting, which I led off the top of the show, Phil, which is a bigger sport, maybe for corporations or for your talent, I don't know, tennis or golf?
De Picciotto: Tennis and golf are both global sports. They're played by men and by women. And the athletes really control when and where they play, what they wear, and how they conduct their careers. They're not part of a team or a league, and that creates business opportunities and also requires them to take care of themselves to build a team around themselves.
The differences, I think, are less important than the similarities. The similarities are that the leading athletes in golf and tennis are known globally, oftentimes by their first names. Tiger, Serena, Roger, and Rafa. And that is true throughout history, back to Martina and Chris and Steffi and Rod, Rod Laver. The biggest difference between tennis and golf is that tennis is a global tour. The Majors are part of the International Circuit. In golf, there is no single global tour. There are multiple tours.
Gardner: Let's go to the NFL. Such a big and popular sport here in the United States. Increasingly, I know the League is hoping it becomes a global phenomenon. And yet, of course, the controversy, Phil, of, is this game safe enough? Concussions. My friend Maggie Dorn dropped me a note saying, in 2017, a report published in JAMA, researchers studied the donated brains of 202 former football players, found that 87% had CTE, which is chronic traumatic encephalopathy, a horrible brain disease caused by trauma. Of the 111 brains from former athletes who played professionally in the NFL, 99% had CTE. The heartbreaking results, she says, suggest that CTE may be linked to football. Phil, what is your take on this? How can the NFL reduce play that causes brain trauma? Can it survive and flourish into the future?
De Picciotto: The NFL is very concerned about player safety. They obviously have the wherewithal, the financial wherewithal in particular, to do whatever can be done in that area. It's not only football, it's also our military. It's also kids who are skateboarding or snowboarding who can have concussive events. In fact, I think the most common concussive event is in women's soccer, particularly in college. This is an area for society to consider. When an athlete gets to the pro level, the NFL level, it's a choice, and presumably an educated choice, that people make as to a lifestyle that they are willing to live, and a risk that they're willing to take. Throughout the history of humankind, I don't particularly like it, but the fact is that people have gone to see events with violence, back to the days of the gladiators in Rome, and now with Ultimate Fighting and boxing and other sports in between. So I think that the NFL, which really has a very small, tiny percentage of the world's population as its playing base, is going to be absolutely fine.
With regard to the statistics, there's an old saying that there are two forms of deception, lies and statistics. I think those statistics that you mentioned are accepted as being accurate. I would accept them as well. But what they don't say is whether the concussive trauma that led to CTE at the end of someone's life or during someone's life was caused in the junior development of those football players or is caused while they were already in the NFL. And the big concern to me, and I think to society, is, how do we keep kids safe until they get to the point of being so spectacularly good at this sport that they can earn a very good living and make an elective decision to take the risk to play in the NFL? Because most of the people who play football growing up, of course, are not going to have that opportunity and are never going to make it to the NFL.
Gardner: Yeah, more than 99% of them. Phil, what would you advise parents who are thinking about, should I put my child in a football program at the age of 10 or 14?
De Picciotto: From what I understand, repetitive trauma, concussive trauma, is the biggest issue. I would not recommend putting a kid into tackle football programs in grade school, maybe not even in high school. There's plenty of opportunity to learn to play football and to get all of the competitive benefits from being involved in a sport without having to go directly into a set of rules where concussions are almost encouraged as part of the game.
Gardner: I know that some friends of mine who do have their kids playing football today who coach talk about, the sport is changing. It's becoming more of an acrobatic thing. How to tackle somebody, they're teaching, not how I learned to tackle -- I often would lead with my head, I'm sorry to say. It's not even just, get your head off to the side. It's almost like you're lasso-ing them with your arms and pulling them down backwards. There's just new forms of tackling. Do you think that the NFL one day will go back to no helmets?
De Picciotto: I would doubt that. I have no idea. But I think that going backwards to go forwards is not a good strategy in this case.
Gardner: All right, and just sticking with competitive sports a little bit longer, Phil, I'm hopelessly American. I try to be a globalist. I try to have as wide a vision as I can. But I can't tell, what is a bigger sport -- soccer or basketball? Now, here in the U.S., we think that basketball, both college basketball and the NBA, is a gigantic sport. We see the players worldwide. The players who aren't good enough to get drafted by the NBA, they're playing somewhere else in the world these days. So it looks like a big sport. But I always hear soccer is the universal sport. From a business standpoint, which is a bigger phenomenon?
De Picciotto: I've never compared the two economically, but my hunch is that soccer is the bigger traditionally global sport, and basketball is the biggest trending global sport. Adam Silver, the commissioner of the NBA, says this very eloquently. It's interesting but completely understandable that the two leading global sports, at least team sports at this moment, are each played with a ball; one where you use your feet, one where you use your hands, but there's very little equipment needed and you can play in every environment. It's an interesting comparison to make. But they're both going to be enormously successful going forward.
Gardner: I guess a big part of the popularity of those sports, in addition to the simplicity of a single ball, is that you can play it with one other player. Just a friend. Even though basketball, we know, is five on five; soccer is 11 on 11, you can just hoop it up with a friend and not feel like you need to have nine other players on a diamond, or five or so for a good Nerf football game.
De Picciotto: Exactly.
Gardner: All right, and now, our final section, Phil. I want to start talking about the future. I don't think we should start talking about the future until we start talking some about betting. I know that's a big part of your thinking. You referenced it a little bit earlier. I grew up in a world where, to bet on the sport, I think, was illegal, except that I heard that over in the U.K., they were constantly punting, betting on what was happening in sports. It seemed like more an American phenomenon that we weren't allowed to bet. But of course, people were betting anyway. They had bookies or they had their office pool, which I guess was technically illegal, March Madness office pool 10 years ago, if you were playing for money. It feels like the whole world is shifting.
De Picciotto: Sports betting is a complicated issue. There's so much money that's already being spent in that area that it's inevitable that those governing the sports will want to capture it for their own benefit. On the other hand, the integrity of the game could be at risk. It goes back to our conversation earlier about trust. Integrity is fundamental to any business, but particularly, one might say, in the sports business.
Gardner: Let's talk about looking at the future, still, that's where we're focused. Let's talk about three major forms of revenue. I'm just curious how you would rank them 10 or 20 years from now in the future. The three forms I'm thinking of, Phil, first are, how about stadium revenues? Things like ticket sales, concessions, etc. A second one, TV revenues. That can include streaming, internet-based revenues. And then a third, betting money, money that's being bet on the games. Which do you see growing fastest in the next 20 years?
De Picciotto: Betting, without any question, will grow the fastest. The in-stadium experience is challenged. I think we've probably all had that experience ourselves with increasing traffic in the major markets, with the amount of time it takes to get to a game, the cost of getting to a game, the cost of the concessions, although teams are interestingly now looking at reducing the cost of their concessions. The Atlanta Falcons, for example, have gone that route and been enormously successful doing it. But it's still a challenge to get people into a stadium and to spend at the levels that they have done before. There are too many choices, and time has become too valuable. So media, and betting, which is attached to media, are clearly revenue streams that the leagues and teams are looking to capture in a much more significant way going forward.
Gardner: In a prior conversation you and I had, you were talking about the difficulty of bringing fans in. We talked earlier today about baseball being three hours or so, and how much time do we have. Golf is challenged because, to play a good round with a friend, 18 holes is like four hours of our time. Some of us have kids, and that sort of thing. Time, it feels like, is becoming more precious and more valuable. I'm not talking about for the athletes. I'm talking about the fans, you and me. Where do we want to spend our time? So, Phil, let me ask you. I think in a prior conversation you and I had, you were making predictions like, stadiums are going to get smaller. Is that how you feel?
De Picciotto: Yes. The trend has already started. There was a time when stadiums got larger and larger. It was almost a badge of honor to have high attendance. Certain leagues had requirements that stadiums be filled before the games could be broadcast on media. Most of those trends have now reversed. The personalization of the experience is more important than the size. I would say, again, that's a societal trend. The right small audience is more valuable for a company than the wrong large audience. We can target advertising. We can target the way that we try to present and sell our products or services. That generally provides you with a much better return than some kind of blanket outreach.
Gardner: If there is a problem around stadium revenues, I think I'm part of it. I watched almost every one of the Minnesota Twins games on the Major League Baseball package. I don't go to any of the games. I'm just sitting there and I'm zooming through the ads, never watching, on my DVR, the ads if I can. Sometimes I'm skipping pitches or individual outs just to get through games and see results. But I assume I'm still productive for Major League Baseball. That leads us to a question about television revenues. Where are those today? Where were they 20 years ago? Where do you see them 20 years from now?
De Picciotto: There was a time, of course, when most sporting events were broadcast only on radio, not on television. The distributors of content on television, when there were very few channels, essentially got to decide who the stars were going to be and what was going to be shown. And then that shifted to being much more consumer focused. We now can see any game we want, on any kind of device that we want, wherever we are in the world, in real time or not in real time. That's a trend that will never be reversed.
Gardner: Back to betting, then, Phil. What I'm not doing right now is, I'm not sitting there at my TV with my iPhone in hand -- well, I still do that, but, on my iPhone, I'm not saying, "I bet $1 that the next pitch will be a ball." And yet, that might be the future me. I'm certainly open to it. I'm not against it. I love speculation! I think it's a great way to learn about the world. Every stock that I've recommended or bought or sold is, in effect, just a proxy bet on that corporation thriving or not and the market agreeing with me a year or 10 years from now. So though I can't do that today, maybe some people are already. I suspect a lot more of us, talking about predicting the future, a lot more of us will be doing that in the future.
De Picciotto: Technology opens up the possibility of micro betting. An aggregate micro betting environment, I think, will be more lucrative than just betting on games or on seasons or other longer-term phenomena.
Gardner: Right. So, micro betting, basically, next play in football, run or pass? These kinds of things are what you're talking about.
De Picciotto: Yeah. Unlimited opportunities. Whether a free throw will bounce off the front or side of the rim or actually be made free throw or a golf putt. How many inches from the hole will it stop, on what side, will it go in the hole? There's an unlimited ability to, even at some point, probably, create one's own bets.
Gardner: Makes sense to me. I have a feeling that this is the section of the interview where, if we listen to this 10 or 20 years from now, we'll be laughing at how simplistic my questions sound. Sort of like when the internet was just starting, and people like Brian Kimball were saying, what is internet? I have a feeling it'll be so prevalent in the future that we'll look back and think, it was funny to think that they couldn't bet on that back then.
For any big trend, whether it's the dawn of the internet, or in this case, more sports betting in the United States, I'm always curious, who are the early movers? Is this already happening out there, Phil? Again, I'm describing myself as not doing this yet. But I'm certainly open to uploading $100 from PayPal into an account and having fun, and probably running that baby down from $100 to $0 because the house seems to always win. Regardless, Phil, is it already happening?
De Picciotto: Yes, it's already happening. Maybe the best way to understand it is to think back to the market for scalping tickets a couple of decades ago. It was not legal in many cases. Yet it was happening. Somebody was making a spread, and sometimes a very big spread. And the people who really wanted to go to the games, the true fans that owners wanted in the stadia, were the ones who sometimes had to pay the most just to get in, which is backwards from what it should be.
If you think about that in the betting world, rather than having it unregulated and having people who have not invested in the underlying property making that spread, the teams in the leagues are going to try to capture it. All of them are interested. Again, the biggest issue is whether the technology that enables betting will also be the technology that can police betting and maintain the integrity of the sport.
Gardner: All right, near wrapping up. Phil, from betting, I want to talk maybe briefly about social media and just thinking about it. First of all, looking back for a sec, my friend Roger Friedman, who works with me here at The Motley Fool, was saying, "Hey, Dave, ask him, how has the arrival of social media affected or changed the value of athletes?"
De Picciotto: Social media has removed the filters. The athletes who are good at it gain an enormous benefit. They can control the timing and the messaging to connect directly with their fans. The athletes who are not terribly good at it typically tend to stay away because there are enormous risks associated with it as well.
Gardner: As those fences that were dividing fans from athletes back in the day, both literal, like sitting behind the wall in left field, or the intangible ones, like no access to athletes, but now Twitter gives us access. So as those walls start coming down, do you see a world where, let's say virtual reality, I can watch the game through the quarterback's point of view 15 years from now? I hear people talk about those kinds of things. Always interested in how technology is going to change.
De Picciotto: Technology has a big influence in sports already. That influence will only get bigger. Certainly, virtual reality is an opportunity for team owners to provide scalability for each seat in the stadium. One doesn't just sell to one; one can sell it to as many people as they want with that particular point of view.
Technology and data are also important in player evaluation, player performance. In real time, a coach can decide what someone's playing status should be in the next 10 minutes of the game, for example, based on the oxygenation of his or her blood, or various other factors that are going to be measurable right on the sideline. That gets into the same societal issue that we all have, which is the benefit and the opportunity vs. privacy rights. Who owns that data, and who's going to be able to trade that commercially to improve their financial position in a negotiation?
Gardner: I guess maybe one of my favorite questions, this one came from Andy Courtwrit, @ACourtWR8 on Twitter.
Andy, clearly, you think the way I do because Andy says, "Jump ahead 20 years, Phil. What is the most radical innovation that will be common in sports at that time?"
De Picciotto: The merger of e-sports and physical sports will probably be commonplace by then. In fact, e-sports will probably utilize the actual footage of real sports for those games. Combining that with virtual reality and other technological advances, some of which, of course, we can't even imagine right now, the sports world will look completely different as a result.
The second place where I think things will look very different in 20 years is an increased emphasis on mental health. You're already starting to see that now. Michael Phelps led, very courageous. But again, sports and athletes, being a microcosm of society, sometimes with unique pressures, sometimes with just the pressures that everybody else feels in their spheres as well, will be such important and visible role models that they will be embraced by a world which is very concerned about healthcare generally, and focused more and more, I think, on the brain.
Gardner: Phil, a couple of months ago in this podcast, I had our friend Benton Moss, who's not just an excellent blogger about finance on the internet, but Benton also happens to be a AA pitcher right now for the Montgomery Biscuits. And he was talking about something new called Pando pooling. I don't know if you know this or not. You probably know this type of a thing. This is what he was sharing with our listeners. There's a lot of risk to trying to be a professional athlete. Only a small percentage actually ever make it to the big dance, the big show, whatever you want to call it. And those who do can earn a ton of money. All the rest of us who don't, don't really get much at all. I believe it was called Pando pooling. Benton as a minor league pitcher was saying, "I am going to join up with, let's say, 10 other athletes that are all around my level. If any of us makes the big show and starts getting a Major League contract, we precommit to paying, for the rest of our lives, 10% of all we make back into our pool." I believe this comes out of a couple of Stanford d-school students. I think the business itself would be, they take 1% of everything, kind of a thing, at a business level. But I thought that was a really interesting model. Do you have any thoughts on that kind of a model, either for baseball or sports in general?
De Picciotto: I don't know about that platform in particular, but it strikes me that it might work for a very limited audience. It's basically risk tolerance of an athlete to decide whether to do that or not. It strikes me as being similar to betting on the field in a horse race as opposed to some of the favorites. My feeling, without having studied this at all, would be that for an athlete with substantial talent, it's not the right thing to do. One needs a pretty substantially sized pool for it to work. One also has to remember that most athletes don't make a lot of money. The average NFL career, for example, is shorter than the period covered by the rookie wage scale. It's only if an athlete gets to a second or third contract, typically, that they make a lot of money. It's a socialized way of diffusing risk and limiting one's upside. I just don't know who the buyers would be other than the pool of athletes themselves involved.
Gardner: Yeah. Which I think is how it's supposed to work. This is a nascent, early thing. But I know Benton, when he came through, was saying, "I'm currently having to explain the model to other people in my league or at my level," selling them on it. He has gotten a cooperative together. It's an interesting emerging model. But, I hear you.
De Picciotto: One of the interesting things about the world is that there's room for so many different products and so many different ideas that not only can an idea work, but it doesn't even have to work in that many replicated situations, because people are empowered to do these things themselves.
Gardner: Phil, in earlier conversation, I was asking you, because we are The Motley Fool after all, do you guys manage the money of the athletes? How do you make sure they don't go bankrupt? I think we've all seen the headlines here and there. I hope it doesn't happen that often. But when it does, it's pretty dramatic. This person made over $100 million playing in their career, and they just declared bankruptcy. What are your feelings about that? What's your business approach to that?
De Picciotto: Athletes tend to be very young by the time they make it to a situation where they can earn a lot of money, and they need advice. Some of them come from environments where they've traditionally gotten very good advice. Some of them, less so. With the advent of free agency and people moving around the country a lot or the world a lot, there is more risk to an athlete that they will not have the consistency of good advice as they're emerging that they would really need or like to have. So we do have a financial company. It is both focused on financial planning andinvestment advice also tax planning, and everything from cash management and bill paying on down. But most importantly, it's to educate and preserve wealth.
Gardner: Any chance you want to partner with The Motley Fool, so we can help manage some of that money and outperform the market for your athletes?
De Picciotto: We'd be delighted to have that conversation! We partner with outside firms all the time, and you're at the top of the heap. We should have that conversation!
Gardner: All right, good! Well, we won't do business on this podcast. Phil, I saved this one to last to close out. This one comes from, I think, a mutual acquaintance of ours. My friend Mahan Tavakoli @Mahany on Twitter. You don't show immediate recognition like he's one of your close friends.
De Picciotto: I don't know him very well, but I have a very good impression of him.
Gardner: OK, good, because he has a very good impression of you. That's why I was thinking you might be closer friends than I hear now. But this is a lovely thing and I wanted to close with this. He said, "Phil is very successful and has lived by high values while achieving his success. Might want to ask him about his values and how they have guided his career decisions over the years."
De Picciotto: I've never thought that someone should act differently in business than they would in their personal lives. When people say, "it's just business," it's a way of them telling you that they're doing something that they know might not be top drawer. For us at Octagon, it's really a very simple formula. It's based on expertise. If anyone's going to hire us, they expect us to know what we're doing and to be able to help them in areas that they don't know as well as us. Second, I think they expect us to be passionate, to love what we do. One has to be really dedicated. It doesn't matter how much one knows unless one's willing to take all the steps to apply it properly. And then you need to do that in an environment where you're honest. Honesty just means being reliable, being consistent. Don't surprise your clients or business partners. Put those three together, and you have a very powerful combination.
Gardner: Phil De Picciotto, thank you for joining me this week on Rule Breaker Investing!
De Picciotto: Thanks, David!
Gardner: Well, again, my thanks to my friend Phil for generously sharing not just his time with us, but so many insights across so many contexts. Yes, as fun as I had with that interview, and admittedly, I'm a big sports fan, so it's just super fun for me to be sitting in the room with Phil for an hour, but, I had so many more things I'd love to ask him about now. Perhaps we'll have that chance again in the future.
All right, that's what I have for you this week! You can wish me happy birthday a little bit later this week. I'm turning 53 -- sure, I'll put it out there. It's a prime number, by the way! Prime numbers -- mathematicians, you know this -- are beautiful. In the meantime, have a great week! Talk to you next week! Fool on!
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