Today’s post is an excerpt from an interview with Ken Stefanov, CFO for the Indians, conducted by Peter Alpern from BusinessFinance (businessfinancemag.com).
Anguish isn’t just part of the Cleveland sports fan’s culture; it becomes part of its very identity, seemingly embedded in the city’s very DNA. It is this tidal force that franchises such as the Cleveland Indians, Browns and Cavaliers come up against each season.
Ken Stefanov, CFO for the Indians, has to combat this on two ends: providing the financial and organizational foundation to build a winning team on the field while addressing the sober economic reality of competing in a market that draws roughly a fifth of the annual revenue of the New York Yankees.
As the calendar turned to June in this, the Indians 111th season in the American League, the Indians have become baseball’s biggest secret, racing to the top of the Central Division. But that success hasn’t equated to the turnstiles: Less than half of the seats at Cleveland’s Progressive Field are full and season-ticket sales are at their lowest since the Indians moved into their current stadium in 1994.
Stefanov discussed with Business Finance how the Indians, with all the organization’s small-market challenges, is really not unlike any other corporation: financial rigor and strategic insight need to be tightly linked; uncertainty demands flexible strategies and the development of alternatives for growth.
Business Finance: From a financial perspective, tell me a little bit about the economic landscape you’re working with and how that translates on the field and running the business?
Ken Stefanov: The local economy, obviously, is quite different from the one we were operating in during the 1990s and it’s quite different from even five to 10 years ago. The competition isn’t just with the local sports teams, like the Cavs and Browns. We’re an entertainment business and people have options.
We work based off where the team is in relation to the business cycle. You ramp up, develop players and hopefully make a charge on top of the business cycle for competitiveness on the field. Then, the way the economics of baseball work is that you’ve got to be fiscally responsible and maybe take it down because players leave for bigger contracts you can’t afford. So you learn to deal with the business cycle, and you learn to budget accordingly.
BF: Where is the team within that business cycle right now?
KS: The state of the [Indians] franchise is good. I say that in light of the whole Dodgers situation. We have to be very realistic about where the team is at and what the market will bear. While it appears we may be in the midst of a recovery economically, we have some very serious concerns about the Northeast Ohio economy and where it’s going. Statistically, we’ve seen unemployment is down. It’s dropped to 9.3% in Northeast Ohio. Last year, it was up 1.5%. So there are some glimmers of hope. But it’s my job to be realistic and take the emotion out of the baseball side of things.
BF: Where do you see the role of finance contributing to the success of a ballclub?
KS: Well, for us, the big picture here is, as an organization, to win a World Series. We’re also here to make the fans—the focus of our attention—entertained. We want to reinvest in our ballpark, and we want to have a positive impact on our community. Those are our four goals.
To do that, though, we have to be creative, especially in finance. There may be very little difference between the finance departments at the Indians and the Yankees and a Fortune 500 company. But I think it’s my charge to make sure that the little difference that there is counts for a significant influence on the operations of the company.
BF: Within the confines of the finance department, how do you overcome that competitive disadvantage?
KS: We have to be that much sharper in our decision-making process day to day. We have to spend wisely. And it’s that pressure to be smarter that I think will make a smaller-market team successful or not successful.
One of the things we have made an investment in as a small-market team is in my IT department—which I oversee—we have developed our own proprietary software applications. We do not share these with other teams. One [application] focuses on scouting, another identifies metrics and trends and then another is a video coaching system for adjusting mechanics for the players.
This is where small-market teams really have to separate themselves. Maybe the Yankees have a comparable system, and maybe they don’t. But because our margin is so thin, we have to excel in other areas because we’ll never win the outbidding game.
To continue reading the full interview, visit www.businessfinancemag.com. Thanks again to Peter Alpern for sharing this interview with us!