AVP’s Hodell: An officer and a banker
Jason Hodell.
Eight years ago in May, at the height of the dot com meltdown, approximately 75 of the AVP’s top players attended a meeting called by sports agent Leonard Armato at his Digital Media Campus in El Segundo. The players included 1996 beach volleyball Olympic gold medalist Karch Kiraly, and 2000 beach volleyball Olympic gold medalists Eric Fonoimoana and Dane Blanton.
The players met in Armato’s personal office.
“There was plenty of room. Leonard has a big office,” Fonoimoana said following the meeting. Behind Armato’s desk was a size 22 basketball shoe signed by his client Shaquille O’Neal.
Armato announced he was buying the AVP tour, which he had been executive director of from 1983 until 1990, when it was player-owned. He had left when the players rejected his demand for equity to become one of professional sports’ top agents.
In a tone that was part pep talk, part hardball, Armato outlined his vision for the future of the AVP. Players would be guaranteed $1 million in prize money for an eight-stop tour, beginning the following month with the Mervyn’s Beach Bash in Hermosa Beach. The men’s and women’s pro tours would be combined for the first time to give the tour mass market appeal. International rules, with its larger ball, smaller court and rally scoring would be adopted. Traditional side out scoring was too slow for TV. The players’ jobs wouldn’t end when they left the court. They would be salespeople as well as athletes. All players, from journeymen to Olympians would work under identical contracts.
Armato ended the one and a half hour meeting by advising the players they had until noon the following Friday to sign the contract.
Underscoring the players’ limited options was the presence of Spencer Segura of Spencer Trask, the New York investment company that had bought the AVP out of bankruptcy in 1999. Segura encouraged the players to embrace Armato’s proposal.
Despite grumbling that he was bastardizing the game, by Friday’s deadline, 110 AVP players had signed on. Armato promised them one day they would be playing in fan-packed, beach volleyball stadiums.
Last week, under circumstances both distressingly similar and hopefully different, AVP players were again asked to sign new contracts drafted by a new CEO, Jason Hodell, confronted by a new, tanking economy. The players have been without a contract since last year.
“We’ve all been humbled by the terrible state the sport is in. We keep getting thrown smaller lifeboats. But to a drowning person, a small lifeboat looks good,” Hermosa Beach Open winner Canyon Ceman, who has economics and sociology degrees from Stanford, observed in 2001.
Last week, Ceman, now retired from the tour and a consultant for the AVP, gave a more nuanced assessment of the AVP and its new head leader.
“It’s not an easy business. It has costs other sports don’t have, like building temporary stadiums and dealing with the California Coastal commission. And it lacks traditional revenue sources, like fully paid admission.
“But my impression of Jason has been very positive. He’s a West Point and Wharton graduate, and has business turnaround experience, which seems appropriate for the AVP.
“And he’s approaching the task of improving the AVP with humility and a focus on costs and operation efficiencies, which has been lacking in the past,” Ceman said.
In contrast to the autocratic Armato, who denies having been the inspiration for movie super agent Jerry McGuire, Hodell prefers the term player partnership to player contract.
Palace coup
Following Armato’s sudden resignation at an AVP board meeting in April, players generously praised him for building the tour from six tournaments in 2002 to 31 in 2008, and quadrupling the prize money.
“Leonard was a great asset, in terms of growing the tour’s revenue and position in the very complicated world of minor sports. And we’re all appreciative of him for that,” Canyon said.
But that appreciation didn’t allay concerns about their paychecks. Last year, despite $23 million in revenue, AVP lost over $3 million. It was never profitable under Armato’s entrepreneurial-style stewardship.
Hodell, 40, arrived well prepared to transition the AVP to what he describes as a sustainable business model.
Like Armato, the 6-foot-5 Hodell was a passionate and modestly successful volleyball player. He grew up playing club volleyball in Virginia and was an outside hitter at West Point. During five years as an Infantry Ranger in Hawaii, he worked on his two-man game at Outrigger Beach, the birthplace of beach volleyball. The beach was home court for University of Hawaii players, including included future AVP standouts Kevin Wong and Sean Scott. (Scott, now a Redondo Beach resident, and teammate John Hayden defeated 2008 Olympic gold medalists Todd Rodgers and Phil Dalhausser at the AVP Open in Atlanta three weeks ago).
On leaving the Army in 1996, Hodell obtained an MBA in economics at the University of Pennsylvania’s Wharton School of Business, and then joined J.P. Morgan, where he helped turn around a troubled, $10 million web hosting company presciently named Digex.
When Verizon acquired Digex for $100 million in 2003 Hodell used his proceeds from the transaction to found Plainview Capital Investments.
Hodell continued playing competitive volleyball, including AVP qualifiers on both coasts, until two years ago. His top two AVP finishes, he readily acknowledges, were 25ths. “I just scratched the surface of playing at the AVP level,” he said.
But in finance circles, that qualified him as a volleyball expert, and led to an invitation last May to join the AVP board from AmTrust Capital Management, a major AVP shareholder.
AmTrust’s concerns about Armato’s management traced back to Armato’s attempt to sell the AVP in April 2007 to Shamrock Holdings, headed by Roy Disney, Walt Disney’s nephew. Armato had taken the AVP public shortly after the 2004 Athens Olympics when the tour’s popularity received a big boost from Kerry Walsh’s and Misty May-Treanor’s gold medal performance. Fellow AVP players Holly McPeak, who is Armato’s wife, and her teammate Elaine Youngs won bronze.
Shamrock’s $36.9 million offer included roughly $4 million for Armato and a five-year contract at $450,000 a year. AmTrust and other major shareholders blocked the deal on the grounds that it was 18 percent below the AVP’s stock value, and was “flawed by clear conflicts of interest.”
Last December, when the AVP was voluntarily delisted, its stock had fallen to less than 5 cents a share.
Settling in
Hodell moved to Manhattan Beach from Annapolis, Maryland last summer with his wife Adrienne and children Graham, 8, and Rowan, 4,
His first assignment was the audit committee, he said during a recent interview at the AVP’s ninth floor offices in the Howard Hughes Center. Recognition that the AVP would run out of money before the end of 2008 led Hodell to focus on a search for new investors.
“Armato and I team pitched a lot of people. One of the companies was RJSM, whose managing director Nick Lewin, was a friend of one of my analysts at Plainview Capital,” Hodell said.
Armato and Hodell invited Lewin and his associates to AVP tournaments at Miami, Chicago, Coney Island and Manhattan Beach.
“Lewin saw the potential and was excited. He still is,” Hodell said.
In September 2008, RJMS invested $3.5 million, just enough to cover AVP anticipated shortfall. A condition of RJSM’s funding was that Hodell be appointed chief financial and chief operating officer.
Armato’s departure in April, while described by the AVP as a resignation, coincided with negotiations for a new round of funding from RJSM. Following the meeting Lewin announced his company would increase its investment in exchange for 60 to 70 percent control of the tour.
Hodell praised Armato to reporters as “a devoted and tireless visionary who took the sport to new heights. There was just a difference of opinion on how to move forward with the property.”
Armato declined to comment about his departure, saying he preferred to end his legacy on a positive note.
“It was a great run. It’s a sport I love, and I look forward to my next challenge, whatever that will be,” he told reporters.
Moving out
Olympic gold medalist Eric Fonoimoana met with Hodell last year, shortly after he was named COO and CFO. Following the 2000 Olympics in Sydney, Fonoimoana established Dig For Kids. The charity enlists AVP players to coach inner city kids in volleyball and academics. Its fundraisers, where supporters mingle freely with the towering, strikingly attractive AVP men and women, are highlights of the beach society calendar.
Fonoimoana wanted Hodell to expand the AVP’s partnership with Dig For Kids. Then, speaking to a broader issue, he urged Hodell to expand the AVP’s outreach, not only to the local inner city, but to future players and fans nationwide. Not for charitable reasons, he argued, but for the tour’s own survival.
AVP men’s teams have won gold at three of the four summer Olympics since beach volleyball was introduced in 1996. Kerri Walsh and Misty May-Treanor won gold at two of those four Olympics. Two of the eight gold medalists, Fonoimoana and Walsh, are Hermosa Beach residents. 1996 silver medalist Mike Dodd and 2004 bronze medalist Holly McPeak are from Manhattan Beach.
But the AVP’s level of dominance cannot be sustained by a development program that consists largely of beach pick-up games at 16th Street in Hermosa, Marine Street in Manhattan Beach, and half a dozen other Southern California beach communities, Fonoimoana told Hodell.
“We won those medals because we happened to have great athletes those years, and not because of any development system,” Fonoimoana said in an interview last week.
Beach volleyball’s development has been stunted, he also told Hodell, by the AVP’s lack of cooperation with other governing bodies, in particular the FIVB. To the distress of the AVP, the Lausanne Swiss-based, international league was allowed by the United States Association of Volleyball (USAV) to pick the beach volleyball teams that represented the U.S. in all four Olympics.
The conflict between the rival leagues resulted in Fonoimoana, himself, being suspended by the AVP the year after he won gold in Sydney for skipping an AVP tournament in Muskegon to play in an FIVB Olympic qualifier in Italy. Mark Paaluhi, one of the area’s most promising players was permanently banned from the AVP that same year for playing in a minor King of the Beach tournament. (He recently appealed to Hodell, who lifted the ban.)
Free ball
This year two sea changes in the sport occurred that opened the door to greater cooperation among beach and indoor volleyball organizations. The FIVB has relinquished responsibility for naming U.S. beach volleyball Olympic teams and the NCAA has made beach volleyball a sanctioned women’s sport. (Henceforth to be known as “sand” volleyball in deference to beach-challenged campuses). The 2009 Collegiate Beach Volleyball Championship was played in a sand court stadium trucked to the Riverside Civic Center by the AVP for April’s Riverside Open. The championship was won by Hermosa Beach’s Jupiter Alex and her USC teammate Jessica Gysin.
The FIVB’s departure promises the AVP a greater say in the U.S Olympic team selections, providing it can work cooperatively with the USAV.
The USAC has long neglected beach volleyball in favor of the six player, indoor game. But that is expected to change with the arrival of first women’s and then men’s NCAA sand volleyball. The prospect of beach volleyball college scholarships is also expected to encourage participation at the high school level, which has an estimated 400,000 indoor players.
Armato was mocked when he proposed beach volleyball stadiums in 2001. One of his most notable missteps had been the 1997 Volleyball World Championships at UCLA’s LA Tennis Center. With Nike as a sponsor, Armato brought the world’s best volleyball players together by negotiating a truce between the feuding AVP and FIVB. But the event drew just 3,000 paid attendees, prompting FIVB president Ruben Agosta to declare that if the world championship ever returned to Los Angeles, “I would go to Manhattan Beach.”
The 2003 AVP/FIVB tournament at the Home Depot Center Tennis Stadium in Carson was similarly unsuccessful, despite being the final qualifier for the 2004 Athens Olympics.
But with beach volleyball becoming a college sport, Armato’s vision of beach volleyball stadiums dotting the country suddenly becomes less fanciful. If it happens the stadiums could save the AVP the millions it now spends annually trucking stadium scaffolding and 200 tons of sand around the country.
An officer and a gentleman
Hodell described his Plainview Capital investments as predicated on “cash flow drive.” His plans for the AVP are based on a similar analysis.
“Leonard built a beautiful brand over a course of eight years and to do that required heavy investment in marketing, media and a big operational footprint…My task was to come in and analyze the business. We worked very hard at developing a different operating model.
“We right-sized the operational footprint and scaled back the media, cutting $5 million out of costs. The stadiums we set up in Hermosa, Manhattan and Atlanta last year cost $150,000. This year in Atlanta we cut the stadium cost $50,000 by eliminating some corner and VIP seating, and we sold more tickets,” he said.
“It sounds overly simplistic, but the key to any successful business is taking care of your products and your customers,” he said.
“At the AVP the product is the players and the game. There’s been a level of player-management discord at the AVP over the past few years.”
One of the most contested areas between players and management has been sponsorship.
Kerri Walsh’s sponsor Speedo could not have been happy with the Nike swash on her suit top when she won the gold medal in Beijing. Nike paid the Olympic committee to be the exclusive uniform sponsor, trumping Walsh’s personal sponsorship.
Under Armato, players could be forced to relinquish sponsorships from companies that competed with newly signed AVP sponsors.
“The issue needed to be simplified and we wanted to give the players more flexibility to market themselves,” Hodell said. “So we came up with a simple rule. If we sign a major tour sponsor, players can’t sign competing sponsors. However, if Kerri already signed Speedo, and later we sign Nike, she’s grandfathered in and we need to be straight about that with sponsors we are trying to sign.”
Walsh’s agent Ryan Morgan described the new player agreement Hodell drafted and is now under review, as “generally more polished and more favorable toward players.”
“Obviously a balance needs to be struck. If a great sponsorship deal benefits the tour, sure, closing a category can be good for everyone. The problem is always in the detail, for example, if a tour sponsorship doesn’t accrue to the benefit of all the players.”
Hodell has also addressed prize money issues with what he describes as “revenue sharing for the players that scales with the business.”
Fonoimoana recalled showing up at tournaments not knowing what the prize money would be.
“At least from what I’ve seen in the emails, Jason appears to have improved basic communications,” Fonoimoana said.
Prize money will be a fixed percent of revenue, regardless of profits, and will increase as profits increase, Hodell said. This year’s prize money for 16 tournaments will be $4.1 million, down from $4.5 and 18 tournaments last year.
“Revenue sharing is a way of making the players feel they have some skin in the game,” Hodell said.
Morgan, whose clients, in addition to Walsh, include men’s Olympic gold medalists Todd Rogers and Phil Dalhausser, said he isn’t troubled by his clients being asked to sign the same contracts as lesser players.
“It works out because the differentiation works out at the sponsorship and prize money levels,” he explained.
New economics
There is a growing academic interest in behavioral economics, which Hodell probably didn’t study at West Point or Wharton, but seems to have an instinctive understanding of.
At the Huntington Beach Open last month Hodell saw packed outside courts, which are free, and empty paid seating around the stadium courts. Three weeks later the AVP announced it would discount admission tickets. $20 tickets were reduced to $10 on weekends and made free on Fridays. The first 50 people to buy weekend passes at the Hermosa and Manhattan opens will qualify for a meet and greet with Olympian Dalhausser.
Tickets are particularly price sensitive in a depressed economy. But more importantly, sponsors are particularly crowd sensitive and sponsor money accounts for over 70 percent of AVP’s revenue. TV doesn’t like empty seats either and NBC is broadcasting this summer’s Hermosa Beach, Coney Island and Chicago tournaments.
NBC will broadcast the women’s finals on Saturday and the men’s on Sunday. The semi finals will be broadcast live on Universal Sports, an NBC cable affiliate.
(The Manhattan Open, popularly known as the Wimbledon of beach volleyball, may not be televised for the first time in years “because of scheduling conflicts,” Hodell said.)
In other efforts to build AVP’s audience, Hodell has reached out to internet audiences with a fantasy league and live streaming coverage of all tournaments. The fantasy league teams require selection of A, B and C players, which helps lower ranked players attract fans. The AVP also plans to launch a social networking site within the next six months that will be the “Facebook of volleyball,” Hodell said.
To increase participation in the sport, AVP players will coach four-day kids camps the weeks prior to major events, including the Manhattan Beach and Hermosa Beach opens. Player Albert Hanneman, the president of Fonoimoana’s Dig for Kids, is the camp director.
The tour has also enlisted Barefoot Wine’s sponsorship of 16 amateur tournaments across the country. Top finishers will receive all expense paid trips to San Francisco on August 13 and compete in that weekend’s AVP tournament.
January through March, four member men’s and women’s teams will bring beach volleyball and 200 tons of sand to midsize, snowbound cities
Cutting through the clutter
To improve the revenue side of the equation, Hodell acknowledged, he needs to “stop the bleeding on the sponsor side.”
Prominent AVP sponsors include Crocs, Bud Light, KFC, Russell Athletics, Gatorade and Malibu Rum. But gone from last year, taking 30 percent of the tour’s revenue with them are Jose Cuervo, Hilton, Nautica, McDonalds, PNY Technology and Banana Boat.
“It’s very difficult to line up sponsors, but we have some pretty basic categories open, including sun screen, health and beauty, water, and airlines and hotels,” he said.
Because of the poor economy, all sports are suffering from declining sponsorship dollars. General Motors cut $7 million from its U.S. Olympic team funding, scaled back its NASCAR sponsorship and even dropped Tiger Woods as a spokesman for Buick, the Los Angeles Times recently reported.
Arena Football’s decade-old Los Angeles Avengers and Major League Lacrosse’s two-year-old Los Angeles Riptide both went under this year.
Even in good times, and despite millions of amateur players, minor professional sports such as tennis, soccer, track, lacrosse, and every professional woman’s sport struggle financially.
But Hodell contends beach volleyball is unique among minor sports. What others might view as its biggest handicap – the fact that most of the country doesn’t have a beach — Hodell views as its greatest asset.
“No one else looks like the AVP on TV. We have Olympic level athletes playing a world class, lifestyle sport on the beach. That’s our special niche, our competitive edge.
“The AVP is not profitable now. But if we hold costs down, and close several big sponsors – a Visa or a Red Bull – and if we execute flawlessly, the economic model turns around quickly,” he said.