Longtime sports executive Dave Checketts, chairman of New York-based sports ownership group SCP Worldwide, works in “a world of difficult people,” and he wanted the audience for his recent Wharton Leadership Lecture to know that difficult people are not limited to the world of balls, bats and baskets. “If you’re going to go into this industry or any industry as a leader, you have to be prepared to deal with difficult people.”

Among the war stories he shared to prove his point was a behind-the-scenes tale of a tense encounter he had at Madison Square Garden in July 1996. This run-in did not involve an athlete or coach; instead it put Checketts nose-to-nose with New York’s mayor at the time — the hard-charging Rudy Giuliani.

Checketts was president and CEO of Madison Square Garden LP, then a $4 billion enterprise that included the Garden arena, the New York Knicks basketball team, the New York Rangers hockey team and the MSG television network. He was in Washington, D.C., on the eve of the NBA free agent season, walking into a midnight meeting with the agent for guard Allan Houston, when his assistant telephoned with urgent news. There had been a brawl at a boxing match that night in the Garden. It had spread from the ring into the crowd, and it looked as if 14 people were killed. Checketts immediately flew back to New York, fearing the worst, not least for the future of his company. He learned that Giuliani was on his way to the Garden. “My PR guy said, ‘We are dead,'” Checketts recalled.

In fact, no one had been killed, but there were injuries and robberies. The terrifying melee had been televised live on HBO. At 1:30 a.m., on a ramp inside the arena, Checketts saw the mayor approaching him with the police and fire commissioners — and the media in pursuit. “Dave, we’ve got a problem,” Giuliani said. Checketts recalled “thinking that this is either the end of my career, or something productive is going to come out of this.”

Giuliani told Checketts he planned to tell the media that the MSG security staff had acted badly. Imagining the next day’s reports — saying the Garden was unsafe — Checketts didn’t back down. “I said, ‘Rudy, if you say that our security acted badly, I’m going to say that the [police] acted badly.'”

Giuliani parried: “Well, then, I’ll say your security acted slowly.”

Checketts: “Well, then, I’ll say that your police didn’t react at all.”

At that point, Checketts recalled, Giuliani did “what difficult people do: He came right up about four inches from my face and said, ‘Do you want to battle with me?'”

Checketts said no. But he refused to let the mayor ruin the company’s reputation. After all, there had not been an investigation into the causes of the brawl. The two men adjourned to a side room and argued for an hour. By 2:30 a.m., he said, “We walked out, joined at the arm basically, and said, ‘This is outrageous. There’s no room for it in New York or anywhere else. There will be an investigation.’ And we announced steps to make sure it never happens again.” The damage was minimized.

Checketts, 52, said it took him years to master the art of the confrontation. He had plenty of practice in New York. Toward the end of the 1998-99 season, for example, Knicks coach Jeff Van Gundy and general manager Ernie Grunfeld were sniping, and James Dolan of Cablevision, which owned the team, instructed Checketts to fire one of them. He reluctantly sacked Grunfeld, his friend, because he felt the players were more loyal to the coach.

Such “who’s in charge?” power struggles can undermine any organization, he said. They affect employee morale and ultimately the product — which in sports, perhaps more than other businesses, is a quick way to lose customers.

Checketts became a sports business superstar early, but he hadn’t planned to. Born in Utah, he graduated from the University of Utah, served as a Mormon missionary and earned his MBA at Brigham Young University. He went straight from there in 1981 to consulting firm Bain. “For three years in Boston, I was trying to find a way to save the Firestone Tire Company,” he said. “We fired 27,000 people and closed seven plants. I was working around the clock…. That was great experience for me when I took over the Utah Jazz, which was almost in bankruptcy. I understood what to do.”

At Bain, Checketts briefly looked into buying the Boston Celtics for a client and met David Stern, at the time an NBA executive. When Stern became NBA commissioner in 1984, he tapped Checketts to help run the struggling Utah Jazz. At age 28, Checketts became the youngest team chief executive in the NBA, and the Jazz soon became a perennial playoff contender. In 1991, Checketts became president of the New York Knicks, and in 1994 stepped up as president of Madison Square Garden, helping to restore the arena’s stature and overseeing the company’s acquisition of Radio City Music Hall. He left in 2001 to start his own company, SCP Worldwide (it stands for Sports Capital Partners), which now owns the St. Louis Blues NHL team and its arena, the Scottrade Center; the Real Salt Lake Major League Soccer team and its new, publicly funded, stadium; and other media and entertainment units.

Ambitious? Sure. The New York Times called Checketts “a monumental operator.” His explanation to the Times: “People have called it ambition, but I have a different view. I don’t see it as ambitious as much as getting in a position to make a difference.”

Opportunities in Tough Times

These are tough times for any business, Checketts noted. But he insisted opportunities exist for visionary entrepreneurs and committed leaders who can anticipate what’s ahead. “One thing that’s very different in 2008: The room for error has disappeared in most every deal. You no longer have that cushion. So you have to be the one who’s thinking ahead.”

To illustrate, he shared another anecdote: In 1999 the Knicks had made the lowest spot in the NBA playoffs and in the first round they were playing the number-one-seeded Miami Heat. In the deciding Game 5 of a brutal series, Allan Houston made an incredible shot to put the Knicks up by one point with just 0.8 seconds left. The victory seemed sealed — Miami had one last possession, but there was an NBA rule saying that, on a ball caught and shot with less than one second left, the shot could not count. Despite the rule, the referees allowed Miami’s Tim Hardaway to catch, dribble and throw up a final shot. If it had gone in, Miami would have won the series. When it missed, the Knicks players ran into the locker room to celebrate, but they couldn’t find their coach. Amid the pandemonium, Coach Van Gundy was still out on the floor, screaming at the officials for not blowing the whistle on Miami’s final shot.

Checketts finally pulled Van Gundy aside and said, “Jeff, what are you doing? We won the game.”

Van Gundy explained: “I’m coaching the next round.”

“You have to have people in your organization who think ahead,” Checketts said. “Be the one.”

Checketts called sports “the ultimate human capital business.” It is important to have a great arena, good concessions, convenient parking and nice suites, but if you have a team that can’t compete, he said, you have no chance of doing well. At the same time, he added, it’s not all about hiring talent. “The world loves talent, but it pays off on character…. As a leader, it becomes your challenge to be able to identify people who at a certain point in time rise to the occasion.” This is a great time for leaders to emerge, “the opportunities for you are going to be incredible,” he suggested to the audience. “If you’re looking for perhaps a real safe opportunity, steady salary, great job — those may be harder to find, but the opportunities for people who are entrepreneurial will be there.”

He stressed, however, that now is a time for leaders who have integrity and want to build value. “A company that’s a large investor of ours [has] gone under in one of the high-profile bankruptcies in New York,” he said. “And I can just tell you that the way these people have lived during the past two decades has been incredible, [as has] the amount of compensation and wealth that has been generated for just a few. I’m not making a political statement. I’m actually not for the redistribution of wealth. But I am for people showing some integrity, some honesty. We need it. We need people who will give back to the community. Private companies can do so much that our government cannot do.”

One thing the government can do is build stadiums and arenas — theoretically for the benefit of taxpayers, but certainly also for team owners. SCP’s new soccer stadium outside Salt Lake City came after a harsh political battle that had residents of Utah attacking Checketts as a rich guy trying to divert tax money to a stadium and away from schools and roads. The state put $45 million into the facility, but the revenue was from a hotel tax from which proceeds are earmarked for promoting tourism. “There’s still a lot of anger in Utah,” he said. “We try to tell them they’re not paying for it if they’re not staying in hotels.”

Buying the Real Salt Lake soccer team was one way Checketts’ company has been diversifying in a tough economy. SCP Worldwide bought the ever-struggling St. Louis Blues hockey franchise in 2006 — and boosted season-ticket sales — but the skating is getting tough for smaller-market teams like St. Louis in the major sports.  TV revenues have flattened, leagues aren’t adding expansion teams anymore and corporations that traditionally buy arena naming rights, sponsorships and luxury suites are cutting back. The growth, Checketts believes, is in non-major sports.

“We invested in soccer because we believe that with the changing population — not just Latino but the changing world integration — soccer has a lot of upside. We bought our team for $15.5 million four years ago. Now expansion teams are trading for $50 million.”

What’s next? “I think lacrosse is going to be a major league sport in the next decade,” he predicted. “It’s high-action, it’s a good television sport, and there’s a very passionate following already. Plus we’re building all these soccer stadiums — they’re the perfect place to play lacrosse.”

Checketts happened to be speaking in Philadelphia a day after the Phillies won the World Series, and the city’s streets still showed signs of the prior night’s celebrations. “Isn’t it amazing that in sports you have the ability as a business to move a community?” he asked. Creating passion is why you should get into sports, or any business, “because if you get into it for any other reason, including creating wealth, it’s very difficult. You can earn a good living certainly, but people have lost a lot of money in sports. [Given] what you saw last night, whether the owners of the Phillies are going to make money or not almost doesn’t matter to them today, I can guarantee you that.”