Eyes On The Goal

A hockey wannabe as a kid, Steve Gluckstern, MBA '82, is now a hands-on owner of the New York Islanders. And that's not even his day job.

Photo by Brian Smale

WHEN STEVE GLUCKSTERN was in high school in Amherst, Mass., he fell in with a group of friends who were great skaters. Alas, Gluckstern was not so great himself, but he hung out with them at the rinks where they played hockey. "Hockey fascinated me," said Gluckstern, MBA '82. "My fantasy was to be Bobby Orr, but that was so clearly out of the realm. So I thought, 'Well, if you can't be like them, maybe you can own a team.'"
      Or maybe two. Early this year, Gluckstern, 47, exchanged his half interest in the Phoenix Coyotes to become a principal owner of the New York Islanders, one of the premiere franchises in the National Hockey League, but one that hasn't done very well on the ice lately. Soon after he bought the team, Gluckstern placed an advertisement in the New York Times, which read: "We are pleased to announce our acquisition of the New York Islanders and the acquisition of millions of long-suffering fans who have endured a serious depression and are owed a vigorous recovery."
      It was quintessential Gluckstern. "That ad captures Steven," said Michael Goldberg, a GSB classmate and chairman and CEO of OnCare Inc., a biotechnology firm in San Bruno, Calif. "It is a mix of sensitivity and irreverence. He is a very, very special guy. He is really amazing in terms of his range of interests and the energy with which he pursues things."
       Gluckstern certainly didn't take the straightest of paths into the world of sports. He had fully expected to spend a lifetime in education. His father, Robert, was a physics professor and college administrator at Yale, the University of Massachusetts, UC-Berkeley, and the University of Maryland. His mother, Norma, has her own Ph.D, in psychology, and worked as a warden in the Maryland prison system. Gluckstern seemed certain to emulate his parents' public-sector life when he got his Ph.D in education at the University of Massachusetts.
       At first he did. Gluckstern taught in New York and Washington, D.C., and even in Tehran in the pre-Ayatollah days. He was idealistic and dedicated but a bit perplexed about what to do next as he approached 30. "I woke up one day and I wondered, when I was 60 and looked back over my life, how was I going to feel about what I had done," said Gluckstern over breakfast at San Francisco's Ritz-Carlton Hotel, where he was staying while his 17-year-old daughter, Sarah, looked over Stanford last spring.
       The problem was money. Gluckstern loved teaching, but he felt people didn't value teachers enough to pay them their worth. He and his wife, Judy, could never afford to buy a house where he was teaching. So he spent a year at the Business School and interviewed for various finance internships but wasn't enchanted by any of the possibilities. Instead, he took a leave of absence and became superintendent of schools in Telluride, Colo.
       "So here I was in this beautiful place with the romantic notion that I loved education--and I do--but the same issues that had been there before were still there," he said. "Here I was, essentially the highest-paid official in town, and I still couldn't afford to live there!"
       He returned to the GSB and decided to change his career 180 degrees. "People get little for doing arguably the society's most important task, which is the education of its young," he said. "I thought maybe I should try to do the complete opposite. What profession does the least for society in which you make the most money? Investment banking. So I said, almost as a challenge, maybe I should test the extremes of employment."
       After two years at Lehman Brothers--"a fantastic institution," he recalls--Gluckstern went to work for financier Warren Buffett at Berkshire Hathaway. While there, he learned the reinsurance business and met up with an old teaching friend, Michael Palm. The two came up with a new permutation of reinsurance in which the insured client could get rebates when its claims fell below expectations. That way, clients would help the reinsurer fight excessive claims rather than leave the reinsurer to deal with them alone. Palm and Gluckstern first presented the idea to Berkshire Hathaway, but when the firm rejected them, they decided to try to raise the money on their own.
       "He came to me to look at his business plan," said associate dean George Parker, a mentor of Gluckstern's at the GSB. "He wanted $150 million. I'm used to people wanting $3 million. I said he would never get it and was very critical of his plan. About six or eight months later, I get a call from him. He'd gotten the money. I was just awestruck. Steve is a doer and a salesman."
       Ironically enough, says Gluckstern, his training as a teacher helped him in the sales part of his business. "Convincing 13-year-olds to learn algebra, trust me, is as difficult a sales job as I have done in selling reinsurance or anything else," he said. "You have to convince them how important it is to them to do this algebra thing when it's not apparent to them that it has any meaning at all. Business is a lot easier than that."
       Gluckstern and Palm's corporation, Centre Re, based in Bermuda, was formed in 1988. Its primary investor was Zurich Insurance Co. Asked by Forbes why he put $100 million of his company's money in two such inexperienced guys, Zurich president Rolf Huppi said, "The answer is easy: Nobody in the insurance business explained the issues and solutions as clearly as Gluckstern and Palm did."
       Gluckstern's new wrinkle was this: Traditional reinsurance policies were one-year contracts sold to insurance companies in which the reinsurer took the entire risk. In contrast, Gluckstern called his offerings "finite risk reinsurance," which involved multiyear contracts in which insurers had profit-sharing incentives. If their losses were lower than anticipated, they got a percentage of their fee returned. It is now an industry standard.
       "It makes the reinsurance company a kind of a bank," said Parker. "It holds the money in trust. It took all the actuarial stuff out of the equation. It changed the industry."
       Within five years, Zurich bought out Centre Re, leaving Gluckstern with at least $20 million in stock options and rights. Gluckstern stayed on with Zurich as CEO of Zurich Re, the company's global reinsurance arm, and served on the corporate board. But back in 1993 he knew what he wanted to do with his big payout. "I said, OK, I'm going to give a lot of the money away and have trusts for my kids to go to college," said Gluckstern. "Then I had money left over. What was I going to do with it? I could invest or live out a fantasy, which was to own a hockey team."
       All that was available at the time in the National Hockey League was an undercapitalized franchise in Winnipeg. The NHL paired Gluckstern, who now lived in suburban New York, with Minnesota investors and they moved the team to Phoenix, where it is now called the Coyotes. Then early this year, a better fantasy came calling. The New York Islanders, who had won consecutive Stanley Cups, the NHL's biggest prize, from 1980 to 1983 but were now among the league's doormats, had their sale fall through. Gluckstern sold his interest in the Phoenix team and put together a bunch of investors. Now he is the principal owner of a franchise he hopes to bring back into another glory period.
       "Some people own teams because they are good marketing and business ventures," said Gluckstern. "And by the way, it is a business and you have to take your business seriously because you can lose a lot of money. But in the end, if you don't have some passion, you won't do a good job of it as an individual owner. If you don't go to the game and really enjoy being there, then I'm not sure why you bother owning a team. There are a lot of better ways to make money," he said.
       But hockey is about more than making money to Gluckstern: He credits it with helping him build a family life that escaped him early in his career. He and his wife, Judy, whom he met in college, moved 17 times in the first 17 years of their 24-year marriage. With travel and long days, he missed seeing Sarah and son Jared, now 13, as they grew. Hockey has brought them together. They go to games together and are always debating the relative merits of Dad's teams.
       "A year ago my daughter said, 'What exactly did we use to talk about before we were all into hockey?'" Gluckstern said. In fact, although Sarah decided to enter Stanford this year, it wasn't a sure thing. Brown almost got her because hockey is a varsity sport there and only a club sport at Stanford. "Here's a 17-year-old girl using that in her college-choice equation. That's an indication of the passion my family has."
       One of the things Gluckstern loves most about owning the Islanders is hanging out in the stands and in the arena corridors getting yelled at--and sometimes even praised--by fans. It's part of his way of doing business to know what everyone thinks. "I remember watching my father when he was president of the University of Maryland," he said. "I would occasionally do homework in his office, and I noticed that he would treat the custodian exactly as he would treat the Nobel prize winner. Exactly. They had different conversations, but his interaction was identical.
       "That was a lesson, and from my perspective is the single most important attribute that the companies I built have," he said. "No matter where you go, you would like to be treated for who you are, not what station in life you've attained, not how much money you have. A lot of my success, I feel, has rested on that issue."
      

Photo by Brian Smale

His success has also been helped by some tough game playing. Last year, Zurich got the largest tax subsidy in Connecticut history--$190 million in credits--for moving only 400 jobs from Manhattan to Stamford. "They were shrewd, they've got some real smart people, and they stayed within the letter of the law," said Connecticut Senate Majority Leader George Jepsen, grudgingly, at the time. Gluckstern and his first hockey partner, Richard Burke, initially wanted to move the Winnipeg team to Minneapolis but insisted on the city giving the team $8 million a year to make up for otherwise limited arena income. When Minneapolis wouldn't acquiesce, Burke and Gluckstern went to work on a better deal in Phoenix. Currently, he is said to be tough in dealings with Nassau County to build a new arena for the Islanders.
       In person, Gluckstern is engaging and low-key, belying that hard-nosed negotiator's image. His eyes sparkle in the middle of a face that seems engulfed by a Santaesque graying beard. But in his enthusiasm not only for hockey but for what may lie ahead, he seems less like Santa than the wide-eyed kid on Santa's lap. Gluckstern would love to teach again, perhaps even at the GSB. He could see himself as a venture capitalist for entrepreneurs from developing countries. A big contributor to Democratic Party politics, he might like a crack at government.
       In late spring, Gluckstern started on his latest venture. He and a colleague stepped down from the Zurich Group's board to found Capital Z Partners, a manager of alternative investment pools that includes a $1.8 billion private equity fund specializing in global financial services investments. Gluckstern retains ties to Zurich as nonexecutive chairman of the two companies he helped set up: Zurich Re and Centre Re, now part of Zurich Centre Group/Centre Solutions.
       But for the time being, the kid who used to hang out at the Amherst rink finds that his greatest moments come while hanging out after Islanders games, debating fans about everything from personnel moves to referees' calls. "I feel like a teenager," he said. "I think we tend to get more conservative as we get older, conservative in all meanings of the word. Maybe I am afraid of that. I don't want to wake up in the morning and say I don't want to get out of bed. Now that scares me."