Boosting Profits

An international CFO shares the benefits of zero-based budgeting

Clarke

Name: Ian Clarke
Title: Executive Vice President, CFO, Business Development at Maple Leaf Sports & Entertainment Ltd.
Location: Toronto
Age: 49

Power Play: Clarke’s modification of the budgeting policy at MLSE, which comprises several sports franchise divisions, including the NBA’s Toronto Raptors and NHL’s Toronto Maple Leafs, boosted the organization’s bottom line by 3% to 5%. Clarke was also one of the decision makers behind the company’s investment in Maple Leaf Square (also under Clarke’s business development portfolio), a 500 million Canadian dollar ($476 million) mixed-use development that includes a sports and entertainment complex.

As CFO, one of the first things you instituted was a zero-based budgeting process, in which line items are based on forecasts of revenue that will actually be generated and received during the period covered by the budget. Why did you implement this?
We really challenged ourselves to think outside of the box and start with a clear, clean approach that would achieve our annual objectives. By going back and doing zero-based, you try to avoid biases of leaving numbers in from one year to another that might not be the best spent dollars. That was a key approach for us in terms of challenging ourselves and looking to operate more efficiently.

It makes managers think before they request funds.
You’ve got to show the need. With [a new hire], you want to make sure that person is going to deliver. Is the person going to bring in more dollars or provide better service? If we’ve identified a service weakness and that person is hired to fix it, then we can go back and measure later on whether that service level has in fact improved.

What were some of the immediate effects with regard to cost reduction?

It helped educate our managers and directors and made them better financial managers. When you look at the skill set that’s required to be a manager or director in our organization, we want people who are functionally strong in their areas, but then they have to be good in a number of other areas as well, from human resources to general business, and they have to understand their financials. By getting into that sort of depth, it really starts to get them to understand the numbers and dynamics behind their business and how their actions can impact the bottom line. So I think it helps [them] become better managers and to grow within our organization.

Has the trend of increased fiscal responsibility and transparency changed today’s manager?
I think that everyone has felt the pressure to get the most from the least. That’s put pressure on every manager to be more efficient, to get closer to his customer, to establish those long-term relationships and keep them. So there’s pressure in every facet to maintain and grow your business, and sometimes it’s a fight just to maintain it. Generally, everyone has had to be more astute and aware and try to look around the corner to see what’s next. If you’re not flexible and not able to change quickly, you might get left behind.

With the Canadian dollar near par with the U.S. dollar, your organization has benefited. But what if it goes the other way? How can management best protect the organization from fluctuating currency values?

I’ve been with the organization when the [Canadian] dollar was as low as $0.60 (U.S.) and as high as $1.10 (U.S.). We have a hedging policy that we enter into U.S. dollar-forward contracts to try to lock in a certain rate and then budget according to that rate. When you budget you then look at how to limit some of your U.S. dollar expenditures or how you can get more Canadian dollar revenues to offset that. It’s about cash flow and managing your business and being able to pull different levers in order to counteract, in our situation, a weaker Canadian dollar.

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