House of Rock


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The cabbie knows the heartache all too well. The last time a Cleveland team sat atop the professional sports world was 1964, when the Browns beat the Baltimore Colts, 27-0, for the NFL championship. “This town really needs a champion,” he says. “You tell Mr. Gilbert I said this is his year. The Cavaliers are going all the way.”

If Dan Gilbert feels the considerable weight of a long-suffering sports town on his shoulders, he’s not letting on. As majority owner of the Cleveland Cavaliers, who made his fortune selling mortgages over the Internet from the confines of the Motor City, he’s a Detroit booster through and through. Sure, it would be nice to own his hometown Pistons, but with Cleveland banging on the door of an NBA championship, he’s not too conflicted.

He’s also a realist. “Getting an NBA championship is a quest,” Gilbert says. “Last year, we went 8-0 in the first two rounds of the playoffs, and then we played Orlando. There were a few plays here or there that could’ve gone either way, but we lost in six games. Injuries are another factor, and something that’s unpredictable. Luck plays a part, too.”

Not one to wear his emotions on his sleeve, Gilbert likes to blend in and observe the world around him. But when the billionaire owner sees opportunity, he grabs hold and doesn’t let go. Case in point: The Cavaliers’ brass reacted quickly to the team’s major deficiency last year — that it was too soft in the middle — and acquired all-star center Shaquille O’Neal during the offseason.

Will it be enough to reach the summit? Time will tell. But don’t look for Gilbert to dwell too long on the outcome. He’s too busy enhancing a professional sports franchise. Since he acquired the team in 2005, he’s invested $35 million in the Cavaliers’ arena, including more comfortable seats, added sound, and new scoreboards. The venue also hosted 220 events last year, up from 160 events five years ago, according to team president Len Komoroski.

So what’s Gilbert’s secret? “One of the things I always look for are synergies among the various businesses we operate,” he says. “I like to call it the threads of connectivity. If we can promote our other companies as part of something we’re doing, it’s a lot easier than creating something from scratch, or having all of these silos that don’t connect to one another.”

Mindful that professional sports teams are competing for entertainment dollars across multiple spectrums, Gilbert launched a unique in-house ticketing service two years ago that allows Cavs fans to buy, sell, and transfer seats online. Goodbye, StubHub. Hello, Flash Seats. The beauty of the system is that there are no tickets to drop off or pick up. All a fan has to do is flash a credit card or driver’s license to enter the game.

“Even if a game is sold out, a typical NBA franchise only knows 40 percent of the people in an arena because there’s so many tickets changing hands,” says Jeff Kline, president of Cleveland-based Veritix, which oversees Flash Seats. “By operating our own ticketing service, we can get to know 50 to 60 percent of the people, plus there’s a better chance we can fill all the seats even if we’re technically sold out.”

Kline says that up to 7 percent more fans will come to a game because of the team’s in-house ticketing service. So that means added revenue from parking, concessions, and souvenirs. And it’s not just Cleveland fans who are benefiting. Veritix also has partnerships with the Denver Nuggets, Utah Jazz, Houston Rockets, and Colorado Avalanche. “I’d love to get Detroit teams involved,” Kline says.

The Early Years

Born on Detroit’s west side, Gilbert, 48, doesn’t remember a great deal of city life. His family moved to Southfield in the mid-1960s, and he attended Southfield schools. He was active in sports, playing both baseball and pickup basketball. But he often traveled back and forth to Detroit on the weekends — his late father, Sam, was a World Word II Army veteran who bought and operated a handful of bars after leaving the service.

Gilbert recalls playing with the adding machine at a bar and restaurant his father owned near Seven Mile and Woodward. “I’d deliver things from the basement, hang out, have fun,” he recalls. “My grandfather owned a few car washes. I guess you could say we were an entrepreneurial family, but no one used that word back then. Eventually, my dad sold the bars and both he and my mom (Shirley) became Century 21 agents.”

Those early years proved fruitful for Gilbert. He developed a knack for building things and creating value. He would deliver newspapers, sell candy or yo-yos, go door-to-door offering pots and pans — he even got into the pizza business, albeit temporarily.

“We made the pizzas in my mom’s kitchen using Chef Boyardee sauce, and we delivered them on our bicycles,” he says. “But the health department shut us down pretty quickly. We obviously had no business license and really [shouldn’t have been] operating … I think some local pizza outlets complained.

“But I did deliver pizzas for a while, and I believe I hold the world record for the most pizza deliveries in a night — 78 pies on Aug. 12, 1982 (the 4:30 p.m. to 1 a.m. shift). It was a perfect night, great weather, and all the orders were clustered. The biggest problem for a pizza deliverer is getting the money quickly from the customer. I happened to have had a great night.”

 

After graduating from Southfield Lathrup and completing a real-estate license class over the summer, Gilbert attended Michigan State University. College life was fairly typical, though one incident stood out. On Dec. 4, 1981, Gilbert and three other students were arrested for running a sports betting operation. A subsequent article in The State News said the betting ring handled $114,000 from among roughly 40 clients. Gilbert paid a fine and successfully completed probation. The case was later expunged, meaning Gilbert has no criminal record. Gilbert says no money ever exchanged hands.

Later, while in his first year at Wayne State University Law School, in 1985, Gilbert co-founded Rock Financial with his brother, Gary, along with childhood friend Lindsay Gross. The concept — selling mortgages directly to consumers — was novel for its time. Typically, a prospective homebuyer would rely on a real-estate agent to assist with mortgage financing.

“We had a shared office suite, and we were just trying to broker some loans, but we really didn’t know what a mortgage was,” Gilbert recalls. “The real-estate agents had all the power, and the banks didn’t advertise, much like law firms didn’t advertise. It wasn’t something people accepted at the time. But we took out an ad on the back cover of a home circular, and the phone started ringing. So we quickly had to figure out how to close a mortgage. We got it done through trial and error. We were just delivering clarity to a complex business.”

Ebb and Flow

Rock Financial was a success early on. Gilbert served as chairman and CEO and, in 1998, he took the company public. In the same year, he hit upon the idea of using the Internet to provide mortgages directly to consumers and launched rockloans.com in early 1999. Later that year, Gilbert sold the business to Intuit Inc. for $532 million and stayed on as CEO. Three years later, he and a small group of investors bought Rock Financial back from Intuit for $64 million and renamed it Quicken Loans.

“The technology aspect of our business allowed us to offer mortgages in all 50 states, and to this day, we’re still the largest online mortgage company in the country,” Gilbert says. “We even sell mortgages on behalf of other banks. And we’ve always invested in technology. That served us well when we came out of the mortgage Armageddon (in late 2008). Our competitors that didn’t invest in technology had a tough time, but 2009 was our best year ever.” (The company does not share revenue figures, but Quicken reports it generated more than $25 billion in home loan volume last year.)

Always returning to the “threads of connectivity” theme, Gilbert developed a number of related companies in the mortgage industry, including One Reverse Mortgage, Title Source, In-House Realty, and Quizzle.com, the latter an online financial tool that allows consumers to manage their home, money, and credit.

“All of our companies have threads that connect one another,” Gilbert says. “We never operate one company in a silo. When I bought a majority interest in the Cleveland Cavaliers (in 2005), we quickly renamed [Gund Arena] Quicken Loans Arena. We try to leverage our various companies wherever we can so they all work together — and for one another.”

One of Gilbert’s latest projects is Mission Control. In a former nondescript conference room inside the company’s Livonia headquarters, a group of six computer experts routinely monitors Quicken’s loan activity among the 50 states. The digital pipeline helps the company track how loan activity is evolving, along with providing up-to-the-minute ratios as it concerns mortgage types, including FHA, fixed rate, or adjustable. It also includes a digital map, shown as images on a wall, of the 50 states.

“What we’re looking for are patterns and trends,” says Michael Porenta, Quicken’s director of analytics. “We have 80 different metrics we use, such as the price of oil and how that affects mortgage-buying. We look for areas that may have slowed down, and we can report that. It’s not so much ‘big brother,’ but an effective way to identify problems and react to them before they become major problems.”

The company also tackles certain technological challenges head-on. After hiring an outside company to install a fax-distribution system, Quicken’s chief marketing officer Stuart Davis and his team quickly took over and enhanced the operation. “The faxes were either not getting to the right people, or they were going to the wrong place,” Davis says. “So we debugged it and adopted our own system that’s much more accurate and efficient.”

Overall, Gilbert oversees 5,000 employees, almost two-thirds of whom work for Quicken Loans and its immediate affiliates, including One Reverse Mortgage, In-House Realty, and Title Source. Other companies in which Gilbert is either an owner or partner include Livonia-based Fathead, which offers life-size peel-and-stick images of professional athletes and entertainers; StyleCaster, an online shopping and social network geared toward the fashion industry; and Xenith, which produces ultra-safe sports equipment.

Mind Your Ism’s

Every two months, on average, Gilbert and his executive team host an employee-orientation day. The multimedia session, which has been offered for several years, is a tightly orchestrated presentation where some 200 recruits take in the company’s culture, philosophy, and environment.

Gilbert typically does an all-day session, complete with pictures he’s taken of poorly managed companies or operations. There’s the neon sign atop the Toyota Center in Houston, for example, that was partially unlit for the NBA’s four-day All-Star weekend last February. At night, instead of “Toyota Center,” it read, “ta Center.”

 

There’s also a hilarious series of videos of a local pumpkin patch that Gilbert and his family visit every October. In the first video, from 2003, Gilbert trains his camera on a homemade sign that reads “Pumpkin Patch,” but the accompanying arrow points toward the parking lot. Over the course of several annual visits, Gilbert critiques the operation and even interviews one of the handlers. Consistency of message is clearly an issue for the retail operation.

“I didn’t buy into company culture early on,” Gilbert says, “but as time went on, and we got larger, I learned that if you don’t define your culture and the expectations, something bad will happen.” He recalls the day a Quicken recruit sent him a picture of the company’s garbage containers, which were overflowing with clear plastic bags stuffed with papers that could contain sensitive financial data.

“We obviously shred everything now,” Gilbert says, “but I could imagine a TV reporter coming by and doing a rather negative report about us. … I’m not saying people can’t make mistakes, but if we do see a mistake, I want people to point it out. You need to have your head up; you need to look around. Don’t bury yourself in a silo.”

Using a basketball analogy, Gilbert asks that each worker act like a good point guard. Dribble the ball, yes, but look down the floor to see the action and look for any deficiencies. If a man is open, pass him the ball. Or take it to the hoop yourself and try to score.

“I’d rather have a company that does thousands of little things very well instead of a company that does only one thing well,” Gilbert explains as he meanders from one side of the orientation room to the other. “If you only do one thing well, people can copy it. But if you do a lot of things well, people will have a lot tougher time competing against you.”

The collection of little things, combined with the company’s culture, is what Gilbert likes to refer to as “-isms,” and he’s the company’s chief ismologist. In addition to asking employees to keep their heads up, he painstakingly explains the company’s policy about returning and forwarding telephone calls and e-mails.

Because the overall mortgage industry gets low marks when it comes to personal referrals, Gilbert stresses that every employee must respond to customer inquiries within 24 hours. If an employee is on vacation, on assignment, or out sick, messages should be directly forwarded to another worker so that customers get an almost immediate response to their questions. There’s even a color-coded takeaway book that explains the entire list of -isms.

'Threads of Connectivity'

For several years, Gilbert pondered moving Quicken Loans to downtown Detroit. A number of plans emerged for building a new headquarters on various city-owned lots, such as the old Hudson’s site just north of Compuware Corp.’s headquarters. The Hudson’s plan called for a podium of five or six stories made up of shops, loft-style residences, and entertainment venues. Two towers were planned atop the podium — one an office structure for Quicken Loans, the other a hotel. Other options included a partnership with Mike and Marian Ilitch in the Foxtown district, or a riverfront headquarters next to General Motors (just east of the Renaissance Center).

But as the real-estate market began to sputter four years ago, what seemed to be an exciting, yet reasonable, development plan was soon viewed as grandiose and a challenge to finance. But Gilbert was adamant about moving, especially given the success that longtime friend and mentor Peter Karmanos, Compuware’s chairman and CEO, had in transforming the once-derelict center of downtown into an oasis for 4,000 employees.

“When you look back 100 years ago with Henry Ford, it took several years to build up a manufacturing base,” Gilbert says. “But today, [with] a company like Google, growth happens rapidly. It gets back to the threads of connectivity. By encouraging growth in a few blocks, the ideas and the new business models will flow. Detroit has always been great at that and we have some dynamic companies, but today, we’re too spread out.”

That’s why Gilbert, along with other prominent business leaders like Karmanos, Roger Penske, and the Ilitches, have embraced plans for a light-rail system along Woodward Avenue, from downtown to the New Center. Eventually, the rail line would run to downtown Pontiac, much like it did in the first half of the 20th century.

“We had a chance to get light rail in the 1970s, but instead we got the People Mover,” Gilbert says. “It hasn’t worked. You can’t have a system 25 feet above the ground because it doesn’t put people on the streets. A subway wouldn’t work because we just don’t have the density like New York. We could put light rail in the center of Woodward, but to make it work, it really needs to be along the sidewalks. That way, the merchants, the residential developers, the restaurants — they all benefit.”

The first phase of the so-called M1 Rail project (from downtown to the New Center), carries a $125-million price tag, and officials expect to break ground later this year. Gilbert says the rail line, which could be operational by 2013, was a key selling point in moving Quicken Loans downtown.

By July, up to 1,700 employees from Quicken Loans and its related operations are expected to move from the suburbs into Compuware’s headquarters. In turn, 700 additional employees from Gilbert’s various operations are slated to move downtown, though an exact location and time frame has yet to be determined.

 

Place Your Bets

Gilbert never envisioned owning casinos when he was getting Rock Financial off the ground in 1985, but after watching Ohio voters turn down two gaming initiatives in the last five years, he saw potential. After all, Ohio was the nation’s seventh largest state, with 11.5 million residents. And there were no casinos.

He admits the added time he spent in Cleveland overseeing the Cavaliers and other business interests gave him plenty of insight. Perhaps surprisingly, many Ohioans favored casinos, he says.

“We surveyed 2,000 Ohioans, and 65 percent said they would support casinos under certain circumstances,” Gilbert says. “So we did some more surveys, and it turned out people wanted to see the casinos in urban cores, as opposed to farmland. They wanted table games, along with slots. So we looked for the right partner and found Penn National Gaming.”

The casino campaign was hard-fought, but last November, voters approved the measure by a 53-47 percent margin. Under the deal, Gilbert will build and operate casinos in Cleveland and Cincinnati, while Penn National gets Toledo and Columbus. Each casino comes with a $50-million licensing fee. Gilbert says he’s looking for an operating partner and has already talked with MGM Grand and Harrah’s, among others.

The plan is to break ground on the Cleveland and Cincinnati projects by the end of the year. Each casino will take 18 to 24 months to complete, Gilbert says, with both properties expected to open by 2013. “Either we hire a team, or we form some type of partnership to operate the casinos,” Gilbert says, “but they’ll be first-class.”

Livonia-based Rock Gaming is overseeing the casino projects, and CEO Matt Cullen says the land for the gaming facilities has already been secured. Both projects are expected to occupy between 16 and 18 acres.

“In Cleveland, we can have up to 5,000 slots and unlimited table games,” Cullen says, “so we plan on having around 150,000 square feet of gaming space and 500,000 square feet for everything else.” That includes four or five restaurants and a 2,000-seat entertainment venue.

For Gilbert, the move into the casino industry is a business opportunity. “Casinos popped on our radar because we were listening to our fans in Cleveland, did the research, and we got the ballot initiative passed,” he says. “We kept our head up and we found an opportunity to enter a new industry. That’s the way everyone should operate in business. If you don’t keep your head up, you’ll fail.”

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