The Iceman knocketh

Derek Sanderson made his name as the bad boy of the Boston Bruins.

By Jenny Anderson
February 2001
Institutional Investor Magazine

Now he's preaching the virtues of portfolio diversification.

It is a cool late morning in early November, and Derek Sanderson is downing creamed-up coffee, chain-smoking Canadian Export As and plowing through a pile of fish-and-chips. The midday rush has not yet begun at Clark's, his favorite lunch spot in downtown Boston, but already fans are stopping by to pay their respects to the feisty, flamboyant former center for the Boston Bruins.

"Remember," says a short, balding man dressed in jeans and a heavy windbreaker, "you're the one who made Bobby Orr famous!"

Sanderson smiles and shakes the man's hand, three decades removed from the night in May 1970 when his dramatic overtime assist to Orr gave the Bruins their first Stanley Cup title in 29 years.

Many athletes retire on their reputations. Not Sanderson. Known during his playing days as a wild man on and off the ice, Sanderson was a one-man wrecking crew who played as hard after the final horn sounded as he did rushing up and down the rink killing penalties and slamming opponents into the boards. Now 54, Sanderson cuts a very different figure. The unruly black hair is gone, and the trademark handlebar mustache is now neatly trimmed and white; instead of a floor-length vicuña coat, he sports a gray suit from Mr. Sid's of Newton, Massachusetts. He shifts uncomfortably in his chair, the result of seven hip-replacement operations.

But Sanderson has lost none of his energy and drive. Today he has redirected it to the business of managing money for athletes, a high-profile and rapidly growing niche in the brutally competitive $10 trillion arena of private wealth management. Sanderson is a managing director for State Street Research and Management's Sports Group, part of a team of 16 that manages $460 million for a roster of professional athletes, coaches, trainers, umpires and assorted other sports officials. His job is to bring in new recruits and look after existing clients, and he spends much of his time on the road, visiting players, golfing with prospects, working locker rooms and charity functions to add to a client list that includes former Bruins Orr and Cam Neely, as well as current New England Patriots linebacker Ted Johnson.

"With the proper sales force, we can quadruple assets," enthuses Sanderson.

The money is certainly there. In the past quarter century, as television showered riches on professional sports, and ballplayers gained leverage through free agency, athletes in nearly all sports have hit the jackpot. And, as many disenchanted fans can attest, the money doesn't just find its way to the superstars. Payrolls are staggering. State Street estimates that the annual salaries for professional football, baseball, basketball and hockey players total some $5 billion a year - and that's for 127 major league teams in the U.S. and Canada, with a total of about 4,000 players. (Altogether the U.S. Census Bureau tallies about 92,000 professional athletes in the country.) Some, like Texas Rangers shortstop Alex Rodriguez, who inked a $252 million, ten-year contract in December, are very wealthy indeed. And the salaries, of course, are only part of the riches: There are also lucrative endorsements, merchandising and licensing deals and appearance fees.

Not surprisingly, such big numbers have money managers pursuing athletes as eagerly as an 8-year-old looking for a ballplayer's autograph. Traditional managers like State Street are competing with specialized boutiques like Financial Management Partners of St. Louis, Missouri, and Champion Ventures, a venture capital fund-of-funds founded by former San Francisco 49ers Ronnie Lott and Harris Barton, who sell aggressively to athletes.

Among the fiercest rivals are the big sports agencies, which have close relationships with the stars they represent in contract negotiations and for whom they hire lawyers to handle trusts and estates and accountants to manage tax planning. These agencies have increasingly moved to add portfolio management skills to better provide for their clients - and themselves. Last year International Management Group, the largest sports agency in the world - with clients like golfer Tiger Woods, New York Yankee Derek Jeter, former hockey great Wayne Gretzky and tennis star Pete Sampras - formed a joint venture with Merrill Lynch & Co. to manage money for athletes. It has already amassed $700 million (see box).

"Everyone is chasing the millionaires," says Sanderson's boss, State Street executive vice president Kevin Wilkins.

Catering to rich celebrities, whether ballplayers or rock stars, requires a deft touch. Athletes are unlike the average high-net-worth investor. They accumulate their money early and tend to have little life experience outside their sport - and almost no financial savvy. Naive but cocky, they often have no idea what to do with their riches. Stories abound of the kinds of problems they can get into when they trust the wrong people. Look no further than Orr's former agent, Alan Eagleson, who was indicted in 1992 by a U.S. federal grand jury on charges of racketeering, fraud and embezzlement.

"Trust is everything with these kids," says Bruins president Harry Sinden, who was the team's coach when Sanderson played. "With Derek, he can tell them what he did with his money, the lifestyle he had, that he blew it all. Derek speaks their language."

Says linebacker Johnson, a six-year National Football League veteran, "We want to trust people, and we always get burned." After about a year and countless rounds of golf with Sanderson, Johnson signed with State Street in 1998, handing over 20 percent of his assets. Today State Street manages 80 percent of Johnson's portfolio. "He didn't put pressure on me. I liked that."

What Sanderson sells is his own life story, a vintage cautionary tale. Sudden success sidetracks many young stars; Sanderson's tangle with money and fame nearly killed him. Worth some $4 million as a 28-year-old hockey star and nightclub owner in 1975, Sanderson quickly descended into a mire of vodka and cocaine. Alcoholism and drug abuse shortened his career, wreaked havoc on his body and finally left him broke and alone. In his bleakest period he spent his days cadging booze off bums and his nights sleeping on park benches. Thirteen times he checked himself into detox, only to end up back on the bottle.

Finally, one day in 1980, Sanderson fell to his knees in a field near his Niagara Falls, Ontario, hometown, and prayed to be cured or killed. Although he doesn't remember how he got there, he checked himself into the spartan Hôtel Dieu, a hospital in the town of Saint Catharines. He has been sober ever since.

"I'm lucky I'm alive," says Sanderson, who offers blunt advice to the 25-year-olds with golden arms and powerful quads who think the cash will flow forever. "I tell the guys they will be 55 one day. I didn't always have gray hair and glasses."

His philosophy is simple: "Athletes want to believe they can blindly trust. I tell them not to blindly trust anything. Pay attention. It's your life, and it's your money."

Only a little less boisterous and gregarious than he was in his youth, Sanderson walks with a painful hitch these days. Bone degeneration caused by an anti-inflamatory drug he took in the 1970s lead to a series of hip operations. Sanderson works out of State Street's headquarters in downtown Boston, his small office crowded with family photos, two hockey jerseys, one puck, one bat, one hockey stick, numerous golf awards, a sign that says "For the Love of Hockey" and a few framed articles featuring him from his days as a player. An avid golfer, he sports a handicap of 2 and reports that he shot a 67 at the Ridge Club on Cape Cod last year. His phone rings constantly, and he types on a computer, very slowly, using his index fingers.

The youngest son of a machinist and a housewife, Sanderson started playing hockey when he was 3. His father built a rink in the backyard, and Sanderson quickly laced up. "He thought I was a better player than I was. I wanted to please him," says Sanderson.

Paternal influence ran deep. After one practice when he was 13, Sanderson's father expressed disappointment that his son hadn't returned the blows that one of his opponents had dealt him, which landed both players in the penalty box. "So I beat the guy up during warm-up in the next game," Sanderson says.

The Bruins bought the rights to Sanderson for $100 when he was just 10 years old. Five years later Bruins owner Weston Adams signed Sanderson to the junior leagues. In 1967 he joined some of the biggest names in hockey, including Phil Esposito and Bobby Orr, on the ice at Boston Garden. That first season Sanderson, known as "Turk," won the Calder Trophy, given to the National Hockey League's rookie of the year.

Though never as talented as Esposito or Orr, Sanderson's headlong play could be electrifying. A quick, scrappy center, fast with his fists, Sanderson was renowned for his penalty-killing exploits and his knack for scoring shorthanded goals. His popularity soared after he helped the Bruins win the Stanley Cup in 1970.

Off the ice Sanderson was the proverbial life of the party. He joked, flirted and always bought the next round of drinks at the late-night spots he frequented. "I liked feeling mellow," he says. "There are people who drink because they like the taste, or they drink to be social. I drank because I liked the feeling. That makes you a problem drinker."

His attempts at big-city sophistication were often endearingly naive. Bruins teammate John (Pie) McKenzie remembers driving in 1970 to Boston's Logan airport with him in the brand-new Cadillac Sanderson had bought. As they went through the Callahan Tunnel, the radio stopped playing. Sanderson started pounding on the receiver. "I thought these were good cars," he yelled. "But the radio doesn't even work."

"He was a cult hero around here, and he played the part well," recalls former coach Sinden.

In 1972 Boston won the Stanley Cup again, and Sanderson's talents and crowd appeal made him a natural target for the newly formed World Hockey Association, which hoped to rival the NHL. The Philadelphia Blazers wooed him, offering $2.3 million for one year, an enormous jump in pay from the $35,000 he had been making.

"$2.3 million?" he recalls telling his lawyer. "That looks like someone's phone number."

The Bruins were offering him a measly $75,000 a year. Preferring to stay in Beantown and skeptical of the new league, Sanderson tried to wrestle another $5,000 from his club, while pushing the Blazers for even more. Eventually, he got their offer up to $2.65 million for one year - enough to make him, at the time, the highest-paid athlete in the world. (Brazilian soccer star Pelé was then making $2.6 million.) The Blazers also promised not to move the franchise without his permission, not to sell the team without consulting him or to trade anyone without his knowledge. And he only had to play in the away games accessible by train, as he was terrified of flying.

Sanderson drove straight to the Marblehead, Massachusetts, home of his old mentor, Bruins owner Adams, and asked what he should do. "I know you," Sanderson recalls his saying. "You'll rue the day you get this money. You are not bred to money, and it will destroy you."

Adams then offered his star center the $80,000, and Sanderson agreed to stay. But when it came time to sign, a Bruins lawyer told Sanderson that, in his opinion, he was still worth only $75,000. Sanderson threw the pen at him and joined the Blazers.

Sanderson's Philadelphia career started inauspiciously. At his first game, the Zamboni broke through the ice, tearing it apart and forcing the game's cancellation. Sanderson decided to apologize to the fans, although then-mayor Frank Rizzo warned him not to. Sanderson headed to center ice to address the crowd with a microphone. Before he could start speaking, fans pelted America's highest-paid athlete with commemorative pucks. The team hid in the locker room until 1:00 a.m.

He found himself out of his element in Philadelphia, no longer the playboy star of the Bruins. "He didn't have his crowd in Philadelphia," says McKenzie. "He was a lost soul there."

Sanderson played just seven games with the Blazers before slipping a disk in his back (he fell on debris that fans threw at him in the penalty box). During the four months that he was out, the team's major players left or were injured, so in early 1973, when he was ready to play again, he headed back to the Bruins. (The WHA collapsed in 1979.)

Over the next few years, Sanderson tried to reclaim his fame. In 1974 he moved to the New York Rangers and then was traded to the St. Louis Blues a year later. There he enjoyed his best season ever (67 points, his career high), but he was traded again the next year, this time to the Vancouver Canucks.

All the while, he moved between the worlds of hockey and nightclubs, battering his body on the ice (smashed teeth, bad shoulders and hips as well as a problem back) and off. In 1975 he started using drugs heavily, mainly cocaine, and usually when he was drunk.

As Bruins owner Adams had predicted, money destroyed him. He spent wildly. Shortly after he signed with the Blazers, he gave power of attorney to his agent with one request - that "I don't go broke." He bought a burgundy Rolls-Royce and drove inner-city kids around in the car, sometimes bringing them to games.

Sanderson also indulged himself with expensive clothes, and he purchased stakes in a number of nightspots, including the Boston bars Bachelors III (his partner was Joe Namath) and Daisy Buchanans - as much for his ego as for investment purposes. Sinden recalls Sanderson's telling one coach he missed a practice because he was filming a pornographic movie. Sanderson insists he didn't know it was an adult film but admits to cutting out to Hollywood to make it. "He was the playboy," says Ron Greschner, a teammate of Sanderson's on the Rangers.

By 1978, however, Sanderson's life had begun to unravel. He owned, along with the Rolls, a 60-acre horse ranch in Ontario - he harbored a fantasy of being a gentleman rancher - and interests in four Boston nightclubs. He asked his agent for an accounting of his expenses. That was when he learned he was broke. To this day, he says, he does not know where the money went. "It was my fault. I should have paid attention."

Even the one thing he knew how to do - play hockey - began to slip away. During his stint with the Blues, Sanderson tried to dry out. In 1977 he went home to Canada for Christmas, and his father offered to get him a job at the General Motors plant. He refused. He was traded to the Canucks shortly thereafter and finished the season with them. But when the coach sent Sanderson to the Canuck's minor league team in Tulsa, Oklahoma, for disciplinary reasons later in the year, he quit. He got sober again and attempted a comeback.

Sanderson says he called Ted Lindsey, general manager of the Detroit Red Wings, who agreed to let him come to training camp, provided he train with the rookies. He fell twice during the first drill. One player joked, "If that's the best you've got, I'm sure to be a first-round pick." In March 1978 the Pittsburgh Penguins called him in. He played 13 games and scored 4 points. "I was too old and too slow," admits Sanderson. He retired from hockey and moved to Chicago.

"The geographic cure," he says. "Change your address and your problems go away." He rallied some models to travel with him to New York for a few days in October, but realized when he got there that he had no cash. His credit cards were maxed out, he had no identification, and none of his friends were home.

"You sit on a bench to think about it, and then you get drunk, and it's the next day, and then you are sleeping under bridges," says Sanderson. "I couldn't hold a thought for very long. I was sick, and I was scared. I had no money, no place to go, and I was full of fear that I couldn't get out of it."

At one point he tried to steal a bottle from a man in a suit who was passed out on a bench in Central Park. The man woke up, and Sanderson, embarrassed, said, "Do you know who I am?" The man replied, "Yeah, you're a drunk, just like I am."

"That's the first time it hit me. I was making excuses for myself," says Sanderson.

Friends tried to help. Former New York Rangers teammate Rod Gilbert found him in Central Park and put him in detox in Manhattan. Bobby Orr did the same in Chicago. Sanderson's description of the two years before he reclaimed his life in that Canadian field is simple: "Blotto. I don't remember much."

Through a friend, Sanderson received an offer in 1980 to become an assistant golf pro at a country club in Andover, Massachusetts. No pay, just room and board. Soon he started working for the city of Boston, running alcohol and drug awareness programs in the public school system for about $17,000 a year.

In 1984 a woman named Nancy Gillis sought out Sanderson for help on a project for Boston's City CableVision. Two years later, they married. (They now have two sons.) He landed a public relations job with waste management firm Browning-Ferris Industries and started doing commentary on television for golf and hockey games. His life was coming together.

Then, in 1989, at a charity golf tournament sponsored by Boston-based brokerage house Tucker Anthony, John Goldsmith, president of the firm, offered Sanderson a job running a drug and alcohol awareness outreach program. Soon Goldsmith decided to leverage Sanderson's name to win money management contracts. He moved Sanderson to the firm's institutional and pension arm - and suggested the hockey star get his broker's license.

Sanderson proposed that Tucker Anthony set up a group to manage athletes' money. He brought in 60 clients and decided that he wanted to start a mutual fund for athletes, with the goal of educating them about finance early. Tucker Anthony didn't bite, but State Street Research and Management did. Sanderson took his clients and left. Says Goldsmith: "I've seen him with people. He gains their trust."

Today Sanderson's sports group supervises the management of 150 athlete and celebrity fortunes, whose assets at State Street total $263.2 million. Clients keep $243 million in separate accounts and $20.2 million in State Street's Athletes Fund, set up in 1998 and managed by Gardner Jackson, who has been at State Street since 1971. The sports group manages a further $196.5 million in wrap accounts.

Sanderson doesn't touch the money. "I made two stock picks in my portfolio," he says. "Just what I tell the players not to do. They are the only two losers, down 70 percent. Tank-o."

Instead, he acts as a sort of ambassador-at-large, spending a lot of time on the road, meeting with agents and clients, hosting educational seminars for hockey teams or college football players. "If a guy seems like he wants to talk, Derek will go visit him," says Susan Ritval, who is head of marketing for the sports group and has worked with Sanderson for five years.

The former hockey star also participates in many of his clients' charities, such as the Neely Foundation, which houses families while members are undergoing cancer treatment.

Sanderson invests the time and energy to inspire his clients' trust, and he never tries the hard sell. "He'll do a team meeting and not even say, 'Call us,'" says Ritval. Sanderson emphasizes the basics: investing for the long term, diversification and, of course, the glories of compounding. He relentlessly cautions clients about the need to save and to control their spending.

Last year Sanderson's athletes experienced their share of market pain. Invested entirely in large-cap growth stocks, the no-load Athletes Fund, which charges a 1.25 percent management fee, returned -11.3 percent in 2000, versus -10.14 percent for the Standard & Poor's 500 index. The separate accounts were off -9.26 percent for the year. But since its start in April 1998, the Athletes Fund has returned 13.87 percent on an annualized basis, compared with the S&P 500's 7.99 percent. And since inception on January 1, 1998, the separate accounts have produced 20.5 percent annualized returns, versus 12.26 for the S&P (management fees range from 0.65 to 1.25 percent depending on the size of the account).

The Athletes Fund portfolio typically contains between 40 and 50 stocks. Turnover is 80 to 100 percent, compared with the average large-cap equity fund's 138 percent. Recently, Jackson has shifted away from large technology positions toward pharmaceuticals and consumer staples. Stock picks include Applera Corp., a firm that replicates DNA, and Baxter International.

How Jackson will continue to perform well in a volatile market remains to be seen. Sanderson, for his part, will carry on, following up on referrals from agents, schmoozing at the Super Bowl, flying to Puerto Rico to talk to minor league baseball players, and expanding his team at State Street.

Sanderson's strongest sales pitch will always be his own story. He rose higher and sank lower than most people can imagine. When he contemplates his own legacy, he does not think of bench-clearing brawls or the goal that was celebrated on the front pages of Boston papers 30 years after it was made. Sanderson recalls instead hearing Cam Neely tell a radio interviewer in Boston last year that he saw himself as a long-term investor, and that he planned to ride out the market volatility.

Derek and Goliath

"It is impossible for me to go out to dinner without running into someone who wants to manage my clients' pockets," says Leigh Steinberg, the inspiration for Hollywood's Jerry Maguire and a veteran agent whose clients include National Football League greats Troy Aikman, Steve Young and Drew Bledsoe.

Mainstream money managers like the State Street Research and Management Sports Group, headed by former hockey great Derek Sanderson, are moving into the area, but the business of investing sports fortunes is still dominated by four agencies: International Management Group, Octagon, SFX Sports Group and Canada's Assante Corp. All offer a full range of services, from contract negotiation to tax planning to portfolio management.

In recent years some sports management and marketing companies have hooked up with major money managers eager to get a piece of the athletic market. Last July IMG's financial services arm, Investment Advisors International, launched McCormack Advisors International, a joint venture with Merrill Lynch & Co., to provide full-service money management. Already it has about $700 million. "As the numbers in athletes' contracts increased dramatically, we saw that the need for sophisticated financial advice would grow," says Rodney Woods, chairman and CEO of McCormack Advisors. "We had to do something on the financial services side to distinguish ourselves from other agents. Not just accounting and tax work and basic investment management, but offering the broader resources that IAI couldn't fund itself." IMG clients, who include Tiger Woods, Derek Jeter and Wayne Gretzky, are not required to use the services of the new division.

Assante, a Winnipeg-based money management firm with $2.8 billion under management, jumped into the sports and entertainment market full force, buying up four sports agencies in the past two years. One of the prizes: Its 1999 acquisition of Leigh Steinberg's boutique, Steinberg Moorad & Dunn, for $120 million.

Phil Kenner, director of client services for Assante's private wealth management group and a member of Sanderson's team at Tucker Anthony and State Street for five years, makes the case for the miniconglomerate. "Firms that are one-stop shops can offer more resources for their clients to draw on." For Assante, that includes risk management (many athletes have disability insurance) and cash flow analysis.

Still, many players shun the big-name agencies because they want more personal attention. "Working with an SFX or Assante would be easier," says Sanderson client Cam Neely, a former star with the Boston Bruins. "But once you are done playing, all the people that were looking out for you aren't looking out for you anymore. You need to trust the person who is managing your money." Neely learned that lesson the hard way: His first agent was charged with fraud against his clients, while another placed him in real estate and restaurant deals that soured.

Education and straight talk are also selling points for some athletes. In 1999 former San Francisco 49ers Ronnie Lott and Harris Barton founded Champion Ventures, a venture capital fund-of-funds. Says Barton: "Guys get a hot tip, and I have to explain, if you put on a jockstrap every day for work, you are the last to get it."

Other boutiques take a similar approach to hands-on education. "We talk to our guys every ten days at least," says Katherine Lintz, president of St. Louis-based Financial Management Partners, which invests $350 million for 110 individuals, 80 of whom are athletes, including Jerry Rice, wide receiver for the San Francisco 49ers. "If they don't want that, then maybe we're not the right adviser for them."

When her clients arrive, she asks them to read through Value Line reports and annual reports for ten companies. Lintz then asks them to pick five stocks and explain their choices. "These guys are competitive. They like to be right," she says.

Lintz also counsels spending restraint. If her clients don't save 27 to 35 percent of their gross income (within a reasonable period of time and with exceptions made for rookies), she's not afraid to kick them out. She says that she has dismissed four players in the past ten years.