Build Your Bargaining Endowment

By — on / Business Negotiations, Daily

Adapted from “Want to Pull Ahead of the Competition?” by Michael Wheeler (Class of 1952 Professor of Management Practice, Harvard Business School), first published in the Negotiation newsletter, October 2005.

What happens when lots of other people are selling what you’ve got, or many others are bidding for what you want? One solution to distinguishing yourself in competitive environments is to build your bargaining endowment—storing up credibility and resources by developing relationships, burnishing your reputation, and controlling key assets.

As an example of how this works, consider Robert Kraft, the owner of the New England Patriots, one of the most successful franchises in professional sports. Notably, Kraft didn’t get the team by outspending other prospective buyers. Instead, years in advance, Kraft put himself in a position to make a smart move when the time was right.

When the Patriots first went on the market in the late 1980s, Kraft was wrapped up in other businesses and apparently didn’t have the wherewithal to put a deal together. The team was purchased by Victor Kiam, then the president of Remington Products Co.. However, Kraft and a partner did place the winning bid for the Patriots’ stadium, which was sold separately from the football team.

Many people were surprised by Kraft’s offer, as the Foxboro stadium was poorly designed and in terrible condition, and depended on the Patriots for most of its income.

Kraft and his partner were astute enough, however, to spot obscure provisions in the lease that not only stipulated that the team pay a reasonable rent but also required the Patriots to play in the stadium through 2001. Kraft had his eye on eventually buying the team. Enforcing the operating clause would scare off anyone who might wish to buy the Patriots and move the team to another city. It would also deter local buyers who might have hoped to swing a public-private deal to construct a new facility.

With better management in place, the stadium deal was a profitable venture from the start. Several years later, when the Patriots were once again on the market, Kraft had greatly increased his leverage to buy the team by knocking out most of the competition.

The old ownership tried to force Kraft to put a price on the lease, and there were threats of lawsuits on all sides. Two other groups reportedly topped Kraft’s bid, but, in the end, the seller reluctantly chose to settle for less rather than get involved in protracted legal battles. Afterwards, Kraft attributed his success to having recognized, years earlier, the advantages gained from controlling the stadium. “If we didn’t have that lease,” he said, “there’s a high probability that the team would have gone to St. Louis.”

As Kraft understood, building your bargaining endowment requires accurate identification of key players and then taking visible action that sends the appropriate signals.

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