Show Me the Money!: How to Make Money through Sports Marketing

PART I

ANALYSIS, STRATEGY AND POSITIONING

Sport and business

‘Sport is too much of a game to be a business and too much of a business to be a game.’

This statement, taken from the book Principles and Practice of Sport Management (Masteralexis, Barr and Hums), sums up the peculiar business of sport perfectly. The interest that sport generates in fans all over the world has made it into a huge business. And because it is a game and a form of entertainment, it creates extra emotional pressure for the people who are meant to take the decisions in this business.

As can be seen in the chart below, sport is followed by the majority of adults in the world’s major economies.

PERCENTAGE OF THE ADULT POPULATION THAT REGULARLY FOLLOWS SPORT

Source: Global Sports Media Consumption Report 2011 (Perform, TV Sports Markets & KantarSport)

We shall be devoting this first chapter to looking at the big numbers involved in the world of sport and to familiarising ourselves with the major sports institutions and the different models of ownership. Then, as we start to focus on football, we will be taking a look at the current economic context and will learn about the big strategy decisions taken by managers.

Football, king of sports

There is no doubt that, as can be seen in the table below, football is Europe’s most popular sport.

SPORTS WITH THE BIGGEST FOLLOWING IN EACH COUNTRY

Source: Global Sports Media Consumption Report 2011 (Perform, TV Sports markets & KantarSport)

If we take a closer look at the table, we can draw some conclusions about the factors that may help to explain the differences between fans’ interests in different countries. Let’s see:

The presence of ‘national heroes’ has a strong impact on the promotion of a particular sport. Legendary racing drivers such as Fernando Alonso, Michael Schumacher and Ayrton Senna have markedly increased the popularity of Formula 1 across the world and in their home countries. Ferrari, too, has a lot to do with the success of this sport in Italy. In other sports, Yao Ming is, without a doubt, the main driver behind the growth of basketball in China.

History and tradition also play a fundamental role in fans’ preferences. The popularity of cricket in the United Kingdom, rugby in France and the NFL in the United States have hindered the penetration of other sports, as it is so difficult to change the habits of sports consumers.

The countries that host major events have a greater number of followers of that sport. This is the case with, for example, tennis in France, thanks to the Roland Garros tournament (the French Open).

Finally, it is interesting to see that despite the efforts of the big European teams (and their recurring physical presence, in the form of promotional tours), football is having a hard time climbing the ranks in two of the world’s largest markets: the United States and China.

And when we review the figures obtained when comparing revenue from the Olympic Games and the FIFA World Cup, for example, or the TV audiences of different sporting events, we once again see the global dominance and sheer scale of football.

REVENUE OF THE OLYMPIC GAMES BEIJING 2008 VS FIFA WORLD CUP SOUTH AFRICA 2010

Source: IOC and FIFA

Figures in millions of US dollars

GLOBAL TV VIEWING FIGURES

Source: Prime Time Sport

Figures in millions of viewers

Sports properties

After that quick look at the numbers, let’s focus in on football’s sport ‘properties’. By this we mean the entities or athletes that, because of their size, history, social impact, silverware or personality, have the potential needed to build their own product portfolio. We will be looking at all the products that generate revenue in light of this concept of ‘sports property’, because this is the principal beneficiary of sports marketing work.

Sports properties fall into four main groups:

Tournaments or championships, be they official or friendly in nature, that are held recurrently with the participation of several teams, regardless of size, organiser or competition format. In this category, we can include elite tournaments such as the FIFA World Cup, the UEFA European Championship and Champions League, major league championships and cups and friendly tournaments (such as the Emirates Cup or the Amsterdam Tournament). It also includes lower-division championships (i.e. lower category or lower age) and more local tournaments.

MOST IMPORTANT FOOTBALL TOURNAMENTS IN THE WORLD

¹

Source: FIFA, UEFA, Deloitte

National teams – football teams made up of players of the same nationality, organised into different age groups. National football federations also fall into this group, because they are responsible for their national team.

FIFA RANKING OF NATIONAL TEAMS

Source: FIFA, January 2013

Figures in points

Clubs – teams or groups of teams, generally privately owned, whose daily activities generate the opportunity to market different products and services. According to the report published annually by Deloitte, the ten most important clubs in Europe when it comes to revenue are:

TOP 10 EUROPEAN CLUBS IN TERMS OF REVENUE

Source: Deloitte Football Money League 2011/12.

Figures in millions of euros

Not including sales of players

Footballers. Independently of their role in the other categories, on an individual level football players can also be considered sports properties with their own potential to market products (see chart opposite).

Models of ownership

I am often surprised by the actions taken by the owners of certain sports properties when they make business decisions that are – as far as I can tell – based on dubious business logic or financial profitability. I can think of numerous example of owners that are able to spend the amount it would cost to build a new stadium on a single signing; directors who reject offers for their players that could not logically be refused; major teams that help lesser teams to grow and compete against them; and companies that sponsor the kit of football teams that do not necessarily fit into their marketing strategy. This is because the football industry presents different scenarios in which return on investment is not the only goal that owners are pursuing.

Let’s run through the six different models of ownership, many of them specific to the world of sport, which translate into very different strategic objectives.

FOOTBALLERS WITH THE HIGHEST MEDIA VALUE

Source: University of Navarra, June 2012

Media value points as multiple of footballers’ average

The ranking is of players from 100 countries

Federative model. Most of the principal governing bodies and individuals driving the world of football. Clubs, players, referees and coaches democratically participate in the decision-making process of the federations of which they are members and these federations join up to make federative organisations that cover a larger area. Going from the lowest to the highest level of affiliation, we have the regional, national and international federations (UEFA, CONMEBOL, etc.) right up to the highest level federation: FIFA. The purpose of federations, which describe themselves as non-profit organisations, is to promote football in general and support weaker federations.

Collective model. This model includes associations of professional clubs, such as the German Bundesliga, the English Premier League and the Spanish Liga de Fútbol Profesional (LFP). Other organisations that do not arrange competitions are included in this group, such as, for example, the European Clubs Association (ECA). The goal of these associations is based on collectively defending the interests of the member clubs.

Associative model. Non-profit entities, in which the members are the legitimate owners, are involved in strategy decisions (using the particular system set out by each organisation), and elect the president and board of directors. In the Spanish Primera División, or La Liga, there are four football clubs that subscribe to this model: Real Madrid, FC Barcelona, Osasuna and Athletic Bilbao. There are clubs that use this model in other countries too, such as Turkey’s Galatasaray. In the associative model, entities are managed on the basis of objectives such as achieving sporting success or developing initiatives and services to achieve member satisfaction.

Multiple ownership. This model encompasses the football clubs in which ownership is spread across a large number of small shareholders who, as a general rule, are fans of the club. This category would include, for example, the public limited sports companies in Spanish football, such as Atlético Madrid, Valencia CF and Sevilla CF. In the multiple ownership model, the shareholders that accumulate the greatest percentage of shares (as direct owners or through the support of other shareholders) have ultimate responsibility for governing the club. In this case, the owners’ principal objectives are both achieving sporting success and securing financial support for the club (often/usually based on an emotional connection to it).

Single ownership. All or the vast majority of club shares are in the hands of a single person or company that has injected considerable amounts of money that will be hard to recoup through the natural workings of the club. In Europe, we have the examples of Roman Abramovich at Chelsea, Sheikh Mansour at Manchester City FC, Silvio Berlusconi at AC Milan, Massimo Moratti at Inter Milan and, more recently, the Qatari investors that have bought Malaga FC and Paris Saint-Germain. In South America, and in Mexico in particular, it is also very common for clubs to be owned by large corporations, for instance the club América, which is owned by the broadcasting giant Televisa, and Santos Laguna, owned by the Grupo Modelo (manufacturers of Corona beer). In all these cases, the owners have made big financial investments that they hope to capitalise on, obtaining added benefits such as:

Public recognition and presence.

Synergies with other companies they own and advertising returns for these companies.

Sporting successes (mainly for the impact that this will have on the two previous points).

Listing on the stock exchange. This model is a combination of models 4 and 5, with the added factor that some of the shares are listed on the stock exchange where they are freely transferred between buyers and sellers. In this group, we find clubs such as Arsenal (London), Borussia (Dortmund) and Juventus (Turin). This model is clearly in decline because of the pressure that the sporting activities put on the price of the shares. It can lead to value swings that are unjustifiable from the point of view of the actual financial value of the club’s assets. In Europe, there are currently 20 or so clubs listed on the stock exchange, a far cry from the 50 there used to be in the 1980s and 1990s.

The different models of ownership in football create an interesting array of strategic objectives. In models 4, 5 and 6 the usual business objectives are present, such as dividend returns or the sale of shares at a higher price than they were bought for. So, although we may find other objectives, in all the ownership models, the property will be continuously exercising pressure to increase revenue, and this is precisely the objective that we are concerned with.

Football finance

It’s no news to anyone that the football industry currently finds itself in a somewhat delicate financial situation. In this section we will look at the four factors that have led to these economic difficulties and how they condition the way sports properties are managed.

Accelerated growth. Increasing demand for the most popular sport on the planet has led to a spectacular and widespread growth in revenue. Globalisation, the ever-rising value of TV rights and the sale of players at exorbitant prices at one point filled the coffers of sports properties, attracting new owners from other industries and geographical areas.

GROWTH OF REVENUE IN THE MAJOR EUROPEAN LEAGUES

Source: Deloitte Annual Review of Football Finance 2013

Figures in millions of euros

Overspending. The obsessive need to win, the emotional decisions taken by directors, the lack of professionalism and experience, and the complacency that results from revenue flowing in have translated into major sports investments (principally in the form of player signings and high salaries) that, once they surpass the income level, have led to a proliferation of accounts that are squarely in the red. Losses suffered by first division clubs in the European leagues reached the record figure of €1675 million in the 2010/11 season, 36 per cent more than in the previous year.

GROWTH IN PLAYERS’ SALARIES IN THE MAJOR EUROPEAN LEAGUES (IN MILLIONS OF EUROS)

Source: Deloitte Annual Review of Football Finance 2012

Figures in millions of euros

EVOLUTION OF FIRST DIVISION CLUB LOSSES IN EUROPE

Source: Club licensing benchmarking report financial year 2011, UEFA, January 2013. Figures in millions of euros

PERCENTAGE OF INVESTMENT IN SIGNINGS REPRESENTED BY THE FOUR TEAMS THAT SPENT MOST IN EACH LEAGUE

Source: Football Transfer Review 2013, by Prime Time Sport. 2012/13 season data.

High level of debt. Big investments, the accumulation of losses and easy access to credit over the last few years have led to soaring levels of debt in football clubs. In Spain, for example, the joint debt of the 20 teams in La Liga surpassed €35 billion in June 2011. Against this background, a minority of clubs (Real Madrid and FC Barcelona) manage to live with their high debt levels, thanks to their ability to generate cash. However, most clubs suffer from crippling financial costs in their balance sheets as their directors work on one plan after another to refinance the debt and pay it off as late as possible.

Polarisation. In the European transfer window of 2012/13, just ten teams made 48 per cent of the total investment in signing in the five major leagues. And in each of these leagues, just four teams monopolised more than half of the total amount invested in players.

In the case of Spain, Real Madrid and FC Barcelona made a staggering 52 per cent of the entire revenue of the top division. In England, Manchester United and Arsenal bring in 25 per cent of all Premier League revenue. These examples help to illustrate the ever-increasing gap between the big clubs and the smaller ones, between the richest and the poorest. The world of football is being polarised into two main groups: a two-speed industry. At one end of the scale we have the teams with most power, due to their public following, the financial strength of their owners or simply good management based on actual potential. On the other, we have those teams that accumulate debt because of bad management, the difficulty of accessing credit or because they have tried to compete above their station in leagues that they just cannot afford.

Management trends

In my years of experience in sports management, I have never come across such widespread consensus on the need to revise the current economic model of football. Given all this, the people responsible for regulating the management of sports properties are, as we speak, working on a new framework of action, in which three ways forward are clear:

Collective actions. The regulatory bodies and organisers of competitions have already developed three types of measures: (i) preventive measures; (ii) mechanisms of chastisement; and (iii) actions to redistribute value. So, for example, we have the new Financial Fair Play mechanism promoted by UEFA, which will not allow loss-making or financially unhealthy clubs to take part in European competitions; or the Premier League, which penalised Portsmouth by docking nine points after they had gone into administration in 2010. But organisations such as FIFA or UEFA also give financial support to weaker federations, and most of the major leagues distribute their TV revenue to benefit weaker teams and set up aid funds to soften the blow that teams suffer when they are relegated.

Sports management. Because of their influence on the results on the pitch and on the club economy, actual sport decisions are of vital importance and are geared towards competing efficiently while spending as little as possible. For example, we can see how sport directors have begun to reduce the number of players they employ, encourage greater use of home-grown players, sell off their big players or try to sign other players on free transfer deals or in the form of a loan. In this context, the big five European leagues have cut their players’ payroll for three consecutive seasons (2010/11, 2011/12 and 2012/13) and in Spain, 75 per cent of signings in the summer of 2012 were made at no cost or on loan.

Finances. As well as the search for financing and investors, and the securing of ordinary revenue, work is also being done to procure exceptional revenue, or ‘windfalls’, using as much creativity as possible. Real estate operations, for example (Arsenal sold apartments in Highbury for £276 million from 2009 to 2011), have in turn led to complex financial transactions in the business of managing footballers’ economic rights.

The world of football has before it a great opportunity (or, let’s face it, a need) to change the rules of the game and capitalise on its incredibly strong role in society. Sports properties and the owners of very different profiles and objectives will always have something in common: the need to maximise revenue, aggressively and in a sustained manner. The guardian angel is no longer around and the search for the millionaire saviour is over. It’s time for the sports marketer.

Sports marketing and products

In this chapter, I will outline the framework of actions that a sports property needs to take on its journey towards making money. Let’s start with a definition of sports marketing.

Sports marketing

Generation of revenue by developing and exploiting the principal assets of a sports property: brand, stadium, facilities, championships and athletes.

This definition is the utmost expression of the Show Me the Money! philosophy. This is my personal definition, and there are, of course, many other versions of this, neither better nor worse, nor more or less accurate. In my version the focus is on our ultimate purpose, the raison d’être of sports marketing, and that is to make money. But it isn’t a matter of achieving this goal any which way. This definition of sports marketing refers to revenue that must be identified as being:

Profitable: the costs associated with generating revenue must not put profitability at risk.

Sustainable over time: ideally, we will be seeking revenue that we can consolidate in our accounts on a recurrent basis. For example, the sale of a sponsorship package lasting several years is more sustainable than renting out an advertising hoarding in the stadium for one or two matches.

Tangible and measurable: revenue has to be