Financial Fair Play Coming Up: How Can Football Clubs Increase Revenue?

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Real Madrid Resort Island

Hi guys,
Financial Fair Play will come into place for season 2013-2014. With heavy financial constraints on football clubs, there are many ways clubs can significantly increase revenue in order to comply with the Financial Fair Play regulations.

There are a number of areas that clubs should look at in order to optimise commercial performance within existing revenue streams.

Broadcast revenues form the largest contributor – almost 50% – of clubs’ annual income, however given that broadcast deals are managed collectively by most leagues, there is little that individual clubs can do to significantly enhance revenue (besides try to improve onpitch performance, finishing higher in leagues and qualifying for/progressing further in European competition).

However clubs can and should focus on optimising the other 2 main sources of revenue, namely commercial and matchday revenue.

Image 1(Source: Deloitte)

Extract Maximum Value from Shirt and Sponsorship

The global sponsorship market is large and experiencing considerable growth. Today the market is worth €23 billion, and is growing by around 5% per year. Top tier or ‘premium’ market segments are experiencing the strongest growth, since this type of sponsorship is attracting an increasing share of marketing spend at the  expense of more traditional forms of advertising, due to:

1. An overall reduction in the effectiveness of Tv advertising due to audience fragmentation and increased ad-skipping.

2. The enhanced brand exposure offered by sports sponsorship of a live broadcast, attracting large audiences, particularly of hard-to-target market segments (i.e. young men).

3. An increasing recognition by advertisers of the value of associating brands to sports Football clubs have a concrete opportunity to exploit this growth, given that top clubs can attract vast audiences, providing sponsors with huge exposure, while their two key properties – shirt and technical sponsorship – are ‘premium’ properties given the high visibility and brand engagement that they offer sponsors.

Clubs therefore need to ensure that they fully exploit the revenue potential of these properties when negotiating deals, by exploring all potential opportunities and innovative strategies.

This is all the more crucial given that the majority of these deals are long-term deals (5 years+), so clubs must ensure that they are not locked into undervalued long-term contracts. Liverpool Fc for example has done well to fully exploit the value of its technical sponsorship property.

Liverpool recently signed a new technical sponsorship deal with the American sportswear brand ‘warrior’, thought to be worth ~€29 million per year.

Warrior paid a significant premium (one of the highest in Europe) to ‘buy-in’ to European football, having recognised the potential benefits of associating with football in order to enter the European market.

Liverpool managed to achieve one of the highest value technical sponsorship deals in Europe, despite their recently disappointing league performance and failure to qualify for the champions league.

Tottenham Hotspur is another good example of a club pursuing an innovative strategy to maximise sponsorship value.

Tottenham managed to secure a 50% revenue uplift from shirt sponsorship by selling shirt sponsorship rights to two main sponsors: to ‘Autonomy’ for Premier league games, and to ‘Investec’ for cup competitions.

Develop and Strengthen International Sponsorship Strategy

European football is growing in popularity worldwide: European clubs are estimated to have nearly 1 billion nondomestic followers in total, with some clubs reported to have more fans in Asia than they do in Europe.

For example, FC Internazionale and AC milan are becoming considerably popular in china, while Real madrid and manchester united have millions of supporters across the Far East.

Considering their growing global appeal, European clubs have the opportunity to leverage this interest by developing an international sponsorship programmes.

Manchester united have led the way in exploiting their global popularity to increase international sponsorship revenue. The club has recently signed a series of exclusive sponsorship deals with 13 telecoms operators spanning 42 countries, through which each sponsor receives extensive affliation rights within their own country.

Manchester city, manchester united and Real madrid are considered benchmarks for the development of such initiatives. Manchester united, for instance, now have soccer schools in 9 different geographies, including the UAE, canada and Australia.

Optimize Ticket Pricing Strategy

A club’s matchday revenue is to a certain extent limited by stadium size, the number of fans and the level of sporting success achieved, however clubs can attempt to maximise revenue within the context of these limitations, through a series of actions, such as:

1. The development and adoption of a sophisticated and dynamic ticket pricing model, based on variables such as the economic context, the timing of ticket purchase and which team the club is playing.

2. Ticket pricing differentiation through effective segmentation of the fan base, based on demographic variables (e.g. age, consumer preferences, etc).

Of the top European clubs, English clubs are by far the most commercially sophisticated in terms of maximising matchday revenue, with chelsea, manchester united and Arsenal being the most successful.

For example, chelsea achieved the highest revenue per number of seats available in Europe, and also has the highest matchday revenue per number of domestic fans.

Through accurate fan base segmentation and the development of a dynamic ticket pricing strategy, the club has managed to achieve close to 100% attendance, despite significantly raising ticket prices.

Fan base engagement and price discrimination are key enablers for ticket price optimisation, though attention has to be  given to ‘fair’ pricing.

Clubs are challenged by the delicate trade-off between raising ticket prices to boost revenue while ensuring that they remain inclusive and open to a broad socio-economic demographic, and do not alienate their traditional fanbase.

Monetise fans who are not going to the stadium

Given the growing media exposure and visibility of football clubs, clubs have an increasing number of fans who never attend football matches at stadia.

Even though such fans do not buy tickets for matches, nor merchandise from shops on matchdays, clubs still have opportunities to monetise such fans, by exploiting the level of engagement they have with their supporters, utilising social media and e-commerce.

Moreover, clubs can utilise the growth of internet and mobile usage to sell digital media content such as video-ondemand, video games, etc.
Manchester united for example, through their international partnerships with telecoms operators, offers digital content to mobile devices, generating almost €20 million per year.

Effective digital strategies offer the dual benefits to clubs of generating direct revenue (from product sales) along with engaging fans with clubs to a greater extent, which will generate additional indirect benefits.

One possible way for clubs to address such opportunities would be through the optimisation of their websites. Clubs need to ensure that their websites have good e-commerce functionality, stimulating users to purchase club merchandise online.

Implement more radical solutions

Given the current state of the finances of many European football clubs, optimising existing revenue streams may not be enough to ensure compliance with FFP.

Given the scale of the challenge, some clubs are beginning to explore radical solutions for addressing this financial conundrum, by diversifying their business into fundamentally new areas.

Football clubs are uniquely able to transfer the use of their brand outside of core activities given their large and loyal following and strong deeply-entrenched brand qualities.

Therefore many clubs have been attempting to leverage their brand appeal outside of sports-related areas to generate revenue from new markets.

Real madrid, for instance, is building a themed holiday resort in the UAE. The project, called ‘Real madrid Resort Island’, is estimated to be worth $1 billion (approx. €770 million) and is aimed at creating a significant new revenue stream by leveraging the club’s brand reputation in the middle East.

Manchester united is also leveraging its strong brand to augment its revenue from non-football operations; the club is franchising its brand for the development of branded café bars in Asia.

In Turkey, the top 4 clubs, namely Fenerbahçe, Beşiktaş, Galatasaray and Trabzonspor, have all launched mobile virtual network operators (mvNOs) in order to exploit the loyal brand following that they have amongst their large fan base.

In addition, some clubs are exploring even more radical ways of generating new revenue, by attempting to utilise other physical assets that they hold.

For example, Arsenal and juventus have taken advantage of their respective moves to new stadia to invest in the real estate business.

This has enabled them to generate significant additional revenue from non-football activities, with Arsenal for example earning £156.9m from their property development business in 2010, which was equivalent to ~70% of turnover from football operations.

Trabzonspor in Turkey has pursued even more radical opportunities, by developing a hydroelectric power plant, investing over $50 million (approx. €40 million) into the scheme. The club expects that the new facility will generate ~$10 million a year in additional revenue. [Source: Value Partners, Deloitte]

What do you think? Is there anything missing here? Share your thoughts!

Karl Lusbec

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