Anthony Zazo Futbol Club Barcelona: Globalization Opportunities

Should FC Barcelona Purchase an Equity Interest in an MLS Team? After the success of the 1994 World Cup in the United States professional soccer teams from around the world began to realize that soccer was becoming a true global sport. The globalization of soccer meant that clubs needed to look at new markets to promote their teams outside of their traditional territories. “Until the early 1990s, the target markets for soccer teams had been their own locale, where fans lived close enough to go to the stadium. While larger teams such as Barca had fans outside this primary market, management paid little attention to them” (Davila, Foster, and Llopis 10). As of August 2006 the management team of FC Barcelona was considering taking an equity position in an MLS team as a means to expand their presence in the highly valuable United States market. However, before making this decision FC Barcelona had to consider the viability of Major League Soccer in the United States and the effect that their purchase would have on their brand image in the United States and the rest of the world. Would purchasing an MLS team add value to FC Barcelona’s organization and brand, and would it increase revenues?

SWOT Analysis Strengths/Competitive Advantages

As of 2006 FC Barcelona maintained a competitive advantage over other professional soccer clubs due to their business model, which led to success on the field and the creation of other competitive advantages such as increased fan support and higher revenues. Management recognized that the business of soccer was growing on a global level, and they needed to differentiate themselves from their competition so that they would be viewed as a “big global club”. If FC Barcelona could achieve this goal they would be able to grow and increase their global presence and revenues. “To bring the club back to the top of the industry, FCB’s management team structured their strategy around what was named the “Virtuous Circle”: Hire the best players-Win championships-Have a large loyal fan base-Increase revenues-Hire the best players again” (Davila, Foster, and Llopis 3). This approach was an overwhelming success, and FC Barcelona won the Spanish League in 2005 and 2006 in addition to winning the European Champions League in 2006. The club was able to parlay their on-field success into increased revenues and continue their “Virtuous Circle” management approach. FC Barcelona also maintained a competitive advantage over their rivals because of the size and dedication of their fan base. This is evident in Barcelona’s slogan, which is “more than a club”. “These words had several meanings, ranging from being a club committed to several sports to its larger relevance to local society . . . The various club presidents had leveraged the club beyond its sporting presence to include social, cultural, and political dimensions” (Davila, Foster, and Llopis 2). Therefore FC Barcelona had succeeded in branding itself as an integral part of the local culture that went beyond the soccer field. This helped the club to expand their base of dedicated fans, and expanding the number of socis allowed Barcelona to create a direct economic link between more fans and the soccer team which led to increased revenues aside from game day tickets.

In addition to their popularity with the local fan base FC Barcelona also held a competitive advantage because of their international status. FC Barcelona was popular in China, Japan, and Latin America, and they generated over 20 million Euros in revenue from globalization efforts in 2005. These globalization efforts could provide them with experience which to draw from when entering the United States market.

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Weaknesses FC Barcelona did not have extensive experience working with the United States market,

and no European soccer club had ever purchased an equity interest in an MLS team. Therefore, the organization did not have a direct precedent or outline to follow in order to gather information and develop a business plan specifically tailored towards entry into MLS.

FC Barcelona’s business model could also suffer because their “more than a club” model might not translate to a new market in the United States. The team was able to use this motto to infiltrate all aspects of local society in Catalunya, but would this work in a new location that did not have a one-hundred plus year connection to the soccer team? Opportunity/Country Analysis/Environmental Climate The overall United States market presents a good opportunity for FC Barcelona to increase their international revenues and presence. “Managers should consider the environmental climate-the external conditions in a host country that could significantly affect an enterprise’s success or failure . . . Sales potential is probably the most important variable managers use when determining where to place market-seeking operations”(Daniels, Radebaugh, and Sullivan 418). As an example, the United States has the largest economy by gross national income in the world, measured at 11,012,597 (millions of dollars) in 2003. In the same year the United States had the fifth largest GNI per capita in the world, measured at $37,870. In terms of purchasing power parity the United States ranked first in the world in 2003 at 10,923,376 (millions of international dollars).

The market for professional sports is a particularly strong component of the greater U.S. economy, and it has traditionally provided above average returns compared to the overall U.S. business climate. In The Business of Sports the authors discuss a study done by Moag and Company which concludes that: “The sports industry has developed into a dynamic and valuable segment of the U.S. economy. Based on our analysis, it appears that most sports-focused businesses thrive regardless of the present economic conditions . . . Accordingly, the sports industry represents an attractive investment opportunity”(Rosner and Shropshire 25). The United States market is also desirable to companies because it has a high degree of human development and it is a capitalistic society with a high level of economic freedom. Furthermore, the United States has a stable democratic government and stable currency. FC Barcelona also benefits from the correlation of social and economic conditions between the United States and Spain. Both countries are classified as “free”, indicating that they have high degrees of political and civil liberties, and both countries predominant religions are derivations of Christianity. As of 2003 The United States and Spain are also two of the ten largest economies by GNI, and both countries are classified as “high-income” countries by GNI per capita. Each country also enjoys a high level of human development. Furthermore, while they have different primary languages, the Spanish speaking population of the United States is increasing, and English is considered the global language. Threats

Barcelona’s competitive advantage through management could be harmed by the structure of the MLS league. “To make MLS a viable league, it was founded as a “single-entity” organization where the league contracted with the players directly . . . Revenue sharing, roster composition and international player allocations were also controlled by the league (Davila, Foster, and Llopis 13). FC Barcelona had built a strong soccer club by using a business model that started with the concept of hiring the best players. Their roster in Spain was filled with some of the world’s biggest stars including Ronaldinho, Messi, and Samuel Eto’o. However,

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within the MLS framework Barcelona would not be able to simply hire the best players at any cost as a team can do in Europe where there is no salary cap.

Likewise, the United States does not have a strong national connection to the sport of soccer. “In contrast to most of the world, soccer was not among the top U.S. sports “(Davila, Foster, and Llopis 13). Since soccer is not that popular in the United States there are not any longstanding leagues, tournaments, or rivalries that help the sport of soccer to thrive in the European market. In fact, a number of professional soccer leagues have already failed in the United States, most notably the North American Soccer League, despite the presence of big name players like Pele and Beckenbauer.

FC Barcelona also faces considerable competition from the four major sports leagues that are already well established in the United States, as well as other emerging sports like lacrosse, rugby, and action sports. It is possible that the United States market is already oversaturated, and it may not be able to support another professional sports league.

Life Cycle of International Soccer Leagues/First Mover Advantage Since the state of soccer in Europe and the United States are at different stages of the industry life-cycle FC Barcelona could benefit from diversification by investing in the MLS. In Europe professional soccer appears to be at the end of the growth stage and approaching maturity. Although soccer revenues are continuing to grow, clubs are beginning to see a shakeout through increased competition for revenues. As of 2005 FC Barcelona had ascended to become the sixth largest revenue generating team in Europe, but they were facing strong competition to try and increase their revenues at the expense of other European clubs. FC Barcelona was also facing an uphill battle to try and market their team globally against Real Madrid and Manchester United. In 2005 FC Barcelona was able to generate 20.45 million Euros in international revenues, but Real Madrid generated 86.7 million Euros in international revenue over the same time frame, while Manchester United generated 50 million Euros. Thus, even after multiple successful seasons in a row FC Barcelona was still well behind Real Madrid and Manchester United in generating international revenues. On the other hand, MLS in the United States was still in the beginning of its growth phase. Although MLS was still small compared to other United States professional sports leagues with total sales of about $160 million in 2005, “its financial position appeared to be secured”(Davila, Foster, Llopis 13). Teams were in the process of constructing new soccer specific stadiums, the league was continuing to expand, and franchise values were increasing.

If FC Barcelona decided to invest in MLS they would be entering a league at a different growth stage than European soccer leagues, and they would also have the first mover advantage because no other European soccer club had yet purchased an equity interest in MLS. “By being the first major competitor in a market, companies can more easily gain the best partners, best locations, and the best suppliers-a strategy to gain first mover advantage. Similarly, companies may reduce risk by avoiding overcrowded markets” (Daniels, Radebaugh, and Sullivan 426). Therefore FC Barcelona would gain first mover advantage on their competitors by entering a “blue ocean” territory, while also diversifying their business interests and moving into a new and underdeveloped market in the United States. Moving into the United States market through MLS could also have ramifications on the FC Barcelona club in Europe and throughout the world as they gain awareness and fans throughout the United States. This could lead to increased demand for their merchandise, international broadcasting rights, and increased demand for their international matches.

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Financial Analysis FC Barcelona’s Income Statement shows that the club had income after taxes of 32, 981, 00 Euros in 2005/2006, 36,715,000 Euros in 2004/2005, and 1,493,000 Euros in 2003/2004. FC Barcelona operates as a “sporting organization” and not an incorporated company in Spain, meaning that it is a non-profit organization. Because of this organizational structure FC Barcelona does not have shareholders to pay dividends, and it does not have a private owner who is collecting annual profits. Therefore they can afford to take extra revenues and utilize them for purposes that will enhance the brand and future revenues of the soccer club. If the club is able to grow revenues FC Barcelona’s business model of the “Virtuous Circle” can continue to lead to success on the field and further revenues. Taking an equity position in an MLS team appears to be a feasible economic consideration for FC Barcelona based on their most current Balance Sheet and Income Statement from the last six seasons ending with 2005/2006. FC Barcelona has generated positive income after taxes for each of these three seasons, and their Balance Sheet shows that they have sufficient cash and current assets to support investment in an MLS team. Since the MLS is a single entity league the league limits player salaries, which are very modest by European standards. As of 2005 the average MLS team salary was only $1,964,000, with the Los Angeles Galaxy having the highest team salary at $2,750,000. Although most teams in the MLS are still losing money, there are positive signs such as television deals and increased attendance that point towards long term viability for the league and profitability for their teams.

Recommendations/Implementation FC Barcelona’s management group should take advantage of the opportunity to take an equity position in one of the MLS teams in the United States. The economic strength of the United States market provides an excellent opportunity for FC Barcelona to grow their brand internationally. By purchasing an MLS team FC Barcelona will gain valuable exposure in the United States that they can use to enhance the demand and revenues for their entire organization. The team itself could serve as a valuable marketing tool for increasing their European clubs popularity in the United States, and thus create demand for their apparel, television broadcasts, and friendly matches played in the Untied States. With the increasing globalization of soccer it is also important that FC Barcelona can gain first mover advantage on their European counterparts by purchasing an equity interest in Major League Soccer before their competition.

If FC Barcelona purchases a team this would bring greater exposure to the league itself, which could lead to increased revenues and financial viability for themselves and the entire league in the future. By purchasing a team in MLS FC Barcelona will also lend credibility to the entire league, and this could lead to further investment in MLS by soccer clubs from around the world. In addition, FC Barcelona could utilize their MLS team as a means of extended player development for their European club. Since it is becoming increasingly expensive to acquire top players in Europe due to free agency and transfer fees it is important for organizations to develop talent from within the organization. With low salaries that are controlled by the league FC Barcelona could reap great rewards if they are able to develop players in the MLS.

After purchasing a team FC Barcelona should hire an experienced team of veteran MLS operational personnel to help them get their organization started. While FC Barcelona brings with them a respected and internationally known soccer brand, the competitive advantage of their management team and strategies will not work in the United States and MLS without adjustments. Therefore, it is important that they contract with people who are experienced in working with MLS and the United States market to fully realize the benefits of their investment.

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Works Cited

Daniels, John D. et. al. International Business Environments and Operations. Upper

Saddle River: Pearson Education, Inc., 2007.

Rosner, Scott R. and Kenneth L. Shropshire. The Business of Sports. Sudbury: Jones and Bartlett Publishers, Inc., 2004. Davila, Antonio et. al. Futbol Club Barcelona: Globalization Opportunities. Stanford: The McGraw-Hill Companies, 2007.