football: 10 rules of the business
TRANSCRIPT
Football: 10 rules of the Business
Francisco Hernández-Marcos 11 Goals & Associates Moscow March 26th, 2015
This document has been produced by 11 Goals & Associates. It is not complete unless supported by the underlying detailed analyses and oral presentation.
About me SHAMELESS SELF-PROMOTION
Education: Universidad Politécnica de Madrid, UNED,
London Business School, University of Chicago – Fundaciò
“laCaixa” & Fundación Rafael del Pino scholarships.
Firms worked for: Abengoa, McKinsey&Co, ABN AMRO,
Real Madrid C.F.
Entrepreneurship: Crisalia
Social Media & Internet consulting: 11goals.com
Lectures & Speaker in 4 continents: The Wall Street Journal, UP Madrid, London
Business School, Cornell, Politecnico Milano, CEIBS (Shanghai), Kungliga Tekniska
högskolan, The Business Factory, Fulbright Spain, ESCP Europe, UIMP, Harvard,
Moscow SU, and several private companies.
Full profile: linkedin.com/in/franciscohm
2 2
Views are our own. All information and insights contained in this presentation are
either public or common knowledge
Disclaimer
3 3
About Football
Source: Wikipedia; FanPageList; UEFA; Reuters; IBT
First played in England in 1863, Football had had its roots in several ball games played in different parts of Europe for centuries.
World’s most popular sport: 250 mill. players in 200 countries.
FIFA has more member countries than the United Nations.
Some players are among the most respected celebrities in their countries, and Worldwide.
‐ Didier Drogba is credited with brokering a Cease-Fire in Ivory Coast that ended a 5-year civil war.
‐ Cristiano Ronaldo is the most followed person in Social Media (141 mill. in FB+TW).
Global TV audience (mill. people):
‐ European Champions League final: 380
‐ “El Clásico” (Real Madrid-Barcelona): 200~400
‐ Super Bowl: 160
4 4
Football lifts the spirit…
Source: Footballnomics
World Cup -> Less suicides not only in June, but for the whole year
…and saves lives!
5 5
Revenue ranking by sport leagues
Source: Wikipedia
6.600
5.867
3.667
3.200
2.971
2.000
1.900
1.700
1.300
980
919
896
551
National Football League
Major League Baseball
National Basketball Association
Premier League
National Hockey League
Bundesliga
La Liga
Serie A
Ligue 1
Nippon Professional Baseball
Campeonato Brasileiro Série A
Russian Premier League
Süper Lig
Revenue EUR mill.
Combined, football is probably the highest revenue-generating professional sport in
the World
206,3
195,6
122,2
160,0
99
111,1
95
85
65
81,7
45,9
56
30,6
Football leagues
Revenue per team
6 6
Most valuable sport clubs
Source: The World's 50 Most Valuable Sports Teams 2014 (Forbes)
3,44
3,20
2,81
2,50
2,30
2,00
1,85
1,80
1,70
1,55
1,50
1,45
1,40
1,38
1,35
1,33
1,31
1,25
1,23
1,22
1,20
1,20
Real Madrid
FC Barcelona
Manchester United
New York Yankees
Dallas Cowboys
Los Angeles Dodgers
Bayern Munich
New England Patriots
Washington Redskins
New York Giants
Boston Red Sox
Houston Texans
New York Knicks
New York Jets
Los Angeles Lakers
Arsenal
Philadelphia Eagles
Chicago Bears
Baltimore Ravens
San Francisco 49ers
Chicago Cubs
Ferrari F1
Team value USD bill.
4,2%
Football clubs
1-Year growth
23,1%
-11,2%
8,7%
9,5%
23,8%
41,3%
10,1%
6,3%
5,6%
14,3%
27,3%
11,1%
7,5%
35,0%
0,3%
4,0%
5,0%
6,3%
3,8%
20,0%
4,3%
7 7
Football: The rules of the Business
1) Football has social value, and business value too
8 8
Football clubs revenue ranking
Source: Deloitte Football Money League (2015); UEFA (2012)
550
518
488
485
474
414
388
359
306
279
262
250
216
214
170
165
164
162
155
144
Real Madrid
Manchester United
Bayern Munich
FC Barcelona
Paris Saint-Germain
Manchester City
Chelsea
Arsenal
Liverpool
Juventus
Borussia Dortmund
AC Milan
Tottenham Hotspur
Schalke 04
Atlético de Madrid
Napoli
Internazionale
Galatasaray
Newcastle United
Everton
Revenue (13/14) EUR mill.
First 56%
Second 21%
Third 8%
Other 15%
Revenue matters. Securing a significant amount of recurring revenue is the most important
factor for succeeding in the pitch.
Finishing position of highest-spending club in players wages
(UEFA domestic leagues)
9 9
Some research shows that league position is strongly correlated (R2=89%) with wage expenditure
Source: Footballnomics
BACK-UP
…but same research tells us that correlation with transfer spending is low (R2=16%)
Are wealthier clubs profiting from the non-existence of superior options for over-
performing players?
10 10
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
11 11
Sources of revenues Top 20 teams in 2013/14 season
Source: Deloitte Football Money League; own analysis
Commercial is king: larger and growing faster
Matchday 19,8%
Broadcast 39,1%
Commercial 41,1%
5yr-CAGR: 7,9%
5yr-CAGR: 14,7%
5yr-CAGR: 3,6%
12 12
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
4) Commercial the most important source of revenue: larger and growing faster
13 13
Revenue breakdown and key drivers
Source: Various
Revenue
Matchday
Broadcast
Commercial
Domestic
International (Champions League,
Europa League)
Drivers • Stadium ownership • Stadium size • Income per capita •VIP facilities •Dynamic pricing (when possible)
Actionable by the club
Drivers • Lobbying & bargaining to the league • Team performance • League salesforce skills
Drivers • Team performance • League salesforce skills
Drivers •Historical Team Performance •Brand positioning • Fan base •Big Ticket contracts bargaining • Long-tail contracts salesforce • Loyalty card • Summer tours
14 14
Matchday revenue drivers BACK-UP
15%
25%
40%
Standard VIP (2015)
Top VIP (2015)
New generation
99.786
85.000
84.412
81.044
80.667
80.093
80.018
80.000
78.838
78.360
76.092
75.731
75.000
60.338
60.234
54.907
47.805
45.276
41.798
Camp Nou (FC Barcelona)
Stade 5 Juillet 1962 (MC Alger)
Azadi Stadium (Esteghlal FC, Persepolis FC)
Santiago Bernabéu (Real Madrid)
Signal Iduna Park (Borussia Dortmund)
Monumental "U" (Universitario de …
San Siro (AC Milan, Internazionale)
Stade des Martyrs (Vita Club)
Maracaná (CR Flamengo, Fluminense FC, …
Luzhniki Stadium
Atatürk (İstanbul Büyükşehir Belediyespor)
Old Trafford (Manchester United)
Allianz Arena (Bayern Munich, TSV 1860 …
…
Emirates Stadium (Arsenal)
Stadio San Paolo (Napoli)
Vicente Calderón (Atlético de Madrid)
City of Manchester (Manchester City)
Anfield (Liverpool)
Stamford Bridge (Chelsea)
Capacity Seats
Source: Wikipedia; Deloitte Football Money League; own analysis
Annual Matchday revenue per seat EUR/seat/yr (13/14)
1.171€
1.404€
695€
311€
1.707€
1.173€
1.985€
347€
592€
1.188€
1.347€
2.031€
235€
VIP Matchday revenue % of total Matchday revenues
No Ownership
Affluent fans
VIP capacity
15 15
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
4) Commercial the most important source of revenue: larger and growing faster
5) Matchday revenue drivers: Stadium ownership, VIP
16 16
Broadcast revenue distribution BACK-UP
La Liga
Source: Roberto Bayón; UEFA; other
Premier League Champions League
140
140
48
42
32
32
32
30
28
25
25
25
22
22
22
18
18
18
18
18
Real Madrid
FC Barcelona
Valencia
Atlético de …
Sevilla FC
Athletic Bilbao
Villarreal
Real Betis
RCD Español
Real Sociedad
Málaga
Getafe
CA Osasuna
RC Celta de …
Levante
Granada CF
Elche CF
Real …
Rayo …
UD Almería
•Negotiated deal. Static over the contract’s term
•Unequal distribution (Gini: 0,365) •Short term win, long term loss?
•Dynamic. Moderately depends on team’s performance
•Equal distribution (Gini: 0,083) •Ensures regular income to small teams
•Dynamic and aggressively dependant on team’s performance
•Unequal distribution (Gini: 0,274) •Performance bonus. Invest it wisely
EUR Mill.; 2013/14 season
117
116
113
111
108
107
102
93
92
91
89
88
88
87
86
80
79
77
76
74
Liverpool
ManCity
Chelsea
Arsenal
Tottenham
ManUnited
Everton
Newcastle
Southampton
Stoke
Swansea
West Ham
Crystal Palace
Aston Villa
Sunderland
Hull
West …
Norwich
Fulham
Cardiff Total: 755 Total: 1.875 Total: 905
57 54
50 45 45 43 43 42
39 38
35 35
32 27 27 26
24 22 21 21
19 18 17
15 15 15 14 14 13 13 12 11
Real Madrid PSG
Atlético Madrid ManUnited
Bayern Munich Chelsea
Juventus FC Barcelona
Napoli AC Milan ManCity Borussia
O. Marseille Olimpiakos
Arsenal B. Leverkusen
Shalke04 Kovenhaun
Ajax Galatasaray
FC Zenit Celtic
Real Sociedad Benfica
CSKA Moskva Steaua
Porto S. Donetsk
Basel Wien
Anderlecht Viktoria Plzen
7,8x 1,6x 5,2x
17 17
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
4) Commercial the most important source of revenue: larger and growing faster
5) Matchday revenue drivers: Stadium ownership, VIP
6) Broadcast revenue drivers: domestic league value and team distribution, and success on international tournaments
18 18
Football big-ticket sponsorships
Shirt
Source: Forbes; The Economist; other
Note: Stadium ranking is not exhaustive
BACK-UP
80
45
40
39
31
Manchester United (Chevrolet)
FC Barcelona (Qatar Airways)
Bayern Munich (Deutsche Telekom)
Real Madrid (Fly Emirates)
Liverpool (Standard Chartered)
Kit
41
39
38
38
37 88
Real Madrid (Adidas)
Liverpool (Warrior)
FC Barcelona (Nike)
Bayern Munich (Adidas)
Manchester United (Nike)
Signed Adidas for
USD 88 mill. for 13
seasons beginning
15/16
•Manchester United -and other English teams- are pushing hard by signing very profitable big-ticket contracts. The reason behind why they sell at higher price might be that the English Premier League has more TV eyeballs.
•We may infer that RM, FCB and BM must be very good at the rest of the Comercial revenue drivers: long-tail contracts, loyalty cards, summer tournaments, etc. or that part of the revenues of the players are invoiced through the club.
•Stadium’s naming rights deals are a great potential source of new revenues in the future. However clubs are reluctant to hear offers that are not large and long enough (Real Option framework).
Yokohama just signed with
Chelsea for USD 61 mill.
beginning 15/16
Stadium
8,8
5,5
Emirates (Arsenal)
Etihad (ManCity)
EPIC (Real Madrid)
Allianz (Bayern Munich)
Veltins (Shalke 04)
USD mill./year
Real Madrid signed pre-
deal with IPIC (terms not disclosed)
Joint deal with Shirt
?
?
?
19 19
Stadium Naming Rights in the USA as of 2013
Source: New York Times
BACK-UP
•75% of US clubs have sold stadium naming rights. •Business much more developed than in Europe. Perhaps because sponsors have developed a better ROI framework. •Best deals in recent years. •European Football teams can and should be able to reach similar deals for their global audience.
Interactive chart (NYT)
20 20
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
4) Commercial the most important source of revenue: larger and growing faster
5) Matchday revenue drivers: Stadium ownership, VIP
6) Broadcast revenue drivers: domestic league value and team distribution, and success on international tournaments
7) Commercial: Big-ticket contracts (dependant on TV audience) are key. Stadium naming rights will bring significant growth soon
21 21
Top Football clubs revenue breakdown 2013/14; EUR mill.
0 €
100 €
200 €
300 €
400 €
500 €
600 €
Commercial Broadcast Matchday
Source: Deloitte Football Money League, 11 Goals & Associates
Arsenal stadium (Emirates) is considered as the most VIP facility,
with high Matchday revenue
~50% of home broadcast revenues in Spain go to Real
Madrid and FC Barcelona
Being UEFA CL finalist made Atlético to increase Broadcast
revenue by 86% in 1 year
PL’s large broadcast contract, and its flat distribution, secure smaller teams with
enough income
RM’s and ManU’s international focus
and strong salesforce pays-off
Milan teams do not own the stadium
PSG huge commercial inflow
since Qatar Investments Office
took over
Income per capita drives Matchday revenue. Chelsea Vs Napoli
Bayern Munich big-ticket sponsors are strong, and
shareholders of the club…
22 22
Cost drivers
Source: own analysis based on Annual Statements (2013/14); UEFA (2012)
ILLUSTRATIVE EXAMPLES
Ratios to revenue
44% 48%
74% 69% 69% 69% 61% 51%
65%
17% 12%
Real Madrid
FC Barcelona
Average Turkey
Average Italy
Average England
Average Russia
Average Spain
Average Germany
Average UEFA
Other Amortization Wages
•Team wages account for the most part of an average club costs •There are significant differences in cost management among clubs (e.g. wage steps) •57% of UEFA member clubs are loss-making •Cost is the main driver of a Club’s profitability. Most Clubs are loss-making because they are not enough diligent on the cost base •UEFA is concern about these issues and is implementing “Financial Fair Game” policies
0% -8% -11% 2% -8%
Net profit to revenue ratio
EBITDA: 164 M.€
EBITDA: 134 M.€
-9% -22%
23 23
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
4) Commercial the most important source of revenue: larger and growing faster
5) Matchday revenue drivers: Stadium ownership, VIP
6) Broadcast revenue drivers: domestic league value and team distribution, and success on international tournaments
7) Commercial: Big-ticket contracts (dependant on TV audience) are key. Stadium naming rights will bring significant growth soon
8) Main cost driver is team wages. It determines (un)profitability
24 24
Source: Transfer Markt; own analysis
Note: Some transfers data are estimations
Player transfers of selected clubs
-200
-100
0
100
200
300
Profile 1: Super-Investors Ronaldo;
Kaká; Alonso;
Benzema
Departures income (GBP mill.)
Arrivals expenditure (GBP mill.)
Net income (GBP mill.)
Real Madrid CF
05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Season
473
998
-525
-200
-100
0
100
200
300
FC Barcelona
281
640
-359
Total 05/06 to 13/14
Ramos; Robinho
Diarra; Gago
Robben; Pepe;
Sneijder Huntelar
DiMAría; Özil;
Khedira
Coentrão
Modric
Bale; Isco James;
Kroos
Suárez
14/15
Henry; Milito
Alves
Ronaldinho Ibrahimovic
Villa; Masch.
Fábregas; Sánchez
Neymar
25 25
Source: Transfer Markt; own analysis
Note: Some transfers data are estimations
-50
0
50
100
150
Profile 2: Net investors profiting from opportunistic sales
Departures income (GBP mill.)
Arrivals expenditure (GBP mill.)
Net income (GBP mill.)
Atlético Madrid
Season
336 426
-90
-50
0
50
100
150
Valencia CF
280 291
-11
Total 05/06 to 13/14 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15
Agüero
Forlán; Simão
Torres Falcao
Costa
Villa
Joaquín
Albiol
Mata
Soldado
Mathieu
Player transfers of selected clubs
26 26
Source: Transfer Markt; own analysis
Note: Some transfers data are estimations
-20
-10
0
10
20
30
40
Profile 3: Capital generators (concentrated in few players)
Departures income (GBP mill.)
Arrivals expenditure (GBP mill.)
Net income (GBP mill.)
Real Sociedad
Season
77
46
31
-20
-10
0
10
20
30
40
Athletic Bilbao
84
49
35
Total 05/06 to 13/14 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15
Griezmann; Bravo
Illarramendi
Del Horno
Aduritz
Martínez Herrera
Player transfers of selected clubs
27 27
Football business models
• Large, well-established teams with a long track record on the pitch and a large fanbase all over the world.
• Revenues, large and stable, finance team. • Key to profitability is being able to contain the payroll cost
of the players. • Usually have successful junior academies, but it is difficult
for a player to walk all the steps onto the first team.
Description
• Real Madrid • Manchester United • Bayern Munich • FC Barcelona • Manchester City • Paris Saint-Germain • Chelsea
Examples
• Mid-sized teams with strong junior academies or a key long-term investor, working to build a Commercial stream and an international brand.
• Transfer fees come not only from the junior academy, but from trading players who become stars in 2-3 years.
• From time to time succeed in Europe and get significant revenues. Money buys time to build-up Commercial.
• Revenues are volatile and cash must be watched.
• Atlético de Madrid • Shalke 04 • Valencia CF • Fiorentina • Ajax • Monaco
• Small local teams with little chances to build-up a Comercial revenue stream.
• Best source of revenue are transfer fees from players coming from their junior school.
• Teams that do not succeed in developing talent are usually money-losing clubs.
• Real Sociedad • Villareal CF • Elche CF • Stade Rennais • Atalanta B.C. • FC Sochaux-Montbéliard • Many Latam clubs
Factory of players
“Lucky striker” (prizes, trades, or
key investor)
Commercial funds team
(wages & capex)
• Very small and small clubs that live almost exclusively on tickets. Adapt budget to revenues (Cash In-Cash Out).
• Usually no formal business plan Survival mode
Top ~1%
Next ~5%
Next ~20%
Source: 11 Goals & Associates; UEFA (2012)
Most clubs
28 28
Digital Business Model?
Factory of players
“Lucky striker” (prizes, trades, or
key investor)
Commercial funds team
(wages & capex)
Survival mode
Digitally-enabled Business Model?
D+Factory of players
D+“Lucky striker” (prizes, trades, or
key investor)
D+Commercial funds team
(wages & capex)
D+Survival mode
How the new BM would look like?
Strategic DT
Performance DT
29 29
What kind of Digital Transformation?
Strategic Digital Transformation in Football (SlideShare)
• Same Business Model, different processes • Incremental innovation • Seeking efficiency, but not always • Low risk, medium return • Suboptimal strategy, but creates value • Ex.: Most large commercial banks such as BBVA or Grupo
Santander
Performance DT
Strategic DT
• New Business Model • Disruptive innovation, but it does not have to affect the core
business if execution plan is well shaped • Seeking revenue growth • High risk, high return • Optimal strategy, but not easy to execute • Ex.: Netflix, Coursera (~Stanford), edX (MIT, Harvard)
30 30
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
4) Commercial the most important source of revenue: larger and growing faster
5) Matchday revenue drivers: Stadium ownership, VIP
6) Broadcast revenue drivers: domestic league value and team distribution, and success on international tournaments
7) Commercial: Big-ticket contracts (dependant on TV audience) are key. Stadium naming rights will bring significant growth soon
8) Main cost driver is team wages. It determines (un)profitability
9) Business models: Survival->Factory->”Lucky”->Commercial->Digital?
31 31
Is the current model mature enough? Exhausted? YoY growth rate by revenue source; World’s top football 20 teams of each year
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Matchday Broadcast Commercial Total
•Revenues growth rates are not only not maturing, but accelerating •Growth is specially driven by Commercial •Matchday is maturing •The marginally decreasing rates until 08/09 are explained by the crisis
23,8%
14,2%
11,6%
3,6%
Source: Deloitte Football Money League; own analysis
32 32
YoY growth rate by revenue source; World’s top 4 teams (RM, MU, BM and FCB)
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Matchday Broadcast Commercial Total
•Taking only the 4 most “advanced” teams we see no pattern of exhaustion •Total revenues grow strong again after the crisis, driven specially by Commercial •Matchday is maturing
-0,7%
9,0%
9,9%
16,4%
Source: Deloitte Football Money League; own analysis
Is the current model mature enough? Exhausted?
33 33
Digital value creation
BU Sport
Cost center
Championships
BU Stadium
Profit/Inv. center
BU Commercial
Revenue/Profit center
BU Digital
Cost center?
Revenue center?
Fan base and engagement
Revenue
Attribution model Titles -> Revenue
Attribution model Fans -> Revenue
Without an attribution model someone could even argue BU sport is not a revenue generating activity…
When externalities among BUs exist, attribution models (Bayesian, Big Data,
etc.) should serve to understand interrelations and to assign transfer
costs and revenues among BUs (BU’s P&L; cost accounting).
Attribution model Titles ->Fans
Attribution model TV ->Commercial
34 34
Football: The rules of the Business
1) Football has social value, and business value too
2) The better players the team has (measured by market wage), the better the team does on the pitch
3) Revenue drives long-term team’s performance
4) Commercial the most important source of revenue: larger and growing faster
5) Matchday revenue drivers: Stadium ownership, VIP
6) Broadcast revenue drivers: domestic league value and team distribution, and success on international tournaments
7) Commercial: Big-ticket contracts (dependant on TV audience) are key. Stadium naming rights will bring significant growth soon
8) Main cost driver is team wages. It determines (un)profitability
9) Business models: Survival->Factory->”Lucky”->Commercial->Digital?
10)Commercial Biz Model yet to grow, but Digital ready to disrupt like Stadium, TV and Commercial did in the past
•Strategic consulting services in technology and digital marketing for top executives
•We advise companies on digital transformation
Francisco Hernández
•MBA London Business School. • IEP University of Chicago. •11 years of digital experience. •Ex Director Online Strategy Real
Madrid C.F. •Other companies: ABN Amro,
Abengoa, McKinsey&Company. •Professor at ESCP Europe. •Lecturer in Europe, Latam and
Asia •PWC: 10 e-Business talents in
Spain.
Sonia Fernández
•MBA Stanford. •15 years of digital experience. •Ex CEO Vindico Europe. •Ex CEO Match.com Spain. •Ex CEO MercadoLibre Spain. •Other companies: Fon, Grupo
Prisa, 3i, Lehman Brothers. •Professor at OBS-UB, EOI and MIB •Lecturer at universities and in-
company training •Author of two books on
networking and social networks published in 2004 and 2001
franciscohm
[email protected] | (+34) 605 58 66 55
soniafernandez
[email protected] | (+34) 619 721 781
