Change or be changed
The summer of 2021 will be remembered as the time when major sports events like EURO 2020 and the Tokyo 2020 Olympics were finally staged. Despite all the changes, there were still winners and losers in the sporting arena. Simply staging these events was a triumph. In three years will we recall athletes like Quan Hongchan, the 14-year-old gold medal winner in the 10-meter platform diving final, or Jakob Ingebritsen in the 1,500 meters or Italo Ferreira from Brazil who became the first ever surfer to win an Olympic gold medal? Who knows? At an estimated cost of $25 billion the Tokyo Olympics was one of the most expensive games ever staged. Congratulations to Japan for making it happen and let’s hope Paris 2024 will not be forced down a similar path.
Less than a week after the closing ceremony in Tokyo, the focus quickly returned to the world of football and Lionel Messi’s departure from FC Barcelona. His new club, Paris Saint Germain backed by Qatari funds were quick to employ his services. It was equally interesting to read La Liga will be entering an agreement with CVC Capital Partners that secures €2.1 billion of investment in return for 11% of La Liga media rights revenues for the next 50 years. Real Madrid, FC Barcelona, Athletic Bilbao and one second division club secured an opt-out of the agreement from a total of 42 clubs.
As the European football industry recovers from €9 billion losses due to Covid, there is much debate about future governance. Financial Fair Play introduced by UEFA in 2009 has not achieved the desired effect. Media reports suggest UEFA is now looking at ways of reducing the number of players in a first team squad to avoid clubs with greater resources from stockpiling players or loaning players to other clubs to comply with FFP rules. Clearly there is a lack of unity, vision and direction between UEFA, the professional leagues, and clubs across Europe.
On 5th August Forbes published the NFL’s most valuable teams 2021 which provides pertinent insights about the NFL business model. The average NFL franchise is now worth $3.5 billion, an increase of 14%, the biggest increase in the last five years. Why such positive results? Earlier this year the NFL signed new media rights agreements through 2032 worth $111.8 billion. As a result, the national media rights payout to each of the league’s 32 teams will increase from $220 million per season to $377 million in 2032. This looks massive now but in five years it will look like a bargain for the media networks. This is not exceptional, this is good business, strategy, and brand equity.
The interesting part is the NFL’s venture capital arm, 32 Equity, that was launched in 2013 with each NFL team investing $1 million. Profits have been reinvested each year and now the average annual returns are 30% which is worth $100 million per team. Investments by 32 Equity have included Fanatics (sports merchandise), Skillz (mobile gaming), Genius Sports (sports data and technology), Clear (biometric identity verification), Hyperice (athlete recovery devices), Sportsradar (sports data and technology), On Location (luxury event hospitality) and Mythical Games (gaming technology studio). Looks like a good spread of industries, products, and services of value to the NFL teams.
Comparing European football and American football is like comparing apples and oranges. They are different games in different domestic markets with different rules and regulations. But they are both in the sports and entertainment industry. Despite the cultural, linguistic, and political differences between European stakeholders in the football industry, there must be a more effective governance model that creates long-term growth opportunities for football. Simply trying to contain or prevent one club or league from gaining a competitive advantage over another is futile. As Warren Buffet, founder of Berkshire Hathaway reminded investors at his recent annual meeting, none of the world’s 20 largest companies in 1989 is in the top 20 today – and things will keep changing. Just like no-one expected Messi to conclude his career anywhere apart from FC Barcelona. The only question is whether you choose to change or are forced to change for the good of the game.