Way back in 1992, the Premier League was created and built on the back of Sky’s desire to use football as their unique selling proposition as Sky strove to build a subscription-based satellite service in the UK. As competition grew for domestic broadcasting rights their value increased exponentially, fueling huge increases in football wages and transfer values creating a massive inflationary environment that benefited a few select clubs and their owners.
As a result, serious and significant global investors were attracted by the relatively low value entry cost, location (the UK has always been viewed as a safe haven for global capital) and levels of cash swimming around the Premier League and belatedly European competitions.
A rising tide……
There’s a common misconception that in business all ships rise equally on a rising tide. That’s far from the truth though. The very best businesses take advantage of the favourable macro-conditions to improve their relative and competitive positions.
The evidence for this in the Premier League is stark. The very best businesses (clubs) have improved their finances relative to their competitors in as many ways as they possibly could have.
Off the pitch all the leading English clubs have used the surety of broadcasting revenues to draw capital from their owners or external financiers to build or significantly improve and expand their stadia, thereby generating ever increasing match day revenues and in particular, building significant corporate entertainment businesses through the expansion of corporate hospitality and premium seating facilities in each of their grounds increasing income and the yield per customer/fan.
Thus the surety of increasing broadcasting revenues gave their owners and backers the confidence to build or expand their stadia, thereby creating a second competitive advantage – higher match day revenues than those clubs trying to compete and join the clubs at the top end of the league.
They invested in people also. Drawing in commercial talent from the worlds of finance, retail, property, technology and entertainment plus other sectors. As a result (as on the pitch) bigger budgets meant a concentration of the best talent permitting those clubs with the highest revenues to further expand their commercial operations far and wide.
Yes, you’ve guessed it – this results in higher revenues, higher global exposure, and ultimately developing the clubs’ brands such that other world class global brands wished to associate with.
The extra-ordinary prices paid by the global sportswear giants such as Nike and Adidas, do not reflect shirt or kit sales (which are a tiny percentage of their overall turnover) they reflect the desire to associate their brands with the leading global brands of the Premier League. It’s a marketing strategy designed to add value to their own brand by association. It’s a marriage of alpha organisations.
Thus, the competitive position of the Premier League becomes imbalanced as the huge advantages of income multiples make it almost impossible to join the group of leading clubs.
Continued revenue growth
The question for all successful organisations and indeed even more so, for those wishing to challenge, is how to continue your revenue growth, thereby giving you continued access to capital, talent and the aforementioned competitive advantages?
This is a particularly challenging question against market conditions that now suggest the market is maturing and growth in terms of broadcasting income and perhaps to a lesser extent commercial and sponsorship is more difficult to come by.
The answer lies in what the successful clubs have done to an extent already, diversification away from broadcasting revenues. The most successful clubs are those least reliant upon broadcasting revenues.
Many will argue as to whether their significant non-broadcasting revenues are a result of their success, or is it that their success is a result of them growing alternate revenue streams?
Personally, I lean more towards the latter. Grow the revenues in order to achieve the success. Without the revenues, success is very unlikely.
The Premier League is not only competitive in itself, it competes with all the major European leagues for talent, and for the glory and financial benefits of the UEFA competitions.
As a result, cost pressures will continue to increase even if the traditional revenue sources for Premier League clubs may appear to be plateauing.
New revenue sources?
Therefore, what do the top Premier League clubs and the more forward thinking European clubs do to generate new revenue sources?
Quite simply they diversify and expand their areas of operation to seek additional revenues and capital gains.
There’s clear evidence already that the most forward thinking clubs having dominated and exploited traditional revenue pools are now looking elsewhere. Let me give some examples:
Manchester City’s parent company CFG (City Football Group) announced only a couple of days ago an investment of US$ 115 million in an investment fund (Sapphire Sports Invest) that specialises in technology and digital sports startups. What’s interesting is the investors alongside them, Adidas, along with the owners of the NBA’s Indiana Pacers, the New York Jets and San Francisco 49ers of the NFL and the NHL’s San Jose Sharks and Tampa Bay Lightning. All looking for growth opportunities and diversifying away from their core revenue and capital sources.
“Challenging the conventional approach is at the heart of our ethos at City Football Group,” said CFG CEO Ferran Soriano. “Investing in Sapphire Sport, a first-of-its-kind fund, is a natural extension of our original global model, which pairs teams in six countries and five continents with football related businesses, which help drive our growth and success.”
There’s an old adage in investing, you concentrate your investments to grow your capital and you diversify your investments to maintain your position. Perhaps there’s an opportunity to diversify and grow relative to our competitors.
E-sports. At first glance doesn’t sound too exciting, yet generated more than US$ 900 million in revenue in 2018, and is forecast to reach US$ 2.4 billion by 2020. Traditional sport’s organisations and investors are looking closely. Alisher Usmanov was an early investor investing more than US$ 100 million in Virtus.pro. In the US, many of the basketball teams including Philadelphia 76ers and the Houston Rockets have invested in League of Legend teams. In football, West Ham, Manchester City and Schalke 04 have professional FIFA players and the Premier league have launched their own ePL.
The audiences (and therefore the potential for sponsors and other commercial arrangements) are huge and growing – more than 10 million for the Overwatch league, and a projected audience for competitive gaming of over 270 million by 2022. (equal to the current NFL audience).
Annoyingly for Blues, Liverpool’s CEO Peter Moore continued the theme of looking beyond traditional football thought processes (and therefore revenue opportunities) with the view that technology has to be used to maintain football’s core audience:
“90 minutes is a long time for a millennial male to sit down on a couch,” Moore told the Arabian Business magazine. “When I look at viewing and attendance figures of millennial males, I’m concerned as a chief executive of a football club that relies on the next generation of fans coming through.
“If we don’t build technological prowess as a club we will lose them. There’s so much pressure on time now and only 24 hours in a day…”
Where do Everton fit into this?
The point of all this is where do Everton fit in? Clearly we lost out on the first expansionary phase within the Premier League. We never had the capital to expand facilities or attract the best talents to grow our income. The results of which are very clear for all Evertonians.
The question now is whether or not we get left behind again? As the major clubs look to diversify their income and capital generation away from traditional sources where do Everton sit?
Yes we must continue to try to grow our share of conventional revenues matchday (through Bramley Moore), sponsorship and commercial partnerships, but perhaps we must also turn our minds to alternative sources of exposure, revenue and capital growth opportunities as our forward thinking competitors are doing?
To miss two expansionary phases will be beyond negligence, we missed the first but through Moshiri’s ownership and access to capital, have the potential to participate in another growth opportunity. The cynics and realists will point to our inability to exploit existing opportunities let alone future ones.
My own view? I hope the club by some miracle, can be more forward looking and seek to make up lost ground by diversifying into new growth markets. I’d qualify that with do we have the people, skills and vision to enable this?
If we are ever to close the gap with those above us we need to think “smarter” and ensure we have the people in the club to exploit the opportunity.
Comments most welcome.
Categories: Everton finances