A new business model for football?

Football – real, international football – is the richest sport on the planet. Not just because the sums involved in leagues and players are huge, but because it is played so widely. Only the United Nations rivals the Fédération Internationale de Football Association (FIFA).

What is not international about football though is the business model of the clubs. Now that is changing - for better or worse - from clubs which represented local communities or cities to truly international organisations.

"The CFG aspires to both have a presence in and to be a force in all the major football regions of the world."
Prof. Steve Worthington, Adjunct Professor, Swinburne University

As the tenth season of Australia’s premier football competition, the A-League, heats up that internationalisation is clear and present with Melbourne City (formerly Melbourne Heart) and its 'galactico' David Villa.

For football fans, there’s always the anticipation of the games but the new look of the competition gives business analysts the opportunity to focus on the different business models used by sports teams around the world.

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Photo: SYDNEY, AUSTRALIA - OCTOBER 11: David Villa of Melbourne City celebrates a goal during the round one A-League match between Sydney FC and Melbourne City at Allianz Stadium on October 11, 2014 in Sydney, Australia. (Photo by Renee McKay/Getty Images).

Melbourne City Football Club (MCFC), the Heart’s new identity, is a reflection of its new majority owner, the City Football Group. THE CFG has a portfolio that also includes the current champions of the English Premier League, Manchester City, US club New York City and a minority stake in Yokohama Marinos, a Japanese club majority owned by the Japanese carmaker Nissan.

The CFG aspires to both have a presence in and to be a force in all the major football regions of the world. It now has teams in Europe, North America, Japan and Australia.

This allows returns on investment through the development of players in each region, the transfer or loan of players between clubs in the group (for example, the loan of England international Frank Lampard from New York City to Manchester City until January 2015 and now Villa to Melbourne before he goes to New York) and the creation of City ‘communities’ in each location, to build goodwill and put something back into the fan base of each club.

Members of each club are called ‘Cityzens’ and part of their membership benefits is a special ticket allocation for international holders to watch Manchester City when visiting from overseas, as well as ‘experiences’ such as flying to New York to see a NYC game.

The new CFG business model is is based on having a solo presence in each region while not competing on the pitch with other clubs in the group.

It also allows for the building of business networks based on the internationalisation of the major football competitions.

The Asian Champions League, in which the A-League club Western Sydney Wanderers will contest the final starting next week, provides an excellent opportunity for Australian business to connect with fellow businesses in major markets such as China, Japan, Indonesia and Korea.

This is an opportunity not currently available to larger sporting organisations in Australia, including the Australian Football League, Cricket or National Rugby League.

While some football teams, notably the rival Mancunian club United, are publicly listed CFG is a private investment by Sheikh Mansour bin Zayed Al-Nahyan, a member of the Abu Dhabi ruling family, who bought Manchester City in August 2008.

Sheikh Mansour has since invested more than $1.8 billion in players and infrastructure in the city of Manchester. This includes the continuous development of the Etihad Stadium in East Manchester and the building of the nearby training ‘campus’, the City Football Academy.

Sheikh Mansour holds a number of official positions within Abu Dhabi and the United Arab Emirates (UAE) but his investment in Manchester City is part of a private business strategy which is founded on the belief that the EPL a sound business investment.

That would seem to be a good judgement as by winning the EPL in season 2013-14, Manchester City earned $175 million in UK roadcasting revenue.

To illustrate the growing ‘entertainment’ value of the EPL, the team that finished bottom of the league table in season 2013-14, Cardiff City, earned more from this revenue source ($113m) than did Manchester United ($110m), champions in the previous season.

This business model supersedes a previous business model, exemplified by EPL clubs such as Liverpool and Manchester United, which is based on revenues from a trilogy of income streams; broadcasting rights, sponsorships and merchandise sales and match day gate receipts.

These clubs and others, for example from Italy and Spain, have developed their brand to achieve a worldwide following for each club and this has had some success.

As examples, the 95,000 crowd at the MCG in July 2013 to watch Liverpool play Melbourne Victory, and the 109,000 at the Michigan Stadium in the USA in August 2014, who watched Manchester United play Real Madrid.

However, no club has franchised its brand in the way that the CFG has and achieved an actual presence ‘on the ground’, in major football markets.

The Abu Dhabi ownership of the CFG is also of a different style than those exemplified by some in the English Premier League. The Glazer family from Florida bought Manchester United in 2005 with $954 million of borrowed money ($500 million from hedge funds) and have since then drained an equal amount out of the club to pay the interest and bank fees on those very borrowings.

Tony Fernandes, the Malaysian owner of AirAsia, is also the majority shareholder and chairman of Queens Park Rangers, which gives him and his airline a high profile in a major market. Chelsea is privately owned by Roman Abramovich, who delisted the club in August 2003, fulfilling the somewhat pantomime role of a Russian oligarch.

Even the high profile takeover of Italian icon Inter Milan by Indonesian tycoon Erick Thohir was, in a way, a more traditional model. Thohir and his Indonesian business partner Handy Soetedjo acquired 70 per cent of Inter Milan from Massimo Moratti, the Italian energy tycoon whose family retain the remaining share. The deal gave the heavily indebted club an enterprise value of about €375 million.

"Football is changing," Thohir told the media recently. "I want to use the US model, where sport is like the media business, with income from advertising and content, mixed with the consumer goods industry, selling jerseys and licensed products.”

He argued he signed ageing defender Nemanja Vidic partly because he was a "good brand for the Asian market".

"I talk to Mr Moratti and then sit down with the management and ask, will this player help us compete on the field and what about on the marketing side?" he said. "It's like a credit committee in a bank."

The most immediate visible manifestation in Australia of the CFG business model is the arrival of Villa, who has transferred from Atletico Madrid to New York City.

Because that new team in the MLS in North America does not commence playing until their season commences in May 2015, he has been loaned to Melbourne City for the first 10 games of the new A-league season.

How Melbourne City deliver the value proposition that CFG believe they can in Australia will not be dependant only on Villa’s performances but on the way the club treats its fans and adds value to the wider community in which it exists.

Steve Worthington is an Adjunct Professor at Swinburne University

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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