Club owners – the good, the bad, the prudent

WHY would anyone invest in football? Historically, the game has failed to provide even a modest return and often, the club owner has merely been the scapegoat for disappointed fans. Although football has changed and, at the highest level, clubs are making profits, owners are rarely appreciated and certainly not liked. The number of clubs who have ownership issues in England, for example, is extraordinarily high.

At the start of January, Charlton Athletic, who had been part of the multi-club empire of Belgian Roger Duchatelet, was taken over by East Street Investments, a company that has Abu Dhabi backing. Charlton fans had long been unhappy about their previous owner, but with the arrival of middle eastern money, there will undoubtedly be raised expectations in south London.

At least 25% of the Premier League is less than enamoured by their club owners, including Arsenal, Manchester United, Newcastle United and West Ham United. The test for any owner is based on the team’s performance – if they get on-pitch activity right, then the benefactor is looked upon favourably. If the team struggles and there’s a lack of “investment”, the owner is deemed to be a bad one. It’s a black and white situation.

KPMG Football Benchmark’s latest paper on ownership, based on academic research undertaken by Bull and Whittam1, lists four different motivations behind buying a football club: strategic capital; economic capital; cultural capital; and social capital.

Strategic capital often implies a political reason for owning a club. As KPMG says, football can be a vehicle for countries, companies or individuals to grow their brand awareness. Paris Saint-Germain and Manchester City are two good examples of this type of investor behaviour. PSG pulled-off the greatest soft power play when they paid € 200 million for Neymar, out-muscling Barcelona in securing their prize asset. Although Qatar has been on something of a charm offensive as their World Cup looms, the Neymar transfer did nothing for their reputation but merely demonstrated how deep their wallets are.

Economic capital is used to achieve global ownership, as seen with US sports franchise owners. “A key reason behind football club investment is to operate it as a business in order to gain dividends and capital growth,” said KPMG. The Glazer family’s ownership of Manchester United is a good case study, although they are, in many ways, typical of US investors. At present, the Glazers are coming under fire once more as Manchester United underperform, despite being the richest club in England. Arsenal fans are extremely unhappy about Stan Kroenke, staging protests and asking him, “We care, do you?”.

Over in east London, West Ham’s supporters recently confronted the Sullivan-Gold axis, an ongoing struggle that is partly fuelled by the club’s unsuccessful move to a soulless new stadium.

There are other reasons why a wealthy individual or company might consider buying a football club, such as tax optimisation, speculation for future gains from playing success, the chance to leverage property development, access to high net worth individuals. Some potential new owners quickly lose enthusiasm if the club’s ground is somehow out of reach

One theory about the rationale behind the investment into Wolverhampton Wanderers by China’s Fosun International was the possibility of HS2-related business. Fosun has links with engineering companies, including high-speed rail experts.

Cultural capital amounts to local ownership, such as wealthy businessmen (a traditional football ownership model in many ways) and philanthropic individuals who want to put something back into the community. This is more typical of clubs from smaller towns and is invariably a world away from the top level of the game.

Social capital is characterised by supporter-ownership, which has its limitations, although it hasn’t compromised clubs like Real Madrid and Barcelona, both of whom are still fan-owned. In Germany, the 50+1 regulation means that virtually every club has an ownership model with fans holding the majority share.

With many clubs now broadening their business model – Real and Barca are branching out into start-up initiatives – the shape of the world’s football clubs is changing. The wealthier they become and the more revenue opportunities open up, the likelihood that they will change hands among the very rich. Newcastle United, whose fans have had a running battle with retail tycoon Mike Ashley for the past few years, may be the next Premier League club to be sold as Saudi Arabia’s Private Investment Fund closes in on a deal. While the Geordies will be pleased to end the decade-long Ashley era, some will have a dilemma over Saudi ownership and whether it sits well with their own values, given the country’s poor human rights record.

Ashley’s commitment has been questioned by fans for some years. The equation is simple –  owner commitment effectively means a willingness to inject cash on a regular basis and supporter goodwill comes from the club being successful. Newcastle have not been successful and they have not spent well.

If the club is as wealthy as Manchester United, the perception is there’s no excuse for not being successful. Hence, the fans are currently very unhappy. The margin between success and failure is so narrow that the manager has to bear the brunt of “failure” – from an owner’s perspective, if investment does not lead to instant gratification, the manager goes, not the owner and not a whole training ground full of players.

There are many examples of “good owners” that are not always publicised. Leicester City’s late chairman, Vichai Srivaddhanaprabha, was a popular figure and his wealth helped the club win the Premier League in 2016. Less high-profile club owners such as Tony Bloom (Brighton), Dean Hoyle (formerly Huddersfield) and Mike Garlick (Burnley) have all won enormous respect for the way they have run their clubs.

But fans should never believe their ownership structures are in place forever. Some do last a while – nobody envisaged 15 years of Abramovich, for example – but mostly, they are global business folk and when the portfolio doesn’t look right, or when public opinion strays too far away from them, they will move on and sell their asset to the next eager tycoon. Premier League clubs are, in the main, an attractive proposition, especially in the age of spiralling broadcasting fees. It may be a different story if the bubble should suddenly burst.

1 Bull, M. and Whittam, G. (2020) “Sustainable value creation? Entrepreneurial orientations in the football industry”. International Journal of Entrepreneurial Behavior & Research. https://www.emerald.com/insight/content/doi/10.1108/IJEBR-07-2020-0498/full/html

@GameofthePeople

Photo: PA

Corporates still line-up for football

FRANCE’s top division will have a new name for the 2020-21 season, the Uber Eats Ligue 1,  after the US online food ordering and delivery service agreed to sponsor the league until 2021-22.

This naming rights deal, making Ligue 1 sound a little like an English non-league competition, will yield € 32 million for the French league, a significant increase on the previous deal with Conforma. The announcement has, predictably, sparked a wave of mockery from fans, notably around the plan to have the matchball for every Ligue 1 game delivered by an Uber Eats driver.

The French deal comes just a few weeks after the Football Association announced that BT will provide £ 50 million of sponsorship over a five-year period. The corporate world continues to find football attractive. Each summer, clubs announce major new deals with the business fraternity, most of whom have identified the potential of the world’s most popular sport. And as well as using major competitions like the FIFA World Cup and the UEFA Champions League, corporates are constantly gravitating towards football’s big names.

According to CSM Sports & Entertainment, Manchester United are the leading European club for sponsorship, receiving around € 269 million, just ahead of Barcelona (€ 261 million). CSM estimated that the market across the top five European leagues (England, France, Germany, Italy and Spain) is worth around € 4 billion, with the Premier the top competition with € 1.2 billion.

Shirt sponsors in some leagues are now sharing their space with the recently-added area of sleeve advertising. For example, Arsenal’s shirt sponsor is Emirates, while its sleeve sponsor is Rwanda. 

Football sponsorship brings multiple benefits to companies eager to break into new markets. This may result in some corporates being very generous in order to accelerate their expansion programmes. AIA, who describe themselves as a “pan-Asian insurance group”, paid a considerable sum – £ 100 million over five years – to sponsor Tottenham Hotspur, but market observers assumed this was in order to take the AIA name to the UK.

There is little doubt, however, that a blanket approach to sponsorship can quickly raise awareness of the corporate name. One very obvious example is Gazprom, the Russian energy company that has not only entered into the shirt sponsorship market, but their association with the UEFA Champions League – notably their graphic and somewhat sinister TV advertising – has made them something of a household name across Europe.

Some see Gazprom’s blanket approach to football sponsorship as an expression of Russian passive aggression, although the company itself is clearly using the game to soften its image. When Gazprom sponsored Schalke 04 it coincided with the construction of the NordStream 1 international pipeline, a deal that was supposed to signal heightened cooperation between Germany and Russia. Gazprom is now one of the leading backers of football and includes Zenit St. Petersburg, Schalke 04 and Red Star Belgrade among its shirt sponsorship contracts.

Similarly, Emirates, the world’s fourth largest airline, has entered into a number of sponsorships, including shirts and stadium rights in a bid to become closely linked with the world’s leading football clubs. Emirates have some big names in their shirt sponsorship portfolio, including Real Madrid (€ 70m per season), Arsenal (€ 31m), Paris Saint-Germain (€ 25m) and AC Milan
(€ 18.5m)

Barcelona surprised many people with their shirt sponsorship deal with Japan’s Rakuten, but the agreement, totalling €55 million per season, was one of the most lucrative in football and has the potential to raise public awareness of a relatively unknown company. Rakuten have said that their involvement in sport has proved to be beneficial for revenue generation.

Chevrolet is far from unknown, but its long-standing relationship withManchester United, with a € 71 million per year shirt sponsorship agreement, has undoubtedly made their name more visible in the UK and Europe.

Etihad, the sponsor of United’s neighbours, Manchester City, has a number of touch points that obviously assist recognition. Etihad is the shirt sponsor (€ 45.9m), but also has the stadium naming rights. In addition, the complex that includes the stadium has a dedicated tram stop, Etihad Campus, that also takes the name to the Manchester public.

The football industry’s appeal has certainly caught the imagination of gambling brands, particularly in the English Premier League where almost half of all shirt sponsors are betting entities, casinos or other forms of gambling. Gambling and football have long been related although there is a school of thought that the sport is over-saturated with link-ups with the sector.  Gambling is an area that is very liquid, appeals to the football demographic and has expanded considerably due to the growth of online offerings and new technologies. However, there is something of a moral dilemma here that contradicts many of football’s social responsibility activities. Gambling is a growing problem, often classed as an addiction or a form of illness. Is this an industry that is appropriate for a pastime that attracts huge numbers of children and young people?

Financial services account for 20% of shirt sponsors in the Premier League and across the top five European leagues, have spent more than € 300 million. Airlines and Automotives contribute 10% apiece to the Premier. Interestingly, Germany’s Bundesliga has not followed the same path and has a broad range of shirt sponsors.

With match attendances high in the leading football leagues, particularly the Premier League and Bundesliga, and broadcast coverage at an all-time high, sponsors will undoubtedly continue to seek to exploit football as a market opportunity. Indeed, clubs themselves are constantly seeking new ways to monetise the broad appeal of the game. While some sceptics see football as a classic bubble waiting to burst, there is no apparent sign the appetite is waning. If there is a word of caution, it should be that the global economy is due for a downturn. With football increasingly reliant on income streams that represent discretionary spending, the effect of another financial downturn cannot be underestimated.

At the moment, though football, due to the mass appeal of the game and its ever-expanding global footprint, remains a magnet for big business. For how long, you might ask?