Financial Fair Play is incompatible with business

Gary Tipper_PalatineGary Tipper, managing partner at Palatine Private Equity, discusses the business of football, and how the new Financial Fair Play rules are incompatible.

 

 

 

Almost every business in every sector is built upon the idea of competitive advantage. Firms will do whatever it takes to find a gap in the market, including accepting losses for the first few years. Sadly, it seems that one of the UK’s most lucrative industries, and one Manchester is particularly good at, seems not to agree.

I am, of course, talking about football. Having seen Manchester City spend and lose millions over the first few years after being taken over by Sheikh Mansour, UEFA decided to solve a problem that never existed by creating the Financial Fair Play (FFP) regulations. As a hardened City fan, the words Financial Fair Play are enough to make my blood boil, especially when considering the fair aspect.

Before the regulations were announced, I think most football fans thought the idea of FFP was to make sure clubs were not taken over by disreputable owners. The likes of Leeds and Portsmouth have experienced this in recent years, with mis-management leaving the clubs debt-ridden and ultimately heading for administration. No one wants to see this happen again, as in the end it is the fans that really suffer.

However, what UEFA have come up with is a system that effectively means that the clubs with the largest turnovers are the ones that can spend big in the transfer market, protecting the old order of European football. No other industry in the world blocks new money being invested in it, which is essentially what UEFA is effectively doing to European football. Whether fans like it or not football is now a huge global industry and should be dictated by market forces not by an industry body trying to protect the old order.

Imagine if this sort of protectionism had happened in the technology sector, which in the 1960s and 1970s was dominated by the big hardware players like IBM. Had rules stopping businesses losing money been in place, companies like Apple, Google, Amazon and Facebook would not exist. Each of these household names lost millions if not billions in their development years, enabling them to become the large organisations that ultimately transformed an industry and broke up the old monopolies that existed.

Why should football be different? If money hadn’t come into the likes of City, Chelsea, PSG and others, European football would be an oligopoly for the foreseeable future – making it incompatible with business.

Here football can learn a few lessons from business. Instead of the current rules, make any new owner put up to two years running costs in a blocked account that is used if they decide to remove their support, ensuring clubs avoid administration. This would also have the effect of keeping away the buyers without any real financial substance.

When looking at sustainability, it is also important for the rules to focus on debt levels. In the past too much debt has led to the downfall of many clubs, but under FFP, it is currently seen as acceptable for United to have £500m of debt and Real €600m of debt while City are punished despite being debt free. The £50m fine handed to the Blues is another clear example of the real aim of FFP – further establishing the status quo.

As a global industry, the rules governing football should be along the lines of the rules that govern businesses. With the current rules being incompatible, they should be challenged as I think it is best for business. Manchester has had a great footballing history and with the emergence of City in the last five years should have an even better future, dictated not by UEFA, but by market forces

How far can football clubs go to maximise commercial income before it all gets too much?

With the English Premier League growing in stature and global appeal year on year, are we about to see a change in dynamics from football clubs with regards to their identity, in order to further increase exposure and commercial gain?

This saga has been brought back to the surface again over the course of the season, this time by Hull City Chairman Assem Allam. Dr Allam already caused a stir earlier on in the year by changing the clubs company name from ‘Hull City AFC’ to ‘Hull City Tigers’, with the ultimate long-term aim to alter the football clubs name to just ‘Hull Tigers’.

The reasoning for the prospective name change and advertently altering the clubs identity is down to Dr Allam’s preference of using shorter names in business to give a more powerful message in marketing terms. Dr Allam gave an exclusive to the Hull Daily Mail in August stating; “In the commercial world, the shorter the name, the better. The more it can spread quickly. My dislike for the word ‘City’ is because it is common. I want the club to be special. It is about identity. ‘City’ is a lousy identity. Hull City Association Football Club is so long.”

It was again brought up in the media once again in early November when Dr Allam confirmed that he plans to rename the football club to simply ‘Hull Tigers’; even after having meetings with representatives from various supporters groups who have aired their displeasure of the name change.  Dr Allam explained that the decision has been made in order for the club to improve its global appeal and to be self-financed with or without him. After recently being deprived of opportunities to acquire the stadium freehold this means that the next best option is to change the clubs name to generate higher commercial income, with Dr Allam stating, “A shorter club name will hopefully enable us to do so, with a stronger, quicker marketing impact all over the world.”

Nowadays football clubs are far more than just a club, they are global marketing brands that have to be well looked after. All with the objective of capitalising on the commercial gains that come with competing in the best competitions in the world, that have increased media coverage. As the Barclays Premier League is watched globally by millions of people, there are so many different markets and opportunities that can be tapped into for these gains, which other clubs outside of England’s top flight just can’t get near to.

A good example of a Premier League club that has well and truly jumped on the bandwagon and reaping the rewards are Manchester United. Although already one of the most successful and recognisable football clubs in England let alone the World, they have been able to tap into various global markets due to the exposure they get through competing in the Premier League, and are what most other clubs aspire to emulate. The club has managed its commercial policy by splitting up their sponsorship rights on a territory-by-territory basis around the World to maximise income.

What with the Financial Fair Play (FFP) regulations coming into force – to prevent clubs spending more than they earn in the pursuit of success and in doing so getting into financial problems – the best way to balance the books is to increase their commercial incomes to the best of their ability using whatever means necessary. On some occasions these commercial ventures can whip up a bit of a frenzy with some club supporters who aren’t too pleased.

An example of a commercial move that went ahead but faced fierce backlash from the clubs supporters can be seen at  Cardiff City a couple of seasons ago. This came after the Cardiff City Owner Vincent Tan, made the decision to change the clubs home shirt colour from blue to red and nickname from the ‘Bluebirds’ to the ‘Red Dragons’. The decision to make these changes was in order to tap into the Asian market, as the colour red is seen as being a more dynamic colour for marketing in Asia, as well as the Dragon being very significant in that part of the World too.

As with the Hull City situation, the club gave their 15,033 season card holders the opportunity to take part in a ballot regarding the name change earlier this week. Although only 5,874 season card holders responded, there was a narrow victory in favour of changing the club’s name to Hull Tigers, with a total of 2,565 voting for the change and 2,517 against the proposal, and the remaining 792 voting they were “not too concerned and will continue to support the club either way”. After the results were published Fans’ group City Till We Die claimed that the result was “largely meaningless”, especially as back in March The Football Association’s membership committee made a recommendation to reject the plans.

Indeed, when The Football Associations Council met this week they rejected Dr Allam’s proposed name change of Hull City to Hull Tigers, with 63.5% of its members voting against the change following the recommendation by its membership committee. Responding to the decision, City Till We Die said that; “We are very pleased that the FA has recognised the importance of the historic name of Hull City AFC to the fans and the wider community of Hull. This is truly a victory for the fans.”

With the decision by The FA Council it seems that nowadays the clubs history plays a major part in stopping such changes to the clubs identity, which might ultimately end up helping the club in the future. As back in the 1960s, then Leeds United manager Don Revie changed the clubs kit colour to an all-white strip that resembled Real Madrid, in an effort for the players to aspire to higher things. Since this change the all-white kit has stuck, and although I’m not certain of the perception of the fans back then, the club went on to have great success on the pitch, both in England and in Europe.

Although not a change for commercial gain back when it was made, how was anyone to know that going against the clubs history by changing the clubs kit colour to all-white would have brought success just by a change in perception? This case study just shows that sometimes change can be good and beneficial to the club even if it goes against the clubs historical values and identity.

But ultimately this begs the question how far can football clubs go with regards to the commercial aspects of the game before it all gets out of hand? If the proposed name change was to have got the go ahead from Hull City to ‘Hull Tigers’, it would have resembled a name that wouldn’t have looked out of place in some American sports. This is due to the vast majority of sporting teams across the pond including various nicknames of which are very marketable and catchy.

This is the case with the majority of teams in the NFL and NBA, as just as a couple of examples, but although not as global as football (soccer in the USA) the reach and popularity alone in America is large enough to make it all worthwhile. Some examples from the NFL can include; the Miami Dolphins, Dallas Cowboys, New England Patriots and the Jacksonville Jaguars, just to name a select few.

So what if Dr Allam’s move goes ahead in the future and Hull City will be known as ‘Hull Tigers’, will this mean a possible change in name for some of the other Premier League clubs to gain more commercial income? Will we be seeing the Manchester Red Devils up against the Arsenal Gunners, or a local derby between the Sunderland Black Cats and the Newcastle Magpies in the not to distance future?

I’m not too sure about that, but it is interesting how far football clubs will go in order to compete both on the pitch and financially.

Russell Collins

Follow on Twitter: @russcollins08

Making supporter communication more engaging – our e-marketing successes

LCFC crest 0910 cmykIt’s fair to say that Leicester City Football Club are getting more than the average amount of attention at present,  with the team sitting at the summit of the Sky Bet Championship table.

Extremely hard work is being put in at the training ground to ensure a successful bid for promotion to the Premier League, an opportunity that needs to be maximised within the Club’s marketing efforts.

We’ve always been keen to involve the fans. Their opinions and behaviours are what shape our marketing strategy and help us to ensure that we have a passionate set of supporters that get behind the team.

We’re always looking for new ways to improve our communications, trying to make them more engaging and set out to provide key information pre and post-match in a nice easy to digest format.

This has increased click-through rates significantly, showing that it’s been a positive move.

To drill into that statement a little further… on average our communications around a game have seen an increased click rate of 380%, with certain features of the email way in excess of this.

LCFC-bitesize-case-study-emarketing

It’s come about just by making the design more appealing, making the information clear and most importantly, by giving the fans the content that they want without making them have to go searching for it.

It’s relatively simple stuff really, but it’s really powerful and is leading to decent results. We can track the level of engagement, open rates and clicks in our CRM system, which we get from Green 4 Solutions, allowing us to measure success and make further improvements.

There’s no doubt that we need to drive our ticket sales to upcoming games and by refining certain areas of our marketing activity we can drive extra clicks to the ticketing site in the short term.

However, the bigger picture of our communications is to connect our fans more tightly with the team and ensure they’re more engaged with the Club for the long term.

Written by Tom Crosse, Marketing Executive at Leicester City Football Club.

Credit Green 4 Solutions – CRM, Ticketing and Fan Loyalty solutions experts for sport and leisure. For more information visit www.green4solutions.com

@Green4Solutions