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

Financial Fair Play in football has given marketing and data management a major boost

sa_blog_header_0 The FIFA World Cup is now a distant memory and we’re back to the domestic merry-go-round as we head towards the new season. Which players are your team signing? How much are they spending? How much are they allowed to spend?

FIFA’s legacy to the club game, Financial Fair Play (FFP) is shaping a new approach. FFP is a rule which prohibits clubs spending more than they earn. For some it’s an unnecessarily restrictive practice that only football could bestow upon itself, while for others it’s a justified, protective napkin placed in the lap of clubs who can’t feed themselves properly. Fans (naturally) don’t like it, teams are (predictably) wrestling with it, but for the marketers, I think it presents a tremendous opportunity.

The focus, of course, is on transfer budgets, player salaries and overall accountability, but has anyone stopped to consider how FFP will impact upon a club’s day-to-day diet of customer relationships and one-to-one marketing?

The demand that spending should be balanced by operational income means the link to data management is, for me, fairly obvious.

FFP drives the whole issue of income beyond the owner’s pocket and into regular revenue streams. If approached correctly, FFP is not restrictive, it’s a massive marketing opportunity.

The need to generate income is reflected in everything a data management company like Sports Alliance, does for its clients. Product and business development is a process which effectively ‘talks’ to the true supporters who follow the club and spend money. The club wants more of that type of fan of course, but the fan is also a vehicle to support wider income generation. At the top level, massive TV exposure brings in shirt sponsors and kit manufacturers who love the guaranteed visibility. Clubs sell the branded shirts to the fans and visibility feeds popularity – popularity feeds visibility.

TV revenue is wonderful in its own right but the bonus-ball is that live games project your ‘brand’ across the globe to all those who can’t come to the ground. Based on ‘eyeballs’, it’s a tremendous deal all round and yes, it certainly helps the shirt-selling business.

But what if the TV companies become less interested? For starters, if you don’t continue putting ‘bums on seats’ and the stadium looks empty, the product becomes diluted. The conundrum is that TV provides an opportunity to watch outside the stadium in homes across the world, but the stadium still has to be full to make it appealing. While it is, you have a marketing opportunity with the billions who are watching across the oceans so it’s in your interest to ensure the mystique of a competition that’s played thousands of miles away doesn’t dissipate. It’s the fans that give it gravitas, so the fans must be embraced. Good CRM conducted by clubs can safeguard that process and actually support growth over the long term.

Behind the FFP headlines, it’s clear that clubs are now looking to tap into good data management and customer relations and thus, increase their longer-term earnings. It works for clubs at any level too because the local market is still vital and one you ignore at your peril – even if if you’re world famous. This is exactly where data control comes into play – whatever level you play at – and where the next step, Propensity Management then comes into its own.

On a supporter database, the propensity for a fan who watches on TV in Asia to actually buy a season ticket for their favoured club, is clearly going to be less than a supporter of any club who lives locally. But the fan in Asia can still buy merchandise. Good CRM will afford greater earning power over the longer term and Propensity Management identifies the likelihood of a fan anywhere in the world to engage in a certain way. Understanding what they’re likely to want – or not want – then develops a communications’ relationship that is enjoyed by both sides of the deal.

FFP dictates that in the coming years, the level of equity investment an owner can make to offset operational losses will diminish, so something has to give. Operational income is being given far greater emphasis by FFP than before, because non-compliance can result in competitive sanctions or even tournament bans.

Of course, there is always the short-term option of making the most of your current contract-driven popularity and adding another nought to the next sponsorship deal. All you do then is shove the players on yet another plane for one more exhibition game. But what about all those eyeballs finally viewing the players at close quarters? If you can tap into their potential, you can use a solid CRM approach to develop a long-term income stream that eases the path towards FFP compliance.

In which case, why wouldn’t you?

www.sportsalliance.com