The new adidas f50 miCoach is the first ‘boot with a brain’. The new boot integrates a miCoach Speed Cell into a cavity in the sole which captures and records 360 degree movements and key personal performance metrics.
The boots capture data including speed, average speed, maximum speed, number of sprints, distance, distance at high intensity levels and active training time, which it then transmits to tablets, PCs and Macs using a wireless link.
The miCoach internet platform allows players to upload, track, analyse and share their miCoach data. Once the sole preserve of sophisticated GPS systems, this allows any park player to monitor their performance, identify areas of improvement and compare their stats to those of their mates, teammates and the real professionals.
And as each player improves their performance on the real pitch, they reap the benefits on the virtual one. ‘Avatars’ (virtual personas) take part in a new social football video game – and the only way to build your avatar’s skills and level up is by doing the work in the real world. ‘Gamification‘ is a great way to engage this target audience and adidas have nailed it.
This is the biggest innovation in football boots since adidas launched the Predator. But, with its integrated digital and social elements, this will have a far broader and deeper impact.
For the first time, it gives every player the ability to analyse their own performance, track improvements and compare themselves to not only their mates, but also some of the greatest players on the planet. It is this integration of both professional and amateur players and an accessible, easy-to-use platform, which incorporates social media, that creates a truly unique and engaging brand experience for the consumer.
By putting ‘performance’ at the core, adidas enhances their positioning as the world’s leading performance brand. No matter what your ability level is from occasional 5-a-side player to Lionel Messi, there is always room for improvement and adi will help you get there.
This ‘boot with a brain’ creates engaging content and puts adidas at the centre of a global dialogue around performance. It has brought together football’s elite level with its grassroots in a way that pushes the thought that adidas enables you to be the best you can be.
What the brand says
The adidas vice president of global football, Markus Baumann, says ‘We have been working to develop a boot with a brain for some time and what we have produced will revolutionise the football industry.’ He goes on to say ‘What makes the boot unique is that for the first time you will be able to compare yourself to some of the best players in the world.’
However, this summer I made a new, and even more exciting, discovery – @Joey7Barton. With Barton’s tweet that “somewhere in those high echelons of NUFC, they have decided, I am persona non grata” attracting significant media coverage (in fairness, more for the revelation that Newcastle United were letting him go, than the flowery language), I was lured into his Twitter world. There I found Joseph Barton, the footballer philosopher, offering up daily quotes from Nietzsche, lyrical poetry from The Smiths, and reviews of his trips to London museums.
Surely this wasn’t the same player I’d seen drag Gervinho off the floor by the scruff of his neck during the first game of the Premier League season at Newcastle? And yet, whilst the red mist is still prone to descend, the rehabilitation of Joey Barton is in full swing, helped in no small part by his ability to create his own brand on Twitter. Yes, many remain if not unconvinced then at least a bit confused by his culture vulture social media persona, but there’s no doubt that without Twitter, he wouldn’t have been able to convey it to the world as he has done.
Of course, the phenomenon of sports, and in particular football, stars as brands in their own right is by no means a feature borne of the Twitter age. Remember, Twitter is only five years old, younger than brand Beckham and younger still than Gazza, Kevin Keegan and George Best. Indeed, footballers have been commercial entities in their own right for years (and see this amusing history of their attempts to cash in on this).
George Best lends his name to Best Potato Crisps
And yet I do believe that Twitter has brought something new to the party. It gives footballers a way to convey to the world who they want to be, no longer restricting their public image to that carefully defined by their club and publicist, or by the tabloid headlines. Whilst these were the channels through which a footballer’s brand would be built in the past, players are now able, in at least some small way, to bypass them, possibly defying an image crafted by a PR, or using Twitter to defend the on and off the field transgressions reported in the papers.
But whilst I may love the fact that Twitter allows footballers and famous individuals to talk directly to me (and, I accept, their thousands, or indeed millions, of other followers), the interesting question is whether using Twitter can significantly build a commercially successful personal brand. Will it impact upon the value and nature of sponsorship deals and endorsements? At the moment, not really. Nike terminated its boot contract with Joey Barton in 2008 after he was imprisoned for assault, and the deals have not exactly been forthcoming since then.
Twitter might be a good place to start building your brand (and a forum for – declared – advertising by celebrities), but it is most definitely not where it ends. A Twitter personality is still only one small element of a footballer’s commercial arsenal; the money follows skills on the pitch, good looks, big clubs and to a certain extent, the ability to stay out of trouble (though brands have shown themselves willing to stick by big names even when scandal has descended in the past).
However, that is certainly not to say that footballers should stop tweeting – mainly because without Joey Barton’s philosophical gems my days would most definitely be that little bit worse! Click here for a fun infographic of sports stars on Twitter, and try the following for some insights/hilarity from some of our favourite footballers:
It’s 20 years since the Premier League was launched and to mark the occasion, we’ve put together an infographic suitably laced with factoids illustrating the League’s journey from domestic breakaway to global superpower.
Having worked on sponsorships in and around the League since its inception, it’s been an extraordinary journey both to have witnessed and to have been part of. The incredible transformation on and, above all, off the field is what I hope we’ve captured.
Off the field, my personal favourite factoids are the League having no title sponsor in its first season (owing to disagreements between the clubs) and the staggering 9900% rise in Manchester United’s annual shirt sponsorship income, from Sharp’s £200k endorsement in 1992 to today’s £20m Aon deal.
On the field, it has to be United’s dominance of the title (which of course has driven their off-field success), the proliferation of overseas players, from a mere 11 in 1992 to 337 last season, and the perfect symmetry of the 11 current and 11 former clubs who featured in the inaugural 22-club Premier League (great quiz question by the way).
The Twittersphere was buzzing yesterday, and the question everyone was asking was: how can Andy Carroll be worth £35m? The general consensus was that he wasn’t worth that amount of money and that the footballing world had gone crazy.
Maybe the conventional wisdom is correct. But one thing “Moneyball” (in my opinion the best Sports Business book ever written) taught us is to ignore conventional wisdom. Moneyball is about the Oakland A’s baseball team and their General Manager Billy Beane and is currently being turned into a Brad Pitt/Philip Seymour Hoffman movie, due for release later this year:
The basic premise is this: In 2002, the Oakland A’s had the second smallest budget in baseball (around $40m) – less than a quarter of the New York Yankees ($126m). But for the previous 3 years, they had consistently been one of the top four teams (though they hadn’t won a World Series). That is the equivalent of Wolves qualifying for the Champions League for 3 years in a row on their current budget (the A’s didn’t increase their relative budget as a result of their success in the first two years).
The secret to the A’s success was to completely re-think the way they evaluated players. Using a new set of statistical analyses (called Sabermetrics) and throwing out all conventional wisdom, they were able to see that the market for players was hugely inefficient. Some player attributes were highly overrated in terms of their correlation with success, while others were highly undervalued. So the key to running a successful team on a budget was simple:
sell those players who have overrated attributes (for lots of money) and buy players who have the underrated attributes (for much less)
Well first and foremost, John W Henry, the new owner of Liverpool is a convert to Sabermetrics. Many of the techniques used in Sabermetrics came from the financial markets, which is Henry’s background. And when Henry bought the Boston Red Sox in 2003, his first move was to offer Billy Beane a job for a guaranteed $12.5m over 5 years (which he turned down). Nevertheless, he installed Sabermetrics at the Red Sox, who then went on to win multiple World Series.
So Liverpool is now a Sabermetric club with the best brains in the business analysing players’ value. Would they really pay £35m for a player if they didn’t see the value?
And what did that analysis look like?
Success in football is defined by winning points. Given the financial rewards at stake (eg. qualifying for the Champions League), it is relatively easy to calculate the value of each Premier League point. And if points are the asset, then goals are the currency. To quote from Moneyball:
“Before the 2002 season, Paul DePodesta (the A’s sabermatrician) had reduced the coming six months to a maths problem. He judged how many wins it would take to get into the play-offs: 95. He then calculated how many more runs the Oakland A’s would need to score than they allowed to win 95 games: 135. (the idea that there was a stable relationship between season run totals and season wins was another Jamesean (the father of Sabermetrics) discovery)”
It is possible to determine how many goals you need to score in order to acquire your targeted number of points. And therefore, each goal has a value. Before we have any Ossie Ardiles and Kevin Keegan arguments about teams who score lots of goals but don’t necessarily win points, here are the facts:
1) Currently, the top 4 teams in the table are the four teams who have scored the most goals
2) In the seasons 2006/2007, 2007/2008 and 2008/2009 the top four teams in the table were also the teams who scored the most goals
3) The only exception to this rule in the recent past is last season, where Manchester City, who finished 5th, scored more goals than Tottenham, who finished 4th
So, each goal that Carroll contributes can be valued in terms of ‘acquiring’ points.
But how do we determine how many goals he is likely to contribute?
One of the cleverest bits of analysis discussed in Moneyball is the disentangling of the link between what actuallyhappens on the pitch and what is expected to happen. To quote again:
“Any ball hit any place on a baseball field had been hit just that way thousands of times before: the average of all those hits was the Platonic Idea (of an average run value). Call it a line drive that is hit at x trajectory and y speed to point #968. From 10 years worth of data, you can see that there have been 8,642 practically identical hits. You can see that 92% of the time the hit went for a double, 4% for a single and 4% it was caught. Suppose the average value of that event is .50 of a run scored. No matter what actually happened, the system credits the hitter with having generated .50 of a run…”
So let’s apply that to football and Andy Carroll.
The first thing we do is to forget the number of goals he scores and the number of assists he makes (what actually happened) and concentrate on the expected value of his actions on the pitch.
Here are a few examples (by the way, these are all completely made up assumptions but it wouldn’t be too difficult to calculate them):
1) A penalty is scored 79% of the time. Every penalty he wins is worth .79 of a goal (regardless of whether he takes it or even whether it is scored)
2) A goal results from a corner kick 4% of the time. Every corner kick he wins is worth .04 of a goal
3) Divide the pitch up into sectors and calculate the percentage of time a goal is scored from a free kick taken from that sector. If a goal is scored 7% of the time a free kick is taken from sector 4, then every free kick Carroll wins in sector 4 is worth .07 of a goal (and the same for all the other sectors on the pitch)
4) Divide up the goal into 6 sectors (top left, top middle, top right, bottom left, bottom middle and bottom right) and calculate the expected goal value of a shot on target in each of those sectors. If 46% of shots into the top left sector are goals, then award him .46 of a goal for every shot he hits into that sector
5) A successful pass within the opponent’s penalty area results in a goal 8% of the time. Every successful pass he makes in the penalty area gets .08 of a goal
6) Winning a header in the opponents penalty area results in a goal 5% of the time. He is awarded .05 of a goal whenever he wins a header in the opponents area
…and so on
From this type of analysis, we can calculate the expected number of goals Carroll will contribute to Liverpool and we will also know the value of each goal. If that is more than £35m over the course of his contract, then it could represent great value.
Of course, this has been simplified a little bit. The real analysis is the ‘marginal’ impact of Carroll compared to another striker. In other words, how many more goals would he be responsible for than another striker?
And this is where the idea of undervalued attributes comes into play. For the sake of argument, let’s assume that “winning headers in the opponent’s penalty area” is worth more in terms of expected goals than people give it credit for. If Carroll is the “Greek God” of winning headers in the opponent’s penalty area, then he is worth much more than people think he is.
Would we really be surprised if John W Henry’s Sabermatricians have been doing this type of analysis since they bought Liverpool? Maybe they have just sold a player for £50m who has ‘overrated attributes’ and bought one who, even at £35m, is undervalued.
The decision on the future of London’s Olympic Stadium is imminent, with uproar at Tottenham Hotspur’s proposal to demonlish the stadium and build a new one. But London is not the only cosmopolitan metropolis, hungry to host major international events and build a lasting legacy for sport in the community, with a purpose built stadium that might get knocked down after one event. Take Abu Dhabi, and the 5,000-seater stadium in the grounds of the Emirates Palace Hotel, constructed for the sole purpose of staging the first UK domestic rugby fixture ever played overseas. OK, so Wasps v Harlequins in the LV= Cup isn’t quite the Olympics, but the two are linked by club growth ambitions.
While Spurs seek their equivalent of Arsenal’s Emirates Stadium to bring in more matchday revenue, Wasps’ trip to the U.A.E. was apparently all about building the brand. According to former skipper and now Wasps Director Lawrence Dallagio, the idea was to ‘strengthen the club and develop a global brand…while engaging with local schools and rugby clubs in the region’. Hats off Lawrence, and Wasps owner Steve Hayes, for persuading tournament organisers, the Rugby Football Union, Premiership Rugby, Sky Sports, and the IRB to support the iniative. Tournament title sponsors LV= presumably took little persuasion. Anything that brings a bit of attention to an overlooked Carling Cup-esque ‘development tournament’ is a good thing for the title sponsor. For opponents Harlequins – sponsored by Abu Dhabi airline Etihad – agreeing to play ball would have been a no brainer.
So, can the idea be deemed a brand building success? All pre-match billing insisted that the game was far from a mid-season jolly for sun, sea and a seven star hotel, but a serious competitive fixture. The 38-13 scoreline suggested otherwise. Despite a bowling green standard pitch (imported from Panama), both teams badly missed their internationals on RBS 6 Nations duty, meaning the standard was, well, LV= Cup standard. Unsurprising without the likes of Flutey, Worsley, Shaw, or Simpson. Not the ‘Manchester United of Rugby’ image that Lol would have wanted Wasps to project en route to developing a global brand.
What about engaging a new rugby audience? Abu Dhabi isn’t the most obvious target for a Wasps outreach programme, especially with Quins making moves in the region through the Abu Dhabi Harlequins Rugby Club. Based on the stated brand and development criteria, a victory for Quins on and off the pitch. Only a cynic would suggest Hayes and Dallaglio staged the match to bring Wasps to the attention of potential investors and sponsors, but you can imagine their envious glances in the direction of Quin’s Etihad sponsorship.
And amid all this commercialism, what about the fans who missed out on a trip to Adams Park? Wasps season ticket holders were provided with a match ticket and subsidised travel packages. Those that decided Abu Dhabi was a tad too far to travel were offered a match refund AND an invitation to an exclusive open day with the squad at Adams Park later in the season. Given that the match was live on SKY, and of dubious quality, that sounds like a result for the armchair army.
English club rugby has proved adept at borrowing good ideas. Following Stade Francais’s lead of staging key matches at bigger venues – for Stade de France read Twickenham or Wembley – Wasps have now aped American sports in hosting competitve matches overseas. With the NFL staging regular-season games at Wembley Stadium for the last three years and the NBA following suit at The O2 this March, the definition of a ‘home’ fixture is stretching. Where football failed with their proposals for a 39th game in overseas markets, rugby has delivered the goods. But if the intention really is building a the brand and encouraging grassroots rugby, let’s see an Aviva Premiership match, with full strength squads, in a truly developing rugby nation like Russia or Portugal. Oh, and make sure the stadium has a clock and scoreboard.
As for the future prosperity of Wasps, the performance of 18 year old Billy Vunipola, a 20 stone Harrow schoolboy wearing the No. 8 shirt made famous by Dallaglio, suggests that their prospecting closer to home has hit a rich vein.
Flicking through the channels yesterday afternoon I landed on the live FA Cup third-round draw taking place at Wembley. Having been talking about FC United of Manchester only the day before, I thought I’d watch and see if they were going to get drawn against one of the big guns.
Then something else caught my eye. Was that Noel Gallagher pulling the teams out of the hat? So it was – conducting the draw alongside Serge Pizzorno of Kasabian. It was like watching Christmas come early for two excited children! Both enormous football fans, the two internationally-known artists were obviously having the time of their lives.
A highlight was when just after Pizzorno had pulled his own team, Leicester City, out of the hat, Noel followed suit and set up a January tie against his beloved Manchester City. The fun didn’t stop there, and what had turned into highly-entertaining viewing continued when Noel, a life-long City fan, stepped forwards to draw a team to face Manchester United – and out came Liverpool to take on their bitterest rivals what is the only all Premier League tie in the third round.
They always say there is a certain magic around the FA Cup and there certainly seemed to be some flying around the studio yesterday, with the ‘you-couldn’t-have-scripted-it-any-better’ draws. However, the other thing that really stood out for me is that via successfully engaging with people’s passion points, you really can create ‘money-can’t buy’ experiences, whoever the recipient may be.
Noel Gallagher is arguably one of the most successful singer-songwriters of all time, but he admitted he was more nervous doing the draw than when playing live with Oasis at Wembley, and will no doubt be telling the story of the draw for a long time to come.
Two weeks ago we decided to open up to the world a debate we’d started here at Synergy: what is the greatest sports marketing innovation of modern times?
It’s a debate that seems to have captured your imagination as much as ours, creating a raft of comments by global industry figures from brands, rights-holders, the media and more. We’ve even been privileged to have our old friends Patrick Nally and Michael Payne, both leading contenders on our initial list and in the subsequent debate, offer their thoughts.
So, two weeks on, we thought it was time to round up the comments to date.
The View From The Brands
Ralf Hussmann, Global Sports Marketing Director atBMW turned the argument on its head, arguing that most of the innovations listed mainly pour more cash into the pockets of rights holders, selected athletes (and dare I say it, the odd agency). Instead, Ralf argued for the evolution of sport over the last fifty years via sports platforms, teams, rights-holders, broadcasters and sponsors to bring the audiences and fans closer to the games they follow. As Ralf summarises “…sports is – besides competition – entertainment and that’s what people want. Only because of this sustainable interest sport works well as a marketing tool.”
With perhaps a hint of bias, but also some justification, Nike EMEA Comms Director Charlie Brooks supported our original Air Jordan suggestion as well as Ronaldinho’s Nike ‘crossbar’ viral, marking the moment when brands moved from TV ads played online to dedicated viral content strategies; and in the same vein Betfair’s Leo Thompson argued for the creation of Betfair itself given its revolutionary effect on sports betting and the fight against corruption – although to be fair, Leo also nodded in the direction of the Palmer-McCormack handshake and Patrick Nally’s creation of the first FIFA sponsor package.
For Lee Bailey of Guinness it’s the creation of the Super Bowl, which continues to hold the US in thrall in contrast to, notably, the decline of the FA Cup; Tim Ellerton of Heineken backed the formation of the UEFA Champions League (‘…It transformed European football as we know it…the game has changed from winning trophies to getting into the top 4′); while Simon Banoub of Opta backed Twenty20 Cricket (‘…as a game changer I can’t think of anything more significant’).
The View From The Media
Guardian Sports Editor Ian Prior was torn between Nike’s Air Jordan launch and the Palmer-McCormack handshake: ‘IMG set the template for the athlete as corporate entity…You could argue that Air Jordan took that idea to its logical conclusion, except that it created the super athlete as global brand icon and principal driver of product sales.’
Ashling O’Connor from The Times was in the vanguard of several contributors who have nominated Kerry Packer’s World Series of Cricket in 1977: ‘Changed the way cricket is played…and created the template for broadcasters to negotiate exclusive rights…Without it would we have had Sky and the Premier League? A total game changer in every way.’
Roger Blitz of the Financial Times suggested, in the shape of Cassius Clay/Muhammad Ali, the first modern superstar to have created his own brand: ‘…the greatest sports marketing phenomenon of all time [and] he did it all himself, through his own narrative.’
David Owen, Inside The Gamescolumnist and former FT sports editor ighlighted Chris Brasher’s role in pioneering marathons and the rise of ambush marketing (‘…whoever masterminded the first successful ambush must have been a sports marketeer of genius’) but ultimately opted for the Palmer-McCormack handshake: ‘The start of the industrialisation of sports marketing’.
But for Wall Street Journal columnist and Platform magazine editor Richard Gillis it has to be ’…Dassler-Nally and the creation of the rights package for the 1978 World Cup. Virtually every rights holder’s commercial structure, from the IOC down, is still based on it.’
The View From the Rights Holders
Michael Payne, formerIOC Marketing Director who features on our initial list for his role in helping to create the IOC TOP programme, nominated four innovations: Patrick Nally and FIFA; Mark McCormack and athletes; the advent of the dedicated sports channel; and ‘the introduction of ‘brand discipline into sports marketing – pioneered by IOC to build further value (slight self interest here).’
Paul Vaughan, Business Director of the RFU, argued the case for media innovations, in particular internet streaming of sport: ‘Every major broadcaster simulcasts on these channels now…to supplement ‘normal’ broadcast delivery.’
FormerECB Commercial Director Terry Blake put the case for Twenty20 cricket – invented, of course, by the ECB in 2003 - pointing to the fact that within 5 years it had ‘created a new global fan base [for cricket] and…three very different and highly valued formats.’
And John Feehan, Six Nations & Lions CEO, echoed the views of Michael and others in backing the Palmer-McCormack handshake.
So where do you stand? Let us know your thoughts in the comments box below or at the original blog, and if you think we’ve missed anything, what you believe we should add to the final long list before the big vote which starts next month.
Your votes will then decide the top ten and critically your number one innovation of the last fifty years.
And in the next week look out for more high-profile industry figures having their say on the debate via Synergy’s YouTube channel.
A few weeks ago, Tim Crow and I found ourselves sat in the back of a car on a stationary motorway for five hours. A lot of filling time by anyone’s standards, but we turned to one debate which actually not only filled the five hours, but is still going - what is the greatest modern sports marketing innovation?
This is not about the biggest financial deals but decisions made off the field that were genuine game changers in the wider sports marketplace. We brought the debate back to Synergy and found the more we’ve all discussed it, the more we’ve argued and the more we’ve argued, the more we’ve enjoyed it. So we thought it was only fair to open the debate up.
The format is simple:
a) We’ve listed below our initial thoughts – once you’ve read them, let us know if you think we’ve made any glaring omissions or if you disagree with any of our choices in the comments section.
b) In December we’ll then publish the full list including your suggestions, with a voting mechanic alongside giving you the chance to vote for what you think is the greatest modern sports marketing innovation.
c) The vote will determine the Top Ten, which we’ll announce in January.
It wouldn’t be a real debate without some house rules though, so here they are – short and simple:
1. It must have been a genuine game-changer
2. It must have impacted primarily on the marketing and financial side rather than on the field of play
3. We’re talking global impact
4. Keep it within the last 50 years
OK? So, here are our thought starters, in chronological order:
1960 – a promising American golfer called Arnold Palmer shook hands over a representation deal with his friend and Yale law grad, Mark McCormack. This handshake was the start of IMG and birth of modern sports marketing.
1968 – After the NFL and AFL merged in 1966 the first two championship games between the two winners were called, snappily, the NFL-AFL World Championship. KC Chiefs owner Lamar Hunt then came up with the term Super Bowl for the game after seeing his grandson playing with a Super Ball, (a densely elasticated ball) and a global phenomenon was born.
1976 – already prevalent abroad, Kettering Town became the first British football club to have a sponsor on its shirt – the deal may only have lasted four games but it changed the rules in the UK. The forward thinking brand? Kettering Tyres.
1978 – Horst Dassler and Patrick Nally created a sponsorship model for world events starting with The FIFA World Cup that other rights holders have followed ever since.
1978 – Bernie Ecclestone became chief executive of the Formula One Constructors Association (FOCA) which culminated in Ecclestone securing the right for FOCA to negotiate television contracts turning F1 into the global financial phenomenon it is today.
1979 – Jack Nicklaus argues successfully for the inclusion of European (rather than just British) players in the Ryder Cup, transforming a struggling, one-sided tournament into what is today probably the most significant global event in golf.
1981 – the first major PPV boxing match between Sugar Ray Leonard and Thomas Hearns was screened by Viacom Cablevision, the event sold over 50% of its subscribers for the fight and a new form of sports viewing was born.
1984 – Nike, a struggling sports shoe company, signed rookie Michael Jordan and created the first shoe named after a player – The Air Jordan.
1985 – Horst Dassler, Juergen Lenz and Michael Payne (pictured) create the TOP (The Olympic Partners) concept – the building block of the most lucrative sponsorship format in the world.
1992 – The English First Division clubs resigned en-masse from the Football League and formed the Premier League (with the considerable help of Sky TV) which is now the most watched and most lucrative football league in the world with the format copied across the globe.
1995 – The first ever Extreme Games (later changed to X Games) was held with the backing of ESPN – it catapulted fringe sports into the mainstream, bringing with it vast corporate investment.
2003 – The ECB introduced the world to Twenty20 Cricket via the Twenty20 Cup between counties, the mould breaking game has gone on to be adopted across the globe with IPL changing the financial face of the sport.
Now it’s over to you - let us know what you think (good, bad and ugly) and we hope you enjoy the debate as much as we have.
There is a saying: “If you’re £1m in debt, you’re in trouble. If you’re £100m in debt, your bank is in trouble.” In which case, both Arsenal and their Bond Holders, to whom Arsenal owe a total of £266m*, are in double trouble.
But can debt in a football club ever be a good thing? What about all these high profile fan revolts, Premier League clubs going into administration and UEFA deeming it necessary to introduce Financial Fair Play regulations to safeguard the future of the game?
Well, in Arsenal’s case, the answer is “Yes”. Of course, having ‘good debt’ hasn’t brought them a trophy in the last five years – and it didn’t help in the game at home to West Brom, but it is worth contrasting Arsenal’s situation with the other high-profile debt stories in football.
Firstly, debt is not a bad thing, per se. In fact, it is a very good thing. How many people could own a house if they had to pay for it all in cash? Similarly, very few businesses have the cash they need to build a new factory, buy equipment, finance international expansion or conduct vital R&D. They rely on debt to finance these activities – debt is the engine of growth. In Arsenal’s case, they needed the debt to finance the new stadium. No debt, no new stadium.
Of course, there are two very important conditions that need to be met. Firstly, the debt must be used to finance an activity which generates returns over and above the total cost of that debt. Secondly, the cash flow from the new activity needs to be secure, predictable and able to service the interest payments.
Arsenal. In Arsenal’s case both conditions are met. They have used the debt to build a new stadium which has significantly increased their revenues and profits. To put it into context, the 9,000 premium seats at the Emirates generate more revenue per match than all 38,000 seats at Highbury did. The remaining 51,000 seats at the Emirates are all upside.
Matchday revenue (the gate receipts taken by the stadium) was £93m and the operating costs of the stadium were £55m – meaning that the stadium generated a profit of £38m. Total interest payments were £20.2m, providing interest coverage of nearly two times.
These ‘Stadium Profits’ are secure and predictable. As long as Arsenal play roughly the same number of games per year and have roughly the same attendance, then there will never be a problem paying the interest. The Stadium pays for itself and doesn’t rely on subsidies from broadcast revenue, commercial revenue or player trading surpluses. It is the very definition of a good investment.
Good debt: Arsenal borrowed money to build a stadium which has increased the clubs value. The increased cash flow generated by the asset can comfortably finance the debt
Manchester United. The debt was not taken out in order to finance an activity that would increase the club’s value – it was taken out to buy the club itself. So there is no reason to think that United’s financial performance is any better as a result of taking out the debt (in other words, the debt and the interest payments are pointless). Secondly, the level of their debt (over £700m) is such that it cannot be financed by matchday profits alone – they have to tap into broadcast revenues, commercial income and player trading surpluses. Last year, without the profits from the sale of Cristiano Ronaldo for £80m, they would have made a loss. And that is a problem.
Pointless Debt: Debt was not used to build or acquire an asset that increases Manchester United’s value. Debt re-payments cannot be met by a sustainable and predictable source of cash flow
Liverpool: This is a very similar situation to Manchester United. Again, the £350m of debt wasn’t used to finance growth but simply to buy the club (another case of pointless debt and interest payments). Last year they didn’t generate enough profit from all their activities to cover their interest payments and recorded losses of £55m. Big problem.
Leeds United and Portsmouth: Both of these clubs used debt to finance the purchase of players in the form of transfer fees and wages. It is pretty easy to see why this was a disastrous policy. Players don’t directly generate increased cash flow and their value is unpredictable and variable. If the new players had caused a significant improvement in the team’s performance which had led to increased revenue and the value of the players themselves had increased, then the gamble might have paid off. But it took very little for the house of cards to come tumbling down.
Chelsea and Manchester City: These two clubs also borrowed money to finance the purchase of players. Of course, this money was borrowed from a Sugar Daddy rather than a bank and it is unlikely that any interest will be paid, let alone the principal. Who knows what the long term consequences of this ‘Financial Doping’ model will be, but it is far from certain that it will end well.
In summary, Arsenal’s finances since they moved to the Emirates aren’t the problem. The problem is that they haven’t added to their trophy cabinet.
* Arsenal also have £127.6m in cash, making their Net Debt the widely reported £138.4m. Incidentally, a further benefit of debt is that interest payments are tax deductible – so 28% (the corporation tax rate) of any interest payment is re-captured in the form of tax savings. This is one of the reasons why Arsenal are in no hurry to use their surplus cash to pay down their debt.
There was a fascinating example yesterday of how sponsorship can positively and negatively influence the image of a brand and impact on the lives of consumers. I’m talking about Barclays.
On one hand, there was the decidedly mixed reaction to Bob Diamond’s appointment as Barclays CEO. This was, for example, the lead story on the BBC Ten O’Clock News last night, which featured Diamond handing over the Barclays Premiership trophy to John Terry and the Chelsea team last May, and used the footage both to highlight Barclays’ significant spending on sponsorship and to compare Diamond’s huge pay and incentives to those of ‘superstar footballers’. Not ideal, you might argue.
But conversely, there was also the great story of how the new Barclays-sponsored London bike hire scheme helped many Londoners to ‘get on their bikes’ and beat the one-day London Underground strike, memorably and vividly illustrated by, for example, this story in today’s Sun.
Although there are still only a few thousand of the so-called ‘Boris bikes’, I wonder how many of the consumers who used them yesterday – Transport for London reported a 60% increase in usage of the bikes compared to normal days – felt better about Barclays because of the bank’s role in helping them get through the day, and as a result reacted more positively – or maybe less negatively – to the Bob Diamond story?
Or maybe this is simply another illustration of Oscar Wilde’s famous adage: ‘There’s only one thing worse than being talked about: not being talked about.’
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