Category Archives: Sports & Business

The Joy Of World Cup

Once every four years we get to witness the best sportsman that humankind has to offer, battling it out in an arena for the highest honors. No, I’m not talking about the Olympics. I’m talking about the FIFA World Cup. Yes, I’m a little biased towards football.

Anyway, the 2014 edition has seen several interesting things. For one, there was not a single draw in the first 11 games. Some of the smaller teams are playing with a lot of heart (just look at Costa Rica’s campaign opener against Uruguay). Two established names are already out of the tournament – Spain & England (However, why England’s ouster is no surprise, is something we’ll discuss in a bit). Portugal has been demolished by Germany. Chile have been playing like mountain lions rather than timid Andean llamas.

Let’s take the example of England in this edition. Their ouster has not come as much of a surprise to me. It’s a team that has consistently underperformed on the big stage for many years. They reached the last four, 24 years ago. Many mistake the vibrancy of the Premier League as being indicative of the state of English football. But the fact is that many of their good players are old. Lampard, Terry and Gerrard are possibly playing their last major international tournament. Rooney is not young anymore (at least by footballing standards). The young guns Welbeck, Sturridge and Sterling are inexperienced. Cahill and Jagielka cannot provide the fullback support that Ferdinand and Terry could. The vibrancy of the Premier League comes from the brilliant mix of foreign players (including those from other parts of the UK). Over the last many years, many stars have emerged – Henri, Ronaldo, Suarez, RVP, Giggs, Drogba, Oscar, Torres, Bale, Hazard, etc. And, by saying this I don’t mean that the Premier League should change in any form, because it provides a very solid platform for talent discovery and subjects each player (domestic and foreign) to a high level of performance.

But there are many games to follow. Brazil, Netherlands, Germany and Italy are still in it. It promises to be a very interesting 3 weeks ahead.

How To Build Businesses Out Of Thin Air?

Can a business be built on bare-bones capital requirement, yet is profitable, scalable and captures emerging trends?

Many companies have been able to do so – at least in the initial stages (think any of the dotcoms that have today become huge valuation games). But once they grow out of the initial stages, the costs start catching up. Conversely, there are equal examples of companies that have incurred high initial costs (even for many years) but have now evolved high margin business units that practically run large annuity businesses with almost all if being free cash flow (think of the Disneys, Virgins and luxury brands).

One such business philosophy that comes to mind is brand licensing. First, you need to have a strong trend to capitalize on; one which will change consumption patterns. Next, you should have the ability to incur an initial period of high costs related to brand creation, brand establishment, product making, distribution, etc. However, once the brand saliency has been established in the market, the capital costs can be cut drastically and the brand could be extended both horizontally and vertically.

This way, the risk of manufacturing, selling and marketing rests with the licensee, and the licensor can earn steady cash flow. But one needs to ensure that the brand is being extended into correct categories & price points, that the licensee’s ethos matches that of the licensor and that the investment in marketing & branding continues unabated.

There are many attendant intricacies, but I shall leave those for another day. For now, I need to go to the drawing board and see if I can rustle up a viable plan.

United We Stand

Forbes magazine has valued the Red Devils Manchester United at an Enterprise Value of over $3 billion dollars ($3.3 billion to be precise or Rs 18,150 crore). That’s quite a neat sum! The first sporting club to have done so and that too by a wide margin: The next one in line – Dallas Cowboys – is a distant second by a margin of over a billion dollars.

Even the latest Deloitte report places Manchester United third in its Money League (behind Real Madrid & Barcelona), with a revenue of 320 million pounds (roughly $500 million) during the 2011-12 season – holding steady versus last season. The above achievements have been reached in a season / year in which Manchester United lost out to the Premier League title by a whisker, and got knocked out of the UEFA Champions League & FA Cup early. Predictably, broadcast revenue did fall by 11%. Therefore, it would be instructive to look at what is right.

Football is a major source of entertainment. Folks play it, flock to the stadium in droves to watch games, bet on matches, create anthems & songs for their teams, buy shirts & merchandise, play video games based on it, watch it on TV, make films – to name a few. So in the end a football club is in the business of creating good content for its fans week in week out. That exactly is the ethos of Manchester United – to entertain; and it takes that responsibility very seriously.

The approach is one of managing a professional organization, rather than just a sporting club. The club curtails wasteful use of money in the transfer market through the use of analytics & research and instead redirects that towards wages, which seem to bear a better correlation to victories (as per data in Soccernomics by Simon Kuper & Stefan Szymanski). It has also managed to increase player longevity, cultivate talent in their academy, blend youth and experience (buying players who may be considered too old by others eg: Van Persie who came to ManU at the age of 29) and maintain consistent management under Sir Alex.

On the business front too, it has taken several new steps. On 22nd of January Manchester United, according to a Marketwatch.com report, announced the acquisition of BskyB’s 1/3rd minority stake in Manchester United Television making the television station a wholly owned subsidiary. This enables MUTV to own 100% of the content production and distribution capabilities of this business. This means greater control over the entire value chain.

Further in a bid to de-risk stadium collections, Manchester United has improved its commercial operations. The revenue in this category has not only risen 14%, but has also become the largest contributor to the club’s total. Some examples of increased commercial activity are the DHL training kit deal, regional partnerships in new media & mobile, a 3-year sponsorship with China Construction Bank to produce Manchester United branded credit cards, a 3-year deal with Chinese soft drinks maker Wahaha as the first Official Soft Drinks Partner in China, and a 3.5-year sponsorship deal with Indonesian tyre maker Multistrada. (info source: Deloitte report + internet search)

In a world where fans have other means of entertainment & occupation through increasing connectivity, it is imperative that one stays relevant across as many touch-points as possible. Whether that means creating signature cafes and bars, selling t-shirts & memorabilia, or engaging enthusiasts in ground activities & gaming contests – the choice is that of the sporting club. So is the choice it makes in approaching its business: Dispelling old notions of shunning hard-nosed business or embracing new paradigms of data, research & business, while not compromising on core ethos.