Many elite sporting organisations are using the passion that sport arouses to become powerful brands known around the world. Ali Cain examines how sport is going global.
One key feature of sporting businesses differentiates them from other businesses: the people involved are genuinely passionate, sometimes fanatical, about what they are investing in. It is normal to find that people working in sporting businesses are real fans of the game, and this gives sporting businesses something special that other businesses just can’t match.
Many sporting organisations have grown into huge businesses, characterised by multi-million-dollar player contracts, eye-watering investment costs and lucrative media contracts. At the same time, professional sport is becoming highly focused and increasingly international.
Colin Gillespie, a partner in PricewaterhouseCoopers’ UK corporate finance practice, provided advice to the former owners of Liverpool Football Club, including the 51% shareholder at the time, David Moores, about the sale of the iconic club to US investors. The deal was part of a plan to secure the team’s future near the top of the English Premier League.
"Four or five years ago," says Gillespie, "the board decided the club needed to move to a modern purpose-built stadium, which would be extremely expensive. When it became clear that a new stadium could not be financed through borrowing, the club looked for an investor to buy a stake in the club. However, it soon became apparent that any new investor would want complete control of the club. At the time, it was well known that Liverpool was looking for an investor, although it was not widely known that Moores was willing to sell up."
Gillespie says it was important to Moores that any new investors would uphold the traditions and heritage of the club. "Each time a potential investor expressed interest in the club, we asked them what they knew of the club’s history and about their attitudes to fans and season tickets and the like. Getting the maximum price for the club was not as important to the board as getting the right owner."
Initial discussions were being held with a number of potential investors, including investment company Dubai International Capital (DIC), when a wealthy US investor, George Gillett, approached the club.
"There were concerns that Gillett’s pockets were not deep enough," says Gillespie, "but he went away and worked on his proposal – without access to the books, as DIC had been granted exclusivity – and joined forces with a fellow billionaire Tom Hicks."
"When DIC withdrew from the process, we were able to conclude an agreement with Gillett and Hicks and announce that they were the new owners," Gillespie says. As the owners of National Hockey League and National Basketball League franchises in Montreal and Texas, Liverpool Football Club’s new owners already had extensive experience of managing sporting businesses, experience that could be of real benefit to Liverpool.
"It’s important to remember that English football wasn’t big business until the Premier League started 12 years ago," says Gillespie. "The new owners have been running professional sporting teams for 30 years. They have established relationships with media organisations that they believe can be leveraged to Liverpool’s benefit."
A key question for Liverpool is how it will put together naming and sponsorship packages for its new stadium at Stanley Park. "In the US, stadium naming rights are usual, whereas it’s quite a new thing in Europe," says Julie Clark, a director of PricewaterhouseCoopers’ leisure advisory practice.
It is yet to be decided whether Liverpool will go down the path of Arsenal, whose new stadium is sponsored by and carries the name of Dubai-based airline Emirates, or follow the example of Manchester United, which has resisted commercially branding its Old Trafford stadium.
Clark says football in general is still feeling its way with sponsorships. "The issue is whether to go with a small number of strong brands," says Clark, "or whether there is a huge raft of different sponsors willing to support different levels of the game. Clubs are yet to really develop relationships with different levels of sponsors."
AND THEY’RE OFF
Interestingly, the same dynamic that has seen the emergence of new investors in football is also having an impact on the horse racing industry. The need for new infrastructure, especially in new grandstands, is driving the quest for new investment in horse racing.
"Like many sports, the horse racing industry is becoming more commercial, but it’s starting from a very low commercial base," says Andrew Gould, acting CEO of The Jockey Club, which regulates horse racing in the UK and owns 13 racetracks, including the famous Newmarket track.
One of the idiosyncrasies of the horse racing industry is that racing only takes place a few days a week, limiting revenue opportunities for the sport. "The highest number of fixtures we have is at Newmarket, where we have around 40 fixtures each year over two courses," says Gould. "So it’s important for horse racing to develop new income streams, from conferencing, exhibition space and accommodation, for example, all of which have an impact on the design of new buildings."
He adds that all of the UK’s 59 race courses have some development going on, and The Jockey Club is investing heavily in a new grandstand at Epsom.
Another key challenge for the horse racing industry is the consolidation and sale of media rights. Traditionally, each racecourse has sold its media rights individually in narrowcast, broadcast and broadband formats. But this was a challenge for many courses, because media companies refused to pay for narrowcast rights because of the availability of free information through the broadcast format.
"The media just used to tell us what they would pay, but now we are starting to work together. It’s better to have one racing body producing pictures to distribute across the different platforms," Gould says.
Racing UK now produces pictures for 31 of the 59 race courses through its media vehicle, At the Races, which broadcasts a free channel on sky as well as a subscription channel. Data about runners and riders is key in horse racing, given its betting culture, and Gould says The Jockey Club is in the process of making sure it has control of this.
When it comes to the internationalisation of the sport, Gould says: "Although the movement of racehorses has increased inexorably, high-profile horse racing events, such as the Melbourne Cup, are really restricted to a handful of very wealthy international owners. A small percentage of UK owners have horses in France because the prize money is better, but the vast majority of owners want to watch their horses on their own soil."
The internationalisation of betting is having an impact on horse racing, and Gould says international co-mingling pools are currently being established. The breeding market is already internationalised, with international owners scouring the top international sales each year.
START YOUR ENGINES
A different type of racing, motor racing, has been internationalised for many years, enabling the sport to attract significant global brand names as sponsors. Dutch bank ING is one year into a three-year global sponsorship of Formula One motor racing. Isabelle Connor, director of ING’s FI programme, says: "We looked at ten sports, but chose F1 because it’s really the only sport with a truly global platform."
The deal gives the bank title sponsorship of the ING Renault F1 Team and on-track branding, including title sponsorship of the ING Australian and Belgian grand prix. ING spends considerable sums on sponsorship-linked advertising and other marketing that F1 CEO and president Bernie Ecclestone has been developing since the 1970s. Thanks to Ecclestone’s efforts, F1 is now shown in more than 185 countries, a key attraction for ING.
"It’s a sport that has spectacular global reach. Media rights equate to something like 10,500 hours of broadcast time annually," Connor says. Another attraction is the eastward march of F1. Grand prix have recently been held in India, China and Turkey, and this fits with ING’s desire to penetrate these emerging markets itself.
The partnership between F1 and ING is symbiotic in that it helps ING develop its brand in markets where it is building a presence, while it gives a sport with astronomical fixed costs some ongoing financial security.
A BIRDY IN THE HAND
Asian countries’ fanaticism for golf is driving development in this sport, with India, Vietnam and Korea leading the charge. But despite the golf boom in Asian countries and the slow down in the US, which is restricting golf course developments with residential accommodation, the US is still the key golfing market.
"Until recently, more than 400 courses were being built in the US each year, or more than one a day, but that’s dropped back to half in the last year," says Bob Harrison, vice president of golf course developer Great White Shark Enterprises, golfing legend Greg Norman’s golf course development business, which builds golf courses in Asia, Europe, North America and Australasia.
Harrison says Korea offers a huge opportunity for the company, having recently removed a moratorium on residential developments on golf courses.
"The Korean market will follow the Japanese model," says Harrison. "The land that’s available to build golf courses on is very steep and mountainous, and the golf courses cost upwards of $100m to build. So membership sales to this market are very dynamic. One Korean development cost $450,000."
Another new dynamic in golf is the development of super-exclusive courses in remote locations. These courses are often developed by private individuals with a passion for golf, who are prepared to take a risk in developing a course. "The premise is: if you build it, they will come," says Harrison, who thinks this will continue to be a trend into the future.
Examples of US courses in this category include Bandon Dunes in Oregon and Sand Hills in Nebraska. "These two courses have succeeded commercially, but they were risky developments, and institutions are unlikely to take a risk on something like this," says Harrison. The next big opportunity in golf, Harrison believes, is in China. "There is a moratorium on golf in China at the moment, although there is a feeling that it will be lifted in the next five years," he says.
Of the five sports covered in this article, the one that is really at a turning point is yacht racing. Of all sports, ocean racing must be one of the most unpredictable, especially given its reliance on the weather.
Ocean racing’s key global competition, the America’s Cup, is also one of the most disorganised sporting events. In the America’s Cup the winning nation is charged with hosting the next competition, so the whole event has to be re-created each time the cup is staged, every four years on average.
This leads to great instability in the sport, something current trophy holder Alinghi is keen to change. In December 2007, Ernesto Bertarelli, president of Alinghi and defender of the 33rd America’s Cup, released an open letter to the yachting fraternity.
In it, Bertarelli wrote: "The uncertain format of the event meant that teams – and the entire America’s Cup Community – has no future beyond the next cup. This leads to teams only surviving one cycle and the whole event needing to recreate itself every three to five years. This results in a substantial increase in costs and difficulty in securing long-term sponsors."
Bertarelli argues three key questions have to be answered before the sport can move forward, namely whether the cup defender should automatically qualify for the final match or whether teams should start on an equal footing, whether the schedule of venues and regulations should be announced several cycles in advance, and whether governance of the cup should become permanent.
Bertarelli says: "Based on these principles, it is my intention to work towards a renovated America’s Cup to take place in Valencia and to be raced with the certainty that the event cannot be disrupted to meet individual requirements to the detriment of those willing and able to compete."