Never mind the Debt – Feel the Revenue – Steven Falk
November 21, 2010
Debt is the single most problematic issue facing football today. Or so you may think if you read the sports & finance pages. The media and strident fans groups work themselves into a frenzy of indignation while those clubs with aspirations of playing in European competitions rush to comply with the latest UEFA Financial Fair Play regulations. These stories make good copy but they do so on a false premise. Debt is not necessarily a bad thing. Most commercial organisations can’t operate and grow without it. The key question to be answered when assessing the long term viability of a sports club is not how much debt is carried on the balance sheet, but:-
- – what is the reason for, or purpose of the debt; and more importantly,
- – what cash resources are available to service it
Compare the recent positions of Portsmouth FC and Manchester United. Last season, Portsmouth borrowed over £60m just to pay the salaries of players who otherwise could not have been added to the team. In the case of Manchester United, the club can accommodate their wage bill as a reasonable percentage of their growing revenues. The key to both situations is cash-flow. That is, whether there is enough cash generated through sustainable business activity to service the debt.
Another point conveniently forgotten by fans and pundits alike is that clubs who swap their debt-free PLC status for heavily leveraged buy-outs are simply exchanging one cost for another. The cost of operating as a PLC with dividends paid to shareholders, the need to employ city bankers, lawyers and PR firms to run their AGMs together can equate to the size of interest payments on the debt.
So what should sports clubs do to make sure they don’t fall into the debt trap? They should follow the advice of their grannies and not gamble on future success or spend more than they earn. Specifically, they should set a reasonable ratio of players’ wages as a proportion of club revenue (50% seems a reasonable figure) and manage within that budget. “But if we do that, we won’t be able to compete in our league”, chant the recalcitrant chairmen. Again, the answer is simple. Increase your revenue. Not every club has a global fan base to exploit, but then again how many clubs can claim to have genuinely worked their local fan base to its full potential?
There are several key revenue generating opportunities outside of the traditional ticket and hospitality activity. These are:-
– sponsorship activation – many clubs have sponsors, but how many work with them in a true spirit of partnership to ensure that both sides get real added value from the relationship? This approach will reap rewards at renewal time.
- – affinity marketing – most football clubs offer a branded credit card but how many really understand the key profit drivers of acquisition cost, cross-sell and retention. These can be leveraged to deliver incremental revenue.
- – CRM – well-managed customer data has a value. This can be unlocked through attracting more lucrative sponsorship opportunities or by using it sensibly to promote products and services to fans in a timely manner.
- – membership and loyalty programmes – most clubs pay lip-service to loyalty and their fans resent being taken for granted. A well executed membership and loyalty programme can help solve both problems.
|Increasing revenue is the best way to protect sports clubs against the dangers of debt. Let Star Sports Marketing help your club to identify and deliver these new sources of cash. Visit Iwww.starsportsmarketing.com and start the journey today|
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