Soccer Business Bits: The Art of World Cup Sponsorship, MLS All-Star Revenue & More

Tier-One FIFA World Cup sponsors pay almost $125 million for the right to reach 30 billion sets of TV eyeballs and almost 3 million stadium attendees.  Add in the enormous investment necessary to leverage the FIFA relationship (through ad materials, hospitality events, commercials, etc…) and only a serious company can join the elite group of six tier-one partnerships offered by FIFA.  It was therefore surprising when it was announced that little known Chinese renewable energy company, Yingli Green Energy,  had joined titans such as McDonalds and Budweiser in the upper echelon of sports sponsorship.  The deal entitles Yingli to stadium advertising, the use of the FIFA mark, prime real estate in fan zones and much more.

Few events offer the worldwide reach of the World Cup and Yingli is taking an enormous gamble that sports fans will bring market share.  According to the Sports Business Journal, “Yingli signed its World Cup sponsorship because it believed soccer’s popularity would help the company raise brand awareness in key markets such as Germany, Italy and Spain, and potential markets such as Brazil and Africa.”  In addition, Yingli is hoping to develop relationships with other business and business leaders to increase brand awareness and sales.   Yingli develops, manufactures and sells photovoltaic modules and trades on the NYSE.  The company joins new MLS sponsor Continental Tire (a lower level World Cup sponsor) under the FIFA umbrella.

Multiple news outlets are reporting on the competition to host MLS Cup.  Cities such as Philly, Toronto and Los Angeles are vying to host the 2010 championship.  Most interesting to us, is the information contained in this article from the Toronto Star, about the value of hosting special soccer events.  According to the article, the MLS All-Star game generated $28 million (Canadian) over three days in tourism dollars while Real Madrid’s Canadian visit generated $10 million. These are the types of arguments typically raised to bring in big sports events, check out our interview with Simon Kuper, the author of Soccernomics for the other side of the argument.

Finally, Kyle McCarthy talks through the recent MLS announcement that all matches will be produced in HD for 2010.  According to the article, “MLS officials decided to make the move to HD production in an effort to compete with the high-quality broadcasts of English Premier League matches and supply fans with a better local television product that reflects the improving quality of play on the field…”  For those interested in the business of broadcasting soccer, we recommend reading this piece.

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Soccernomics: A Chat With Simon Kuper

It is “Cyber Monday” and in honor of that online shopping holiday, we thought we would bring you an interview with Simon Kuper, co-author of the acclaimed book, Soccernomics, a must read for any fan of the business of soccer, and a great gift for the holidays.  The book combines economics and soccer to provide an interesting look into the use of data in sports and takes direct aim at some of the longest held beliefs of fans and soccer managers about the evaluation of players.  The book also looks at a number of financial “myths” that surround the game, including the financial benefits of hosting big soccer events and the profitability of sports franchises.   Mr. Kuper is a sports columnist for the Financial Times and his book, “Football Against the Enemy” won the William Hill Sports Book of the Year Award in 1994.

Footiebusiness.com: You make a compelling case that big sporting events (e.g. the World Cup), do not provide the financial benefits that are so often touted when efforts are made to secure financing for such events.  Does that analysis change when the U.S. is the prospective host country?  Given the size of U.S. stadiums (and thus larger crowds), and the existence of sufficient infrastructure, do American communities have a better chance of deriving a financial benefit from hosting such a big event?

Simon Kuper: I think the financial benefit would not be very big in any case. I mean, with tourists, conferences and business travelers, the main American cities get a lot of custom most of the time. A world cup probably wouldn’t boost their numbers hugely. Also, during a world cup “normal” travel usually falls off, as business people and tourists don’t go to the country for fear of higher hotel prices and of soccer hooligans (there’s always lots of publicity about soccer hooligans, even though they tend not to appear much in reality at big tournaments). So I think the boost would be limited.

But it is true that because the US already has the infrastructure and the stadiums, its cost would be minimal too. It wouldn’t have to build loads of new stadiums with expensive hotels and access roads etc, like Japan did in 2002 or Germany and South Africa since. That’s a big advantage. I suspect the world cup 1994 cost very little and boosted the US economy by very little. It wouldn’t be a bonanza for any American town, but it probably wouldn’t hurt. In South Africa, by contrast, taxpayers are paying billions desperately needed for other things to build world cup stadiums that after 2010 will be empty almost forever.

FB: The book discusses the increased use of statistical data among managers/scouts in the game of soccer and in addition to figures such as Arsene Wenger, you reference familiar baseball names such as Bill James and Billy Beane.  Statistics and numbers are integral to the enjoyment of many baseball fans.  Does soccer lend itself to a similar “numbers culture”?  Are there statistics that casual soccer fans can embrace as a way to further understand and enjoy the game?

SK: There are fewer stats in soccer than in baseball or cricket, but the number of stats is growing. In the past we only really had goals. Now companies like Opta and Prozone produce measures for each game of how many kilometers each player ran, how many tackles and passes he made, etc. This info is proprietary and they sell it for lots of money, but sometimes newspapers buy it so fans get to see it. There’s interesting stuff there, even though those stats don’t tell you much about a player’s worth. Clubs have been trying to mine these stats for knowledge, and as far as I can see, they have discovered that running more kms than the opposition does not correlate with winning matches, possession doesn’t correlate with winning matches, tackles are not a good indicator of a good defender as e.g. Paolo Maldini rarely made any tackles, and so on. Some data are useful: e.g. how many of a striker’s shots are on target is very telling (I think Eto’o does best on this measure) and if your team sprints greater distances than an opponent during a match, that does correlate with winning.

But definitely soccer stats are at an early stage. There’s nothing like in baseball or cricket. What we found very interesting in our book was the off-the-field stats: e.g. correlating players’ wages with league position, and finding that wages explained almost entirely where a club finishes in the league. In other words: high wages win matches; the rest is just noise. By contrast, a club’s transfer spending doesn’t predict where it will finish in the league, because so many transfers go wrong. That was fascinating to me. This was data that Stefan, my co-writer, had assembled. I loved it because as you know, in soccer people generally just talk and spout opinions, but nobody has data. Stefan does.

FB: In your conversations with Billy Beane, did you discuss his efforts to incorporate his data driven approach to his involvement in the San Jose Earthquakes?  How is he using numbers to assist San Jose in building a successful franchise?

SK: I’m sorry, I never met Billy Beane, and I didn’t indicate that I did in the book. But I did recently meet a performance director at a top English club who regularly visits Beane for ideas. This performance director thinks the Moneyball thinking in baseball can help soccer, even though the sports are totally different. He says Beane loves soccer and is always quizzing him about the latest English soccer gossip. But I have no idea about the Earthquakes – though they were my local side when I was in sixth grade in Palo Alto in 1980/81. I remember seeing George Best play for them. Happy days.

FB: You effectively argue that owning a professional sports franchise is not a profit making enterprise.  Do team owners make money through appreciation value?  If they hold their teams for a number of years, can they make money?

SK: I think the best analogy is with the art market. Buying a soccer club is like buying a painting. It gives you status among your rich peers, and though it won’t give you an annual return, there’s a fair chance that after a few years you’ll be able to sell it at a profit to another rich man in search of status. That’s the best business model in soccer, because the model of annual profits hasn’t worked for anyone except Man United. Of course you’re betting on the price of soccer clubs rising like the price of art, but in both cases that has largely happened as both markets go global: just as there are more Indian and Russian billionaires buying art now, there are more Arab and Russian billionaires buying soccer clubs. (OK, the art market took a massive hit last year, but leaving that aside for the moment.)

FB: Finally, given the amount of money brought in through television rights, has match attendance stopped being a primary revenue source for teams?

SK: You’d have to look at the numbers, and it differs per club and per league, but I think that for many clubs that is now true. I think Barcelona and Real Madrid each get somewhere over $200 million a year from selling TV rights. I very much doubt that they get that from match attendance, despite their giant stadiums. And it’s easier to grow the TV market than the live attendance market, because in TV your potential audience is the world – people in LA or Shanghai watching on the sofa or in bars – whereas there’s a limit to the amount of people you can pack into a stadium. More than about 100,000, and the people in the top tiers can’t really see anything. So the future of profit growth in soccer is most probably TV. But our book isn’t so much about profits, because the vast majority of clubs don’t make any. What interests us is what data can tell you about the game itself, and the silly decisions that clubs make.

Thanks to Simon Kuper for some great insight and responses.  While we don’t agree with everything in the book, we do believe it makes for a great read and great gift for soccer fans and fans of all sports.  For more about the book, click here for an interview that Mr. Kuper did last week with the New York Times.