The defining event of 2020, the COVID crisis, has created opportunity alongside challenge. While most sectors have been decimated by the crisis, in such times there are good deals to be had. As a result, Private Equity markets are seeing plenty of movement.
Sport is no different from any other sector impacted by the pandemic, and clubs may prove attractive targets for investors.
While investors may be able to buy in at a discount right now, huge question marks remain around when supporters will be allowed back into grounds, while a long tail in both the corporate hospitality and sponsorship markets and existing uncertainty about the future direction of media rights may lead some to question whether the investment is a good move.
My view is that many sports are actually undervalued.
Putting to one side the debate about which way TV rights are going to go, the remainder of most clubs’ commercial revenue is comprised of selling inventory. Each category is limited by naturally low ceilings: sponsorship by assets and categories, tickets and hospitality by stadium capacity, merchandise by stock availability and distribution capability. Even in good times it is a struggle for most to deliver anything more than inflationary increases.
If the COVID crisis hasn’t woken sport up to the realisation that with no matchday revenue, the Emperor is well and truly starkers, then nothing will. Rightsholders must adapt or die.
But how?
Most sports organisations I have ever worked with focus 99% of their effort on the small-ish proportion of their database who buy existing products and just don’t have the bandwidth to consider why the majority are there in the first place. Revenue per (potential) customer remains low as a consequence. The old revenue streams remain in place with a basic yield management programme in place, each season trying to cut it a different way to return ever-so-slightly better answers from fundamentally the same questions. No one has the luxury of pausing to wonder if they’re asking the right questions.
We need to see a shift in mindset and urgently. Even at the very top, most clubs are reliant on matchday for at least 85% of their revenue, whether directly or indirectly. Not only does that neglect 90% of the year but it is – as COVID has shown – firmly putting all one’s eggs in the same basket and as I have already argued, concentrating entirely on trying to eke out marginal gains from naturally inelastic revenue streams. The sports club working week is Sisyphean in its repetitive nature. Very little of that activity is making the busines stronger in the long run.
Pausing to consider the right questions simply cannot be seen as a luxury, it is a matter of survival.
Connection is key
The ability of sport to connect remains unrivalled. It doesn’t matter whether someone has never purchased or lives too far away to want to buy tickets. It is time to refocus and start asking: who are they? What do they care about? What are their interests? How do they spend their money? Brands want to know, and have increasingly shifted marketing budgets into digital platforms that have that data. But paid search and social is faceless and sterile. A battle for who has the most efficient algorithm fails to take into account the endgame is changing a human being’s behaviours. Coupling the emotion of sport with data best practice can unlock sponsor value (especially interesting when D2C models remove any need for category exclusivity), become the catalyst for new product development (both physical and digital) and ultimately create leverage in whichever way future media models swing.
The beauty is: the more that is invested in your data capabilities, the greater the potential ongoing commercial return.
Sports simply cannot emerge from this crisis just offering more of the same. That way oblivion lies. We want to challenge clubs come out the other side with a commercial strategy for the digital age, equipped to thrive rather than just survive. This must be led by a marketing strategy that places greater emphasis on value creation and building institutional value both in brand and customer relationships.
And should one of those investment firms come knocking? You have created bargaining power borne from understanding and unlocking your true commercial potential.
If not now, then when?
