INTERNATIONAL - It's easy to think of sports teams as massive companies: They have huge global exposure, millions of fans, and athletes on eye-popping salaries.
In reality, though, even the biggest teams are little more than minnows. The world's wealthiest soccer team, Manchester United Plc, has a market value of just $4.1 billion – less than, say, Fevertree Drinks Plc, a maker of tonic water and mixers with just 51 employees.
While the biggest teams have millions, if not hundreds of millions, of fans, they have historically been very bad at getting them to part with their money. They will need to up their game.
At the time of its 2012 initial public offering, Man United counted 659 million fans worldwide. Analysts estimate the team’s revenue this year will be about 587 million pounds ($763 million) – just $1.16 per supporter. Twitter Inc. has just 338 million active monthly users, yet enjoys revenue of $2.4 billion and a market value of $27 billion.
Nonetheless, Manchester United has been able consistently to increase revenue, not least from the soaring price of broadcasting rights. But that growth risks leveling off as TV companies find it harder to sustain more price increases as audiences drift online.
Witness the sale of English Premier League soccer rights earlier this year, when the price per game declined from the previous round of bids four years earlier. Then there's France's Ligue 1, where Vivendi SA's Canal+ unit decided it couldn't stomach the ultimate cost and backed out of the bidding.
All this makes it imperative for teams to find new ways of squeezing money out of supporters. As Sam Evans, a partner at strategy consultant Delta Partners, notes, their costs – from player salaries to insurance – are only going up.
The traditional sports marketing business will have to change. Once it was good enough for brands to stump up tens of millions of dollars to plaster their logo across a jersey and enjoy the halo effect of the team's emotional bond with its fans. Hopefully, those supporters would then go into a shop a week later and buy the product – with the team cut out of the transaction.
Digital marketing provides the opportunity for teams to put themselves in the middle of the sale of a service or product. It's not simply about using a website or an app to sell fans more jerseys or baseball caps. It's about turning the team into a platform, a way of connecting brands to customers, in the same way as Facebook Inc. and Alphabet Inc. already do.
Much in the way that price-comparison websites charge insurers or credit card companies for connecting them to customers, a sports team could, for example, offer its own exclusive video content with another provider’s mobile phone contract and take a cut of the proceeds. If that meant each fan were to spend just one more dollar a year with the club, it would provide a significant boost to sales.
Soccer teams are already moving in this direction, but commercial revenue accounts for less than half their income, compared with 70 percent in baseball. Arsenal moved early to use digital tools to help brands reach its fans. (The team also provides them with granular data to show how effective the partnerships are, according to Mark Thompson, managing director of sponsorship specialist SponServe.) While the London side’s commercial income has climbed by 50 percent since 2014 to 91 million pounds, it’s still less than half the 199 million pounds it makes from broadcasting rights.
Nevertheless, don’t expect sports teams to be content with hawking their latest team strip or souvenir program. More will turn themselves into marketplaces – and you, the fan, will be their target.