UNLOCKING VALUATION

The last 72 hours in football have been seismic in their impact. On reflection, this article written in the weeks prior to the announcement of the now suspended ‘Super League’ is even more critical. There is a reasonable conversation to be had about structural reform in football but the key to unlocking an increase in valuation for the current and future owners does not come from tweaking an existing model but rather in understanding the need for ‘Business Strategy Innovation’. Oddly enough the secret is in the fans.

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“Quibi versus TikTok is the story, not just of last year. Billions of dollars invested in a platform with the best actors, the best scriptwriters, the best everything, gets eviscerated in months by teenagers doing dances. Why? Because you can’t compete with the creativity of millions and millions of people when the entertainment you’re providing has that as an alternative. That two minute short or five minute short on Quibi is fighting for that five minutes of attention on the bus with the infinite feed of highly recommended, tailored content from the world. You’re not going to win that, no matter how funny the comedian, or how great the script – you’re not going to win against the hive mind.” Reddit Co-Founder Alexis Ohanian on a recent edition of The Bill Simmons podcast

THIS, quite literally this is what sports are doing today. They are creating in house some lovely pieces of high-end content and then distributing on a number of platforms but the fans out there are making more content, generating more virality and having the conversation without them.  

The problem is not in the opportunity that sports presents but the fact we continue to view things through the prism of our current operating model. 

To me we’ve jumped to the How and the What without understanding the Why (thank you Simon Sinek)

 DATA IS CENTRAL

I hear, all too often, this remarkable comment that it’s not about the data it’s about insight. Seems ridiculous to me because without the data there is no insight! Of course, we want to get to insight – the whole point of the data is to build knowledge and take action. To get there though we need to collect information – the better the quality and greater the volume the better, though clearly depending on your resources you can’t collect and evaluate everything. The reason for this is simple – in many ways you don’t know what the questions should be!

Like an excel spreadsheet if you want to manipulate data you can – even if you don’t mean to. If you start by asking the data from the mindset of your current business model you will only find answers to that question. 

As I alluded to earlier what we really need to know from the data is - what should the business model be? 

Yes, you should use data to sell more tickets, more sponsorship at higher value, sell the media rights and so on. That is technology and data 101. The first thing you do is use it to improve your current model. That’s simply optimisation and has been the core focus of digital transformation in sport for a while. 

This is where sport has excelled in the past 10 years. Sponsorship sales is a world away from where it used to be. I recall a senior exec at MUFC telling me in 2008 they didn’t need CRM as they were always sold out. Simply viewing their use of data to sell sponsorship today and you know they are a world away from those days. I could reel off a host of ways sports teams have modernised and used technology to improve their business – and to all of them I tip my hat.

Consider this though. The biggest companies in the world are data companies – we just don’t label them as such. Amazon, that’s a data company. Yes, it’s a retailer, yes it’s a content company, yes it’s an advertising company but ultimately it’s a data company – it uses the data it constantly harvests to not just change its product mix but its business model. Amazon marketplace came from Business Strategy Innovation caused by an understanding of the data that they could sell more, hold less stock and earn commission from others hard work – ie half of Amazon.com went from being a retailer to being a distributor.  AWS? That’s come out of Business Strategy Innovation and is now a clear market leader.

What Amazon have done is both continue to invest in the core product and look for where strategic innovation can transform the business. The emergence of Marketplace and AWS are a wonderful demonstration of delivering on this. Safi Bahcall gives great examples in his book Loonshots at how Product based innovation can be successful but often misses out to Strategy innovation. My favourite was how PanAm kept investing in quicker jets (product) and SouthWest invested in Hub and Spoke routes (strategy). Which remains today?

Closer to home – Disney +. That wasn’t a product innovation (they still make content) but a business strategy innovation. What drives it? Data. The insight the data generated was the need to innovate and get closer to the consumer and be in a direct relationship. The classic version of this was Netflix moving to streaming from DVD delivery…and the case studies go on and on.

CONTENT AND CONVERSATION

‘Direct to Consumer’ is a business paradigm and is not limited to be an OTT Content production solution.

Now we understand how sports are being valued by the market (as sponsorship and licensing businesses) we can move forward. For any investor or owner of a sports team to change the valuation multiple it will require a mindset change. Doing what we have always done, but a little better and a little more often will not have the market reappraise the metrics they are using. In fact, it only reinforces it.

Content is indeed King. Sports, however, are intrinsically limited in how much content they can produce. The EPL has 38 match days per team (380 games in total). The NFL has 17 (excluding the playoffs).  There is only so much content in terms of competitive games any one sport or team can generate. It’s not a purely inelastic market but it has its limitations and there are arguments there’s too much competitive sport content available.

The Super League concept as currently articulated could not fundamentally change valuations – the business model was the same as before: 180 Games, Media rights sales, Sponsorship. It claimed to be about the fans of the future – but we know that those fans don’t engage directly with the clubs through those business models. It will have given down side security by eliminating relegation and through that and more high profile games there would have been a positive impact on the balance sheet but not the change perhaps imagined.

However, the conversation around this prime content happens all day, every day, all year round. As one dear friend likes to remind me sport is about opinions and we all want an opinion. The content is the spark for every chat, tweet, WhatsApp and argument in the bar. 

Jimmy Lynn, legendary builder of AOL Sport back when it was a phenomenon, reminded me recently that even as far back as 25 years ago beyond the live content the biggest hit for AOL was the message boards and chat rooms. So, it’s amazing to find us in practically the same place in 2021.

The Industry has, in part, realised this. The proliferation of media houses and the production of content is the result of the desire to stoke this conversation. What confuses me is not the appetite to build content factories, but the fact that most of the end product is used for the benefit of others – either the sponsors or the social media platforms. Betting companies are investing in creating their own content but that’s to drive consumers to register and bet – creating a direct, ongoing relationship.

Here’s where it gets crazy – the only people who don’t want to be a part of the conversation are the actual sports teams!

For a bit of fun, when you finish this article go to your team’s website or simply the MUFC website and tell me how long it takes to find where you can talk to your club? Or even if you can at all…

But on pretty much every page on the MUFC site I can be redirected/prompted to go to one of their social links. This is ok, and the site will be managed by someone at the club (or several people and an agency etc) but data is limited, comments seen but as Sidney Deane says – we are listening but we can’t hear.

What this means is that the second most important driver of value in sport, after content, is being created solely for the value of others.

It is right that you should be on the various social channels. They are about distribution and reach and that is important – so I want to be clear I am not advocating that you suddenly cut that off. Yet pushing the conversation elsewhere, or ignoring it completely means you have missed a Business Strategy Innovation opportunity.

Intriguingly, even when clubs banded together and invested in a content play – Dugout now owned by Lucas Von Cranachs’s One Football – it had a very clear mantra that it would not allow for any User Generated Content. It was a natural extension of the current efforts and helped accelerate the growth of inhouse media teams. There were likes and shares and the usual social media metrics that don’t necessarily tell us a lot but the conversation never really took place, just as content behind paywalls on team websites hasn’t worked. It’s not because they aren’t making good content.

The evidence that I can see, hiding in plain sight, is that there is a desire across all generations of fans to be heard and seen and to be involved – the backlash in the UK against the Super League being a recent high profile example.. The levels change, of course, across demographics, geographies and platforms but none of the social media platforms could be successful if it wasn’t for the interactive nature and the content creation of the ‘hive’. The sensational success of all the major social networks shows that people want to be involved and take part. There is also a reason why sports features heavily on all social platforms…it’s one of the subject matters that drives the most conversation and interaction.

To unlock this potential sports teams must embrace the conversation through strategy innovation. It can’t just be about churning out more matches or more shoulder content or use of archive. The question needs to be asked – in addition to our amazing content can we develop a new strategy that harnesses the 24/7/365 conversation that we are central to and how do we keep it on our terms. 

This will not be easy. Even for teams winning titles, just one poor stretch of results (or not winning by enough), and fans will sling mud, call for the coach to be sacked and the owners to leave town. 

In the tech industry complaints are often seen as key to success – if customers aren’t complaining they don’t like it enough to bother! Sport lives off the passion play, offers something almost no other content can and generates significant revenues based on the fact that it drives emotional responses – but doesn’t want that passion to darken its door when fans are upset. A thicker skin is needed because as much as the elation is a driver of revenues so too is the despair – and the offer of hope in the next match or season. Living with fans and followers and all their reactions is essential to tapping sports true economic value.

There are ways to mitigate this, you can filter the lewd images, there are ways to strip out foul language but the opinions should be invited to take place within your walls where you can begin to build the direct relationship. When the conversation is taking place elsewhere everyone else is making money off your IP. 

If you are an owner or investor in sports understanding this is key to unlocking the valuation reward you want. The key to this innovation is that the economics are fundamentally different to the current model. The conversation is almost self perpetuating. The shoulder content is the catalyst but the growth of the debate and engagement grows at a much quicker rate than the cost base needed to drive it.

IT’S NOT A ZERO SUM GAME

The sports industry has made massive advances since I first stepped in back in 2001. The increase in valuations since then is proof enough. Yet if we are to get the really exciting numbers, we still have a way to go – and it’s great to see some super bright people at the top of many sports driving some of this change.

What often holds us back is the concept of Zero Sum. Embracing data, bringing the conversation closer to home, using technology to make real strategic change doesn’t mean we throw the baby out with the bathwater.

Amazon didn’t ditch retail when it opened the Marketplace or AWS. It’s still fundamental to its business. Media rights, sponsorship and retail/licensing don’t need to be shunned by sport – that would be foolish. Certainly today, that’s where the revenue is.

It’s about taking sports not 5 or 10%v higher but 100% higher. That will take some bravery, risk and innovation but it doesn’t require starting from nothing. The phrase digital transformation scares many and the common denominator is that those selling the core assets are scared they will be out of a job. To me that’s crazy talk, they are invaluable – but to get the valuations we aspire to they can’t be the whole enchilada, but they should be a part of it.

Embracing the conversation doesn’t mean you have to switch off your relationship with Twitter and Facebook or TikTok – far from it. They should be a part of your marketing mix, your distribution strategy but it needs to lead somewhere. 

As a sports team you will always be restricted in what match content you will have, how often your athletes will play or be available for commercial activity, but your fans – they are always on and always ready to chat and be a part of the conversation. 

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If you are an investor, owner or senior executive and are interested in discussing this more, or keen to go beyond that and think about how you can unlock this potential contact me at:

[email protected]

Twitter: @mbrought9

LinkedIn: https://www.dhirubhai.net/in/michaelcbroughton/