Football means business

Having helped turn Collingwood Football Club into the biggest football club in the country, its chief executive Gary Pert has a new goal: global dominance. “We don’t see our marketplace as Australia,” he says. “There are potential sponsors, training venues, players and supporters all across the world.”

The business of football is changing quickly and the people who run its clubs are in a desperate rush to keep up. Across all codes, football clubs are pondering re-invention. All of them are under pressure to boost revenue and invest more heavily in staff and facilities as they chase on-field success.

Making money in football has never been easy but crowded markets and the downturn in consumer spending is heightening the challenge for all clubs.

Seventeen of the 30 biggest football clubs across all codes reported a net loss in one of the past two years. AFL clubs dominate the list. The biggest soccer club, Melbourne Victory, just missed the top 30 with $13.1 million in revenue and a $1.5 million net loss in the year to June 30 last year.

An inability to cover costs (due in part to big salary demands by star players) has led to suggestions that A League soccer clubs will report up to $27 million in losses this year.

Even the clubs that make the top 30 have relatively small revenue figures and asset bases compared with the amount of attention they receive from the public and the media. Access to income is also restrained by governing bodies that seek to rein in high achievers and re-distribute income to cash-strapped competitors.

While many clubs struggle to balance their books, Pert’s Collingwood is growing quickly and redefining boundaries in sports administration.

Not content with $75 million in revenue and a $2 million profit in the financial year to October 31, 2011, Pert has ambitious growth plans. He wants to boost Collingwood’s membership base (a key source of revenue for clubs both directly and indirectly through cross-selling) from 72,000 (already the biggest in the country) to 100,000 members in the next three years and then to 150,000 within five years.

In 2012, Pert expects Collingwood to turn over about $80 million and substantially boost its bottom line.

“Depending on how we do in the finals, I would be expecting a $4 million plus profit,” he says. “That could double over the next three to five years with the business activity we have in place.”

Pert outlines his plans for growth from his office in a training facility that is the envy of football managers across the country. Sponsored by a big four bank in a deal that is estimated to be worth up to $2 million a year, the Westpac Centre is a short walk from Collingwood’s home ground and the traditional home of AFL, the Melbourne Cricket Ground.

Despite its already lofty reputation, the Westpac Centre is undergoing a $30 million facelift. Over the next two years, it will get a new a football field, community centre, offices and training facilities, including a high altitude room. Collingwood pioneered the high altitude trend by routinely flying its full playing squad to Arizona in the United States for pre-season training.

“In a high-performance industry, innovation is a must not a luxury,” says Pert. “We need to be ahead of the curve.”

Converting occasional fans into members is a continual challenge in football and Collingwood’s approach to membership is a sign of its willingness to innovate.

Pert’s membership targets seem ambitious given that the maximum capacity of Collingwood’s home ground is less than 100,000. To achieve them, he is attempting to redefine what it means to be a member.

“Membership isn’t about attending games,” Pert explains. “It is about feeling part of the club you love.”

This subtle shift has led to the club offering a much wider range of membership options, including three-game a year memberships and for the first time this year a non-game day membership. Collingwood already has about 2500 non-game day members on its books. (It costs $50 a year and entitles holders to a membership card, bumper sticker and club news.)

“I would expect that membership base over the next five years to get to 50,000 plus,” Pert says.

Membership is highly valued by clubs as it allows them to derive income directly.

In the AFL, the proportion of gate receipts that goes to home clubs varies widely, based on individual arrangements with stadium owners. Geelong is believed to receive up to 90 per cent while tenants of Etihad Stadium in Melbourne’s Docklands precinct gets as little as 36 per cent.

Pooling of income from broadcast deals also hurts some clubs.

The benefits of membership have long been recognised in the AFL and NRL clubs are working hard to join the party. “The lightbulb for Sydney-based NRL clubs went on a couple of years ago,” says the chief executive of the Canterbury-Bankstown Bulldogs, Todd Greenberg, of the benefits of membership.

In 2008, before Greenberg took up his role at the club, the Bulldogs’ membership database was kept on a single Excel spreadsheet managed by the club’s receptionist.

Since then, the club has employed four full-time staff in a newly formed department and raised membership to 14,500 people, up 250 per cent since 2008. Greenberg, who is a leading contender for the vacant NRL chief executive job, wants to add 5000 members this year.

While NRL clubs are smaller in revenue terms than most of their AFL counterparts – the only NRL club to receive more revenue in 2011 than the smallest traditional AFL clubs was the Brisbane Broncos – many of them have a competitive advantage when it comes to accessing cash: their affiliated leagues club.

Cash grants from leagues clubs (hospitality and poker machine venues that historically have links with rugby league clubs but are separately managed) remain common in rugby league; the Bulldogs got $4 million (about one-quarter of total revenue) from its co-branded leagues club last year. When combined with the Bulldogs League Club, the Bulldogs’ revenue for 2011 jumps to $101 million from $16 million.

The chief executive of South Sydney Football Club, Shane Richardson, says leagues clubs have been a “two-edged sword” for NRL teams.

“They have put a lot of money into the game but hidden a lot of the problems,” he says.

“You don’t run a [successful] business by relying on someone to write a cheque for you at the end of the year.”

Greenberg agrees that there is a danger in relying too heavily on annual grants.

“We are very fortunate to have a successful licensed club but would like to have less reliance [on it] for funding,” he says. “With the advent of gaming taxation and smoking bans, it is a volatile industry. We need to make sure we have our own revenue streams.”

Poker machines have become a hot issue in football. Over the past decade in Melbourne, AFL clubs have taken advantage of fortuitous government policy to boost gaming machine revenue. These machines are attractive because they help diversify income streams and provide continuous cash flow in what is mainly a seasonal business.

While football club chief executives are reluctant to strongly defend their reliance on poker machines, most are also unwilling to forgo the revenue that comes from them. A recent invitation by AFL chief executive Andrew Demetriou to help wean clubs off poker machines was quietly rejected by all clubs.

Collingwood has the most licensed venues in the AFL (four) and has increased the proportion of revenue it derives from gaming over the past five years (as the charts show).

“We are very sensitive to the safety and security [issues] and the need to provide a healthy environment for the people who go along to them as entertainment venues,” Pert says.

Anti-gambling advocates dispute the standard rhetoric. The chief executive of World Vision Australia and spokesman for the Stop The Loss Coalition, Tim Costello, says club poker machines hurt not just the community but their own brands. “Clubs are saying that they want to be great contributors to the community when their business model relies on doing social damage,” he says.

Branding is vital determinant of revenue for all sporting clubs and the one constant in their business models.

Clubs punish players and other staff severely when they commit acts that threaten their reputations. Big fines and suspensions for poor behaviour, wherever it may occur, are considered acts of good governance by many club officials.

A branding expert and director of marketing group Bastion, Simon Hammond, says the rush to professionalism in brand management by football clubs presents a customer loyalty risk.

“They need to make sure they don’t over-professionalise the sport of the people,” he says.

“Clubs are under pressure to keep clean and stay professional. They are trying to run highly efficient businesses but highly efficient businesses don’t always connect with customers.”

Brand differentiation in football is difficult given the large numbers of clubs in the main markets. (Sydney has 14 professional football clubs across AFL, NRL, rugby union and soccer while Melbourne has 13.)

Collingwood’s high-profile president, Eddie McGuire, says attempts to differentiate can be counterproductive. He staunchly defends his team’s right to wear traditional livery in games and has been critical of teams that do otherwise.

“Corporate branding is a key component to the success of any product,” McGuire wrote in a recent opinion piece in the Sunday Herald-Sun newspaper about the willingness of rival clubs to tinker with their on-field branding. “[Football brands] are much loved, identified and worth millions of dollars. Leave them alone.”

Like Collingwood, Hawthorn Football Club’s strong brand has helped it achieve on-field and off-field success in the past five years. It has averaged annual net profits of $2 million over the period and membership has more than doubled to 60,000.

Hawthorn’s relationship with the state of Tasmania has provided a lucrative source of revenue for the club. It has a deal with the Tasmanian government (believed to be worth between $4 million and $5 million a year) to play some games in Launceston.

“Hawthorn is one of the only clubs that has moved into a secondary market and got it right,” says Hawthorn chief executive Stuart Fox. He suggests his club’s success has been assisted by its ability to get access to a “clean” stadium in Tasmania, which has allowed it to secure additional catering and merchandise deals.

“It has been a club initiative and we have put a lot of money and support back into the community,” Fox says. “That is why the model works.”

Fox says he considers between 30 and 40 investment opportunities a year. Non-traditional assets include a public gymnasium and a $2 million share portfolio.

“We are quite open to some creative thinking in terms of our investments but it takes a lot of hard work to get a new venture up,” Fox says. “One bad decision can quickly burn cash. Our philosophy has been to build a strong club that is not reliant on AFL funding and has a number of revenue streams.”

Fox’s predecessor at Hawthorn runs another big Melbourne based club, Essendon Football Club. Ian Robson says it is crucial for football clubs to make major investments when best-practice standards deem them necessary.

His club is among those to spend up big on new facilities. The club is building a $25 million base near Melbourne airport after outgrowing its traditional home, Windy Hill in the suburb of Essendon.

Robson says the imminent introduction of free agency rules will make it more difficult for clubs to retain players unless they offer market-leading training and recovery facilities. (The rules will make it easier for veteran players to transfer to the club of their choice.)

Robson is under no illusion as to what is occurring in his code. “There is an arms race,” he says.

Essendon has joined Collingwood in starting a weekly television program on Foxtel’s subscription network. The show gives news and behind the scenes access to players and staff. While the ventures are loss-leaders, both clubs see them as part of integrated strategies and expect to turn their growing broadcast divisions into valuable assets.

The convergence of multi-media channels offers ill-defined but attractive revenue-generating opportunities for all clubs. Most have boosted their online marketing efforts. “Clubs own the content fans crave,” says Robson. “We have the ability to tell compelling stories.”

Pert agrees. “For the Collingwood Football Club, it is becoming critical to produce our own media content. In the past, we have had to abide by the rules of traditional media because we haven’t had our own platform. Now we do and we have a lot more control over what we deliver to our supporters.

“We control the agenda. It is not about propaganda, it is about ensuring that information is delivered to supporters in the form they want it.”

Pert understand the media and entertainment industries well. Apart from playing 233 games of AFL football for Collingwood and the defunct Fitzroy Football Club, Pert also held roles as the managing director of the Nine Network and the general manager of Austereo in Melbourne.

He realises that multi-media channels can help Collingwood reach its overseas supporters. The club claims to have members in 88 countries, mostly expatriate Australians.

“We have Collingwood supporters around the world and [our major sponsor] Emirates flies around the world,” Pert says.

“So if we can help build bridges there, then that is the sort of thing that will help build an international strategy that is much bigger than the one we have already got,” he says.

No matter how well a football club is managed, much still depends on a team’s ability to win games. Clear delineation between premiership dreams and business plans is crucial, says Robson from Essendon.

“You can’t bet the house on winning,” Robson says.

Pert says: “You won’t sleep well at night if you only meet costs by winning a certain amount of games. It is really important to have a solid business model where winning on the field is the icing and not the cake.”

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