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Strategic Digital Transformation in Soccer

The document discusses strategic digital transformation in soccer, emphasizing the sport's significant global impact and revenue generation potential. It highlights key areas for digital innovation and the importance of securing recurring revenue for clubs' success. The analysis includes various revenue streams and cost drivers influencing the soccer business landscape.

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Strategic Digital Transformation in Soccer Understanding industry’s business and history to shape its digital future Francisco Hernández-Marcos Cambridge (MA) March 24th, 2015 This document has been produced by 11 Goals & Associates. It is not complete unless supported by the underlying detailed analyses and oral presentation.
About me SHAMELESS SELF-PROMOTION Education: Universidad Politécnica de Madrid, UNED, London Business School, University of Chicago – Fundaciò “laCaixa” & Fundación Rafael del Pino scholarships. Firms worked for: Abengoa, McKinsey&Co, ABN AMRO, Real Madrid C.F. Entrepreneurship: Crisalia Social Media & Internet consulting: 11goals.com Lectures & Speaker in 4 continents: The Wall Street Journal, UP Madrid, London Business School, Cornell, Politecnico Milano, CEIBS (Shanghai), Kungliga Tekniska högskolan, The Business Factory, Fulbright Spain, ESCP Europe, UIMP, Harvard, Moscow SU, and several private companies. Full profile: linkedin.com/in/franciscohm
22 Views are our own. All information and insights contained in this presentation are either public or common knowledge Disclaimer
Agenda  Soccer as a business  Is the current model exhausted?  Key Qs for Digital Transformation
44 About Soccer Source: Wikipedia; FanPageList; UEFA; Reuters; IBT  First played in England in 1863, Soccer had had its roots in several ball games played in different parts of Europe for centuries.  World’s most popular sport: 250 mill. players in 200 countries.  FIFA has more member countries than the United Nations.  Some players are among the most respected celebrities in their countries, and Worldwide. ‐ Didier Drogba is credited with brokering a Cease-Fire in Ivory Coast that ended a 5-year civil war. ‐ Cristiano Ronaldo is the most followed person in Social Media (141 mill. in FB+TW).  Global TV audience (mill. people): ‐ European Champions League final: 380 ‐ “El Clásico” (Real Madrid-Barcelona): 200~400 ‐ Super Bowl: 160
55 Soccer lifts the spirit… Source: Soccernomics World Cup -> Less suicides not only in June, but for the whole year …and saves lives!
66 Revenue ranking by sport leagues Source: Wikipedia 6.600 5.867 3.667 3.200 2.971 2.000 1.900 1.700 1.300 980 919 896 551 National Football League Major League Baseball National Basketball Association Premier League National Hockey League Bundesliga La Liga Serie A Ligue 1 Nippon Professional Baseball Campeonato Brasileiro Série A Russian Premier League Süper Lig Revenue EUR mill. Combined, soccer is probably the highest revenue-generating professional sport in the World 206,3 195,6 122,2 160,0 99 111,1 95 85 65 81,7 45,9 56 30,6 Soccer leagues Revenue per team
77 Most valuable sport clubs Source: The World's 50 Most Valuable Sports Teams 2014 (Forbes) 3,44 3,20 2,81 2,50 2,30 2,00 1,85 1,80 1,70 1,55 1,50 1,45 1,40 1,38 1,35 1,33 1,31 1,25 1,23 1,22 1,20 1,20 Real Madrid FC Barcelona Manchester United New York Yankees Dallas Cowboys Los Angeles Dodgers Bayern Munich New England Patriots Washington Redskins New York Giants Boston Red Sox Houston Texans New York Knicks New York Jets Los Angeles Lakers Arsenal Philadelphia Eagles Chicago Bears Baltimore Ravens San Francisco 49ers Chicago Cubs Ferrari F1 Team value USD bill. 4,2% Soccer clubs 1-Year growth 23,1% -11,2% 8,7% 9,5% 23,8% 41,3% 10,1% 6,3% 5,6% 14,3% 27,3% 11,1% 7,5% 35,0% 0,3% 4,0% 5,0% 6,3% 3,8% 20,0% 4,3%
88 Soccer clubs revenue ranking Source: Deloitte Football Money League (2015); UEFA (2012) 550 518 488 485 474 414 388 359 306 279 262 250 216 214 170 165 164 162 155 144 Real Madrid Manchester United Bayern Munich FC Barcelona Paris Saint-Germain Manchester City Chelsea Arsenal Liverpool Juventus Borussia Dortmund AC Milan Tottenham Hotspur Schalke 04 Atlético de Madrid Napoli Internazionale Galatasaray Newcastle United Everton Revenue (13/14) EUR mill. First 56% Second 21% Third 8% Other 15% Revenue matters. Securing a significant amount of recurring revenue is very likely the most important factor for succeeding in the pitch Finishing position of highest- spending club in players wages (UEFA domestic leagues)
99 Some research shows that league position is strongly correlated (R2=89%) with wage expenditure Source: Soccernomics BACK-UP …but same research tells us that correlation with transfer spending is low (R2=16%) Are wealthier clubs profiting from the non-existence of superior options for over- performing players?
1010 Sources of revenues Top 20 teams in 2013/14 season Source: Deloitte Football Money League; own analysis Commercial is king: larger and growing faster Matchday 19,8% Broadcast 39,1% Commercial 41,1% 5yr-CAGR: 7,9% 5yr-CAGR: 14,7% 5yr-CAGR: 3,6%
1111 Revenue breakdown and key drivers Source: Various Revenue Matchday Broadcast Commercial Domestic International (ChampionsLeague, Europa League) Drivers • Stadium ownership • Stadium size • Income per capita • VIP facilities • Dynamic pricing (when possible) Actionableby the club Drivers •Lobbying & bargaining to the league •Team performance •League salesforce skills Drivers •Team performance •League salesforce skills Drivers • Historical Team Performance • Brand positioning • Fan base • Big Ticket contracts bargaining • Long-tail contracts salesforce • Loyalty card • Summer tours
1212 Matchday revenue drivers BACK-UP 15% 25% 40% Standard VIP (2015) Top VIP (2015) New generation 99.786 85.000 84.412 81.044 80.667 80.093 80.018 80.000 78.838 78.360 76.092 75.731 75.000 60.338 60.234 54.907 47.805 45.276 41.798 Camp Nou (FC Barcelona) Stade 5 Juillet 1962 (MC Alger) Azadi Stadium (EsteghlalFC, PersepolisFC) Santiago Bernabéu (Real Madrid) Signal Iduna Park (Borussia Dortmund) Monumental"U" (Universitariode… San Siro (AC Milan, Internazionale) Stade des Martyrs (Vita Club) Maracaná (CR Flamengo, Fluminense FC,… LuzhnikiStadium Atatürk (İstanbulBüyükşehir Belediyespor) Old Trafford (ManchesterUnited) AllianzArena (Bayern Munich, TSV 1860… … EmiratesStadium (Arsenal) Stadio San Paolo (Napoli) VicenteCalderón (Atléticode Madrid) City of Manchester (ManchesterCity) Anfield(Liverpool) Stamford Bridge (Chelsea) Capacity Seats Source: Wikipedia; Deloitte Football Money League; own analysis AnnualMatchday revenue per seat EUR/seat/yr (13/14) 1.171€ 1.404€ 695€ 311€ 1.707€ 1.173€ 1.985€ 347€ 592€ 1.188€ 1.347€ 2.031€ 235€ VIP Matchday revenue % of total Matchday revenues No Ownership Affluent fans VIP capacity
1313 Broadcast revenue distribution BACK-UP La Liga Source: Roberto Bayón; UEFA; other Premier League Champions League 140 140 48 42 32 32 32 30 28 25 25 25 22 22 22 18 18 18 18 18 Real Madrid FC Barcelona Valencia Atlético de… Sevilla FC Athletic Bilbao Villarreal Real Betis RCD Español Real Sociedad Málaga Getafe CA Osasuna RC Celta de… Levante Granada CF Elche CF Real… Rayo… UD Almería •Negotiated deal. Static over the contract’s term •Unequal distribution (Gini: 0,365) •Short term win, long term loss? •Dynamic. Moderately depends on team’s performance •Equal distribution (Gini: 0,083) •Ensures regular income to small teams •Dynamic and aggressively dependant on team’s performance •Unequal distribution (Gini: 0,274) •Performance bonus. Invest it wisely EUR Mill.; 2013/14 season 117 116 113 111 108 107 102 93 92 91 89 88 88 87 86 80 79 77 76 74 Liverpool ManCity Chelsea Arsenal Tottenham ManUnited Everton Newcastle Southampton Stoke Swansea West Ham Crystal Palace Aston Villa Sunderland Hull West… Norwich Fulham Cardiff Total: 755 Total: 1.875 Total: 905 57 54 50 45 45 43 43 42 39 38 35 35 32 27 27 26 24 22 21 21 19 18 17 15 15 15 14 14 13 13 12 11 Real Madrid PSG Atlético Madrid ManUnited Bayern Munich Chelsea Juventus FC Barcelona Napoli AC Milan ManCity Borussia O. Marseille Olimpiakos Arsenal B. Leverkusen Shalke04 Kovenhaun Ajax Galatasaray FC Zenit Celtic Real Sociedad Benfica CSKA Moskva Steaua Porto S. Donetsk Basel Wien Anderlecht Viktoria Plzen 7,8x 1,6x 5,2x
1414 Soccer big-ticket sponsorships Shirt Source: Forbes; The Economist; other Note: Stadium ranking is not exhaustive BACK-UP 80 45 40 39 31 Manchester United (Chevrolet) FC Barcelona (Qatar Airways) Bayern Munich (Deutsche Telekom) Real Madrid (Fly Emirates) Liverpool (Standard Chartered) Kit 41 39 38 38 37 88 Real Madrid (Adidas) Liverpool (Warrior) FC Barcelona (Nike) Bayern Munich (Adidas) Manchester United (Nike) Signed Adidas for USD 88 mill. for 13 seasons beginning 15/16 •Manchester United -and other English teams- are pushing hard by signing very profitable big-ticket contracts. The reason behind why they sell at higher price might be that the English Premier League has more TV eyeballs. •We may infer that RM, FCB and BM must be very good at the rest of the Comercial revenue drivers: long-tail contracts, loyalty cards, summer tournaments, etc. or that part of the revenues of the players are invoiced through the club. •Stadium’s naming rights deals are a great potential source of new revenues in the future. However clubs are reluctant to hear offers that are not large and long enough (Real Option framework). Yokohama just signed with Chelsea for USD 61 mill. beginning 15/16 Stadium 8,8 5,5 Emirates (Arsenal) Etihad (ManCity) EPIC (Real Madrid) Allianz (Bayern Munich) Veltins (Shalke 04) USD mill./year Real Madrid signed pre- deal with IPIC (terms not disclosed) Joint deal with Shirt ? ? ?
1515 Stadium Naming Rights in the USA as of 2013 Source: New York Times BACK-UP •75% of US clubs have sold stadium naming rights. •Business much more developed than in Europe. Perhaps because sponsors have developed a better ROI framework. •Best deals in recent years. •European Soccer teams can and should be able to reach similar deals for their global audience. Interactive chart (NYT)
1616 Top Soccer clubs revenue breakdown 2013/14; EUR mill. 0 € 100 € 200 € 300 € 400 € 500 € 600 € Commercial Broadcast Matchday Source: Deloitte Football Money League, 11 Goals & Associates Arsenal stadium (Emirates) is considered as the most VIP facility, with high Matchday revenue ~50% of home broadcast revenues in Spain go to Real Madrid and FC Barcelona Being UEFA CL finalist made Atlético to increase Broadcast revenue by 86% in 1 year PL’s large broadcast contract, and its flat distribution, secure smaller teams with enough income RM’s and ManU’s international focus and strong salesforce pays-off Milan teams do not own the stadium PSG huge commercial inflow since Qatar Investments Office took over Income per capita drives Matchday revenue. Chelsea Vs Napoli Bayern Munich big-ticket sponsors are strong, and shareholders of the club…
1717 Cost drivers Source: own analysis based on Annual Statements (2013/14); UEFA (2012) ILLUSTRATIVE EXAMPLES Ratios to revenue 44% 48% 74% 69% 69% 69% 61% 51% 65% 17% 12% Real Madrid FC Barcelona Average Turkey Average Italy Average England Average Russia Average Spain Average Germany Average UEFA Other Amortization Wages •Team wages account for the most part of an average club costs •There are significant differences in cost management among clubs (e.g. wage steps) •57% of UEFA member clubs are loss-making •Cost is the main driver of a Club’s profitability. Most Clubs are loss-making because they are not enough diligent on the cost base •UEFA is concern about these issues and is implementing “Financial Fair Game” policies 0%-8%-11% 2% -8% Net profit to revenue ratio EBITDA: 164 M.€ EBITDA: 134 M.€ -9%-22%
1818 Source: Transfer Markt; own analysis Note: Some transfers data are estimations Player transfers of selected clubs -200 -100 0 100 200 300 Profile 1: Super-Investors Ronaldo; Kaká; Alonso; Benzema Departures income (GBP mill.) Arrivals expenditure (GBP mill.) Net income (GBP mill.) Real Madrid CF 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14Season 473 998 -525 -200 -100 0 100 200 300 FC Barcelona 281 640 -359 Total 05/06 to 13/14 Ramos; Robinho Diarra; Gago Robben; Pepe; Sneijder Huntelar DiMAría; Özil; Khedira Coentrão Modric Bale; Isco James; Kroos Suárez 14/15 Henry; Milito Alves Ronaldinho Ibrahimovic Villa; Masch. Fábregas; Sánchez Neymar
1919 Source: Transfer Markt; own analysis Note: Some transfers data are estimations -50 0 50 100 150 Profile 2: Net investors profiting from opportunistic sales Departures income (GBP mill.) Arrivals expenditure (GBP mill.) Net income (GBP mill.) Atlético Madrid Season 336 426 -90 -50 0 50 100 150 Valencia CF 280 291 -11 Total 05/06 to 13/1405/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Agüero Forlán; Simão Torres Falcao Costa Villa Joaquín Albiol Mata Soldado Mathieu Player transfers of selected clubs
2020 Source: Transfer Markt; own analysis Note: Some transfers data are estimations -20 -10 0 10 20 30 40 Profile 3: Capital generators (concentrated in few players) Departures income (GBP mill.) Arrivals expenditure (GBP mill.) Net income (GBP mill.) Real Sociedad Season 77 46 31 -20 -10 0 10 20 30 40 Athletic Bilbao 84 49 35 Total 05/06 to 13/1405/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Griezmann; Bravo Illarramendi Del Horno Aduritz Martínez Herrera Player transfers of selected clubs
2121 Soccer business models • Large, well-established teams with a long track record on the pitch and a large fanbase all over the world. • Revenues, large and stable, finance the team. • Key to profitability is being able to restrain the payroll cost of the players. • Usually have successful junior academies, but it is difficult for a player to walk all the steps onto the first team. Description • Real Madrid • Manchester United • Bayern Munich • FC Barcelona • Manchester City • Paris Saint-Germain • Chelsea Examples • Mid-sized teams with strong junior academies or a key long-term investor, working to build a Commercial stream and an international brand. • Transfer fees come not only from the junior academy, but from trading players who become stars in 2-3 years. • From time to time succeed in Europe and get significant revenues. Money buys time to build-up Commercial. • Revenues are volatile and cash must be watched. • Atlético de Madrid • Shalke 04 • Valencia CF • Fiorentina • Ajax • Monaco • Small local teams with little chances to build-up a Comercial revenue stream. • Best source of revenue are transfer fees from players coming from their junior school. • Teams that do not succeed in developing talent are usually money-losing clubs. • Real Sociedad • Villareal CF • Elche CF • Stade Rennais • Atalanta B.C. • FC Sochaux-Montbéliard • Many Latam clubs Factory of players “Lucky striker” (prizes, trades, or key investor) Commercial funds team (wages & capex) • Very small and small clubs that live almost exclusively on tickets. Adapt budget to revenues (Cash In=Cash Out). • Usually no formal business plan Survival mode Top ~1% Next ~5% Next ~20% Source: 11 Goals & Associates; UEFA (2012) Most clubs
Organizational development of soccer clubs 22 Sport Stadium Commercial • Late 19th and early 20th • Late 1940s • 1990s Years • English teams • Real Madrid • Manchester United Pioneer(s) • Spain’s La Liga1 • Arsenal • Real Madrid Current leader(s) •Every time a soccer club adds a new organizational structure there is some degree of conflict, specially with the previously dominant one. •Leadership (new organization) usually comes from the club’s chairperson (examples: Santiago Bernabéu with Real Madrid stadium, Florentino Pérez with commercial department at Real Madrid, etc.). •Broadcast is irrelevant in terms of organization. It’s a contract with few people managing it. 1 IFFHS
Typical organizational chart of a large Soccer Club 23 Chairperson (some executive role) CEO BU Sport BU Operations (Stadium) BU Commercial (incl. Broadcasting) Board of directors (some executive role) ILLUSTRATIVE Staff departments (Comm, Legal, HR, IT, PR, Finance, etc.) In real life, line departments work so independently that they rather be considered Business Units (BU), specially in larger clubs. ‐ Transversal communication is small ‐ Some activities are replicated across BUs (e.g. Marketing) ‐ Difficult to implement horizontal projects. ‐ Metrics and KPIs pretty much based on the BU space • Some clubs formally assign the chairperson, or even the board members, some executive role (e.g. FC Barcelona) • Anyhow, with rare exceptions, the Chairperson/Board always plays some executive role, like hiring/firing coaches BU output BU P&L?
Agenda  Soccer as a business  Is the current model exhausted?  Key Qs for Digital Transformation
Is the soccer industry about to be disrupted? 25 Today Source: https://www.techdirt.com/articles/20120916/14454920395/newspaper-ad-revenue-fell-off-quite-cliff-now-par-with-1950-revenue.shtml Soft change? Hard change like newspapers?
2626 Is the current model mature enough? Exhausted? YoY growth rate by revenue source; World’s top soccer 20 teams of each year -5% 0% 5% 10% 15% 20% 25% 30% 35% 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Matchday Broadcast Commercial Total •Revenues growth rates are not only not maturing, but accelerating •Growth is specially driven by Commercial •Matchday is maturing •The marginally decreasing rates until 08/09 are explained by the crisis 23,8% 14,2% 11,6% 3,6% Source: Deloitte Football Money League; own analysis
2727 YoY growth rate by revenue source; World’s top 4 teams (RM, MU, BM and FCB) -5% 0% 5% 10% 15% 20% 25% 30% 35% 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Matchday Broadcast Commercial Total •Taking only the 4 most “advanced” teams we see no pattern of exhaustion •Total revenues grow strong again after the crisis, driven specially by Commercial •Matchday is maturing -0,7% 9,0% 9,9% 16,4% Source: Deloitte Football Money League; own analysis Is the current model mature enough? Exhausted?
2828 EUR -> GBP exchange rate Source: Google Finance GPB depreciated significantly against EUR in 2007-9 BACK-UP •Currency distortion around 2008 for British teams, especially in regard to local income such as Matchday or domestic Broadcast rights
2929 Soccer in McKinsey’s Digital Transformation curve Source: McKinsey&Co (framework); 11 Goals & Associates •Soccer’s industry is at a point where digital innovations could be done, but not close to the tipping point, thanks to commercial strength and growth •However a club could trigger and accelerate an industry digital transformation, specially if new revenues are generated (impact on sport performance) •Digital newcomers are unlike to appear due to the sports’ nature and historical leverage, but some incumbents are very committed to their digital operations (e.g. ManCity) CONCEPTUAL
3030 Wrapping-up ¶Although Commercial revenue seems to have a bright future ahead, and the industry is resilient to non-digitalization, a digital first-mover could enjoy extra revenues to continue investing on the team and ensuring its success. ¶A successful first-mover could trigger and accelerate the digital transformation of the industry. ¶Is it possible to significantly create value from digital without a strong Comercial Business Model? What’s the difference between using digital for “business as usual” and creating a digitally-based business model?
Agenda  Soccer as a Business  Is the current model exhausted?  Key Qs for Digital Transformation
3232 #1 What kind of Digital Transformation? • Same Business Model, different processes • Incremental innovation • Seeking efficiency, but not always • Low risk, medium return • Suboptimal strategy, but creates value • Ex.: Most large commercial banks such as BBVA or Grupo Santander Performance DT Strategic DT Soccer clubs have much more to win from Strategic DT , but only if conditions for a good execution are set, specially Chairperson/Board leadership and commitment • New Business Model • Disruptive innovation, but it does not have to affect the core business if execution plan is well shaped • Seeking revenue growth • High risk, high return • Optimal strategy, but not easy to execute • Ex.: Netflix, Coursera (~Stanford), edX (MIT, Harvard)
3333 Strategic DT on the innovation curve(s) PerformanceDT #1BACK-UP StrategicDT • Strategic DT requires to invest time and cash in developing a Business model before it becomes a better alternative. • The Chairman and the CDO (Chief Digital Officer) should negotiate and agree what investment and time seems reasonable before beginning to see business returns. • E.g.: It took Dick Fosbury 5 years to refine his high jump style until it showed better results that the incumbent style. Same BM BM 1 BM 2
3434 #2 What kind of Digital Business Model? Factory of players “Lucky striker” (prizes, trades, or key investor) Commercial funds team (wages & capex) Survival mode Digitally-enabled Business Model? D+Factory of players D+“Lucky striker” (prizes, trades, or key investor) D+Commercial funds team (wages & capex) D+Survival mode The question being, how the new BM would look like? Strategic DT Performance DT
3535 Pioneering a new business model • Several top teams working on digital Business Models. • Creating a fan-centric community to increase fan engagement, ticket and commercial expenditure, and TV audience, seems to be the most interesting model. • Digital enables fan-disintermediation, opening a wide range of business opportunities directly captured and managed by the clubs. • Runs away from newcomers to “Commercial funds team” BM, and leverages on existing fanbase. #2 Factory of players “Lucky striker” (prizes, trades, or key investor) Commercial funds team’s (wages & capex) Survival mode Digitally-enabled Business Model?
3636 #3 Mission of Digital in a Soccer Club Mission To create a technologically-enabled fan-community with superior customer experience in order to close any distance (physical, informational, cultural, emotional, commercial, etc.) between the Club and the fan, whoever he/she is. Open new sources of revenues. Improve current revenues directly (e.g: eCommerce) or indirectly (e.g: increase demand). ILLUSTRATIVE EXAMPLE Awareness Familiarity Consideration Purchase Loyalty Active Evaluation Post-PurchaseExperience Initial Consideration Purchase Trigg er Brand touchpoints Brand touchpoints Purchasing funnel Customer journey (McKinsey)
3737 Strategic shift #3 Content and Brand provider Leading relationship with fans (customers) E.g.: Nespresso, Apple, Ferrari USA, Tesla Motors, Zara
“Marketing is dead” Harvard Business Review – 9 Aug 2012 Source: http://blogs.hbr.org/cs/2012/08/marketing_is_dead.html Traditional marketing — including advertising, public relations, branding and corporate communications — is dead. Many people in traditional marketing roles and organizations may not realize they're operating within a dead paradigm. But they are. The evidence is clear. Buyers are checking out product and service information in their own way, often through the Internet, and often from sources outside the firm such as word-of- mouth or customer reviews. Actually, we already know in great detail what the new model of marketing will look like. It's already in place in a number of organizations. Here are its critical pieces:  Restore community marketing  Find your customer influencers  Help them build social capital  Get your customer advocates involved in the solution you provide. Most read article in Aug 2012 From Brand to Fan BACK-UP #3
Soccer is social 0FFLINE (CIRCULATION) Marca: 177.866 /day Diario As: 155.443/day Real Madrid: ~0 WEB 1.0 (DAILY REACH %) WEB 2.0 (FANS/FOLLOWERS) Facebook/Twitter (mill.) Marca: 0,98/1,49 Diario As: 0,34/0,67 Real Madrid: 82,8/15,0 MD: 67.704 /day Sport: 61.981/day FC Barcelona: ~0 Facebook/Twitter (mill.) MD: 0,28/0,64 Sport: 0,29/0,89 FC Barcelona: 83,4/14,3 Web 2.0 allow football clubs –better than ever before- to be in touch directly with their fanbase 39 Sources: OJD (2014), Alexa.com, Facebook Inc. (5-3-15), Twitter Inc. (5-3-15) BACK-UP #3
4040 Soccer should be mobile too, real mobile Source: The Economist; Ofcom BACK-UP #3
4141 Frameworks to design a great community strategy Football fans Team Supporters General public “Pools” “Web” “Hub” Web 2.0 and Community Marketing (SlideShare) Fan segmentation Type of Affiliation Gamification #3 Role in Ecosystem Copy Ignore Minimum presence Combat Complement
CommercialSport 42 Stadium Digital • N/AType of Marketing • Experiential MKT • Brand Management • Relational MKT • TeamCore Asset • Stadium • Brand • Tech • Industry’s, very strongCulture • Club’s, strong • Sales-oriented • Tech savvy • QualitativeSkills • Mixed • Qualitative • Negotiation • Deal-making • Quantitative • Team-working • Product-building • #Championships • Tournaments’ classification KPIs • Ticket sales • License sales • # fans? • Fan engagement? • Digital revenue? • Team • Flat Organizational pattern • Functional • Hierarchical • Product/Geography • Hierarchical • Project-based • Flat • Short-TermTime horizon • Short/Long-Term • Short-Term • Medium-Term #4 Where to set Digital in the organizational chart? • Live & TV fansClient • Local fans • Client brands • Global fans Often, Digital Transformation is all about Digitanization, or how to shape the organization to tackle the digital challenge. The different nature of the Digital business leads to think of the creation of a Digital BU. Output
4343 Organizational implementation of DT #4 Chairperson CEO BU Sport BU Operations BU Commercial Board Staff dep. Digital Short-Term •First, a small Digital unit is created to begin understanding the club dynamics, creating links to other departments, and proposing a Digital Strategy. •Unit depends on the Chairperson, to protect it from “business as usual”, specially when CEO comes from a strong BU. •Priorities: Strategy and Organizational changes •Once the club buys the Digital Strategy, the units grows until create a BU and have a seat in the steering committee. •Still depending from the Chairperson who provides motivation and leadership, and who helps coordinating with other BUs while readapting internally the BM. •Priorities: Executing strategy, implementing changes. •When new BM is implemented, BU processes are well established, and an attribution model is in place (see forthcoming chart), the BU changes dependency, to depend from the CEO. •Under the new model, CEO sets goals and demands performance to the unit. •Priorities: Revenues, direct or indirect according to what the attribution model measures. Chairperson CEO Medium-Term Chairperson CEO BU Commercial Long-Term BU Digital … … A) Strategic DT; large club ILLUSTRATIVE EXAMPLE BU Commercial BU Digital
4444 •Alternatively we might create a Digital Projects Office and focus on each BU’s performance. •Advantages: ‐ Less “turf battles” with BUs over what is digital or not. ‐ BUs do not have to worry about building up digital competences. ‐ Digital gets some “quick wins” that allow it to consolidate within the organization and win the respect of BUs. ‐ Chairperson does not have to play an active role. •Disadvantages: ‐ The Digital Projects Office is not a true leadership office. Projects optimize each BU goals, but not the global organization. ‐ Continuity between the Digital Projects Office and the BU Digital is hard due to the different nature of the structures and its people. It’s harder to change we something is grown-up. Chairperson CEO BU Commercial Short-Term Digital Projects Office #4 B) Performance DT; large/mid-sized club Organizational implementation of DT ILLUSTRATIVE EXAMPLE Chairperson CEO BU Sport BU Operations BU Commercial Board Staff dep. Long-Term (if shifts to Strategic DT) BU Digital BU Sport BU Operations Board Staff dep.
4545 Chairperson CEO BU Sport BU Commercial + Operations+ Digital Board Staff dep. Short-Term •For small and medium-sized clubs where stadium and commercial is managed within the same department, there is the opportunity to integrate all those activities with digital into a team with goals aligned and high aspirations. •Small teams do not need to “overcomplicate” the fit of Digital into the organization. •The fitness of this model depends not so much in the size of the club, but on the dynamics of the organization, although there is some correlation. Chairperson CEO BU Sport BU Operations BU Commercial Board Staff dep. Long-Term (if significant organizational growth) BU Digital #4 C) Strategic + Performance DT; mid-sized/small club Organizational implementation of DT ILLUSTRATIVE EXAMPLE “It’s good to be young”
4646 #5 Measuring value creation dependencies between BUs BU Sport Cost center Championships BU Stadium Profit/Inv. center BU Commercial Revenue/Profit center BU Digital Cost center? Revenue center? Fan base and engagement Revenue Attribution model Titles -> Revenue Attribution model Fans -> Revenue Without an attribution model someone could even argue BU sport is not a revenue generating activity… When externalities among BUs exist, attribution models (Bayesian, Big Data, etc.) should serve to understand interrelations and to assign transfer costs and revenues among BUs (BU’s P&L; cost accounting). Attribution model Titles ->Fans Attributionmodel TV ->Commercial
4747 #6 What’s the right digital culture? ILLUSTRATIVE ¶ The actual culture to implement depends on the strategic goals and specially on the organizational chart we are implementing. ¶ In general each Club BU has its own culture. At least, BU Sport’s is different from Stadium's or Commercial’s. Culture is “fragmented”. ¶ So we would suggest to engine a specific culture for BU Digital, based on the following premises: ‐Flat, decentralized power. ‐Expert authority (instead of managerial authority) ‐Promote some “cultural tension” (not conflict) with the rest of the organization. ‐Openness, informality, individual initiative, express real feelings in a safe environment, tolerance to failure, etc. ‐Passion for testing and analytical research. ‐Constant search of fresh air: interaction with universities, rotation of professionals, workshops, out-of-office training, etc. ¶ But please, do not think this a high-tech start-up.
#7 What to offer Free, Cheap, or Premium FREEMIUM = FREE + PREMIUM “Attract audience with free versions of the product, introduce them to paying with affordable versions of the product, and monetize them with premium versions of the product” FREE CHEAP (Affordable) PREMIUM ILUSTRATIVE Online business models are usually Freemium. It’s an issue to manage in an industry used to charge for everything.
Agenda  Soccer as a business  Is the current model exhausted?  Key Qs for Digital Transformation
•Strategic consulting services in technology and digital marketing for top executives •We advise companies on digital transformation Francisco Hernández •MBA London Business School. •IEP University of Chicago. •11 years of digital experience. •Ex Director Online Strategy Real Madrid C.F. •Other companies: ABN Amro, Abengoa, McKinsey&Company. •Professor at ESCP Europe. •Lecturer in Europe, Latam and Asia •PWC: 10 e-Business talents in Spain. Sonia Fernández •MBA Stanford. •15 years of digital experience. •Ex CEO Vindico Europe. •Ex CEO Match.com Spain. •Ex CEO MercadoLibre Spain. •Other companies: Fon, Grupo Prisa, 3i, Lehman Brothers. •Professor at OBS-UB, EOI and MIB •Lecturer at universities and in- company training •Author of two books on networking and social networks published in 2004 and 2001 franciscohm francisco.hernandez@11goals.com | (+34) 605 58 66 55 soniafernandez sonia.fernandez@11goals.com | (+34) 619 721 781
Thanks very much for your attention and interaction Francisco Hernández francisco_hernandez@11goals.com (+34) 605 58 66 55

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Strategic Digital Transformation in Soccer

  • 1.
    Strategic Digital Transformation inSoccer Understanding industry’s business and history to shape its digital future Francisco Hernández-Marcos Cambridge (MA) March 24th, 2015 This document has been produced by 11 Goals & Associates. It is not complete unless supported by the underlying detailed analyses and oral presentation.
  • 2.
    About me SHAMELESS SELF-PROMOTION Education:Universidad Politécnica de Madrid, UNED, London Business School, University of Chicago – Fundaciò “laCaixa” & Fundación Rafael del Pino scholarships. Firms worked for: Abengoa, McKinsey&Co, ABN AMRO, Real Madrid C.F. Entrepreneurship: Crisalia Social Media & Internet consulting: 11goals.com Lectures & Speaker in 4 continents: The Wall Street Journal, UP Madrid, London Business School, Cornell, Politecnico Milano, CEIBS (Shanghai), Kungliga Tekniska högskolan, The Business Factory, Fulbright Spain, ESCP Europe, UIMP, Harvard, Moscow SU, and several private companies. Full profile: linkedin.com/in/franciscohm
  • 3.
    22 Views are ourown. All information and insights contained in this presentation are either public or common knowledge Disclaimer
  • 4.
    Agenda  Soccer asa business  Is the current model exhausted?  Key Qs for Digital Transformation
  • 5.
    44 About Soccer Source: Wikipedia;FanPageList; UEFA; Reuters; IBT  First played in England in 1863, Soccer had had its roots in several ball games played in different parts of Europe for centuries.  World’s most popular sport: 250 mill. players in 200 countries.  FIFA has more member countries than the United Nations.  Some players are among the most respected celebrities in their countries, and Worldwide. ‐ Didier Drogba is credited with brokering a Cease-Fire in Ivory Coast that ended a 5-year civil war. ‐ Cristiano Ronaldo is the most followed person in Social Media (141 mill. in FB+TW).  Global TV audience (mill. people): ‐ European Champions League final: 380 ‐ “El Clásico” (Real Madrid-Barcelona): 200~400 ‐ Super Bowl: 160
  • 6.
    55 Soccer lifts thespirit… Source: Soccernomics World Cup -> Less suicides not only in June, but for the whole year …and saves lives!
  • 7.
    66 Revenue ranking bysport leagues Source: Wikipedia 6.600 5.867 3.667 3.200 2.971 2.000 1.900 1.700 1.300 980 919 896 551 National Football League Major League Baseball National Basketball Association Premier League National Hockey League Bundesliga La Liga Serie A Ligue 1 Nippon Professional Baseball Campeonato Brasileiro Série A Russian Premier League Süper Lig Revenue EUR mill. Combined, soccer is probably the highest revenue-generating professional sport in the World 206,3 195,6 122,2 160,0 99 111,1 95 85 65 81,7 45,9 56 30,6 Soccer leagues Revenue per team
  • 8.
    77 Most valuable sportclubs Source: The World's 50 Most Valuable Sports Teams 2014 (Forbes) 3,44 3,20 2,81 2,50 2,30 2,00 1,85 1,80 1,70 1,55 1,50 1,45 1,40 1,38 1,35 1,33 1,31 1,25 1,23 1,22 1,20 1,20 Real Madrid FC Barcelona Manchester United New York Yankees Dallas Cowboys Los Angeles Dodgers Bayern Munich New England Patriots Washington Redskins New York Giants Boston Red Sox Houston Texans New York Knicks New York Jets Los Angeles Lakers Arsenal Philadelphia Eagles Chicago Bears Baltimore Ravens San Francisco 49ers Chicago Cubs Ferrari F1 Team value USD bill. 4,2% Soccer clubs 1-Year growth 23,1% -11,2% 8,7% 9,5% 23,8% 41,3% 10,1% 6,3% 5,6% 14,3% 27,3% 11,1% 7,5% 35,0% 0,3% 4,0% 5,0% 6,3% 3,8% 20,0% 4,3%
  • 9.
    88 Soccer clubs revenueranking Source: Deloitte Football Money League (2015); UEFA (2012) 550 518 488 485 474 414 388 359 306 279 262 250 216 214 170 165 164 162 155 144 Real Madrid Manchester United Bayern Munich FC Barcelona Paris Saint-Germain Manchester City Chelsea Arsenal Liverpool Juventus Borussia Dortmund AC Milan Tottenham Hotspur Schalke 04 Atlético de Madrid Napoli Internazionale Galatasaray Newcastle United Everton Revenue (13/14) EUR mill. First 56% Second 21% Third 8% Other 15% Revenue matters. Securing a significant amount of recurring revenue is very likely the most important factor for succeeding in the pitch Finishing position of highest- spending club in players wages (UEFA domestic leagues)
  • 10.
    99 Some research showsthat league position is strongly correlated (R2=89%) with wage expenditure Source: Soccernomics BACK-UP …but same research tells us that correlation with transfer spending is low (R2=16%) Are wealthier clubs profiting from the non-existence of superior options for over- performing players?
  • 11.
    1010 Sources of revenues Top20 teams in 2013/14 season Source: Deloitte Football Money League; own analysis Commercial is king: larger and growing faster Matchday 19,8% Broadcast 39,1% Commercial 41,1% 5yr-CAGR: 7,9% 5yr-CAGR: 14,7% 5yr-CAGR: 3,6%
  • 12.
    1111 Revenue breakdown andkey drivers Source: Various Revenue Matchday Broadcast Commercial Domestic International (ChampionsLeague, Europa League) Drivers • Stadium ownership • Stadium size • Income per capita • VIP facilities • Dynamic pricing (when possible) Actionableby the club Drivers •Lobbying & bargaining to the league •Team performance •League salesforce skills Drivers •Team performance •League salesforce skills Drivers • Historical Team Performance • Brand positioning • Fan base • Big Ticket contracts bargaining • Long-tail contracts salesforce • Loyalty card • Summer tours
  • 13.
    1212 Matchday revenue drivers BACK-UP 15% 25% 40% Standard VIP(2015) Top VIP (2015) New generation 99.786 85.000 84.412 81.044 80.667 80.093 80.018 80.000 78.838 78.360 76.092 75.731 75.000 60.338 60.234 54.907 47.805 45.276 41.798 Camp Nou (FC Barcelona) Stade 5 Juillet 1962 (MC Alger) Azadi Stadium (EsteghlalFC, PersepolisFC) Santiago Bernabéu (Real Madrid) Signal Iduna Park (Borussia Dortmund) Monumental"U" (Universitariode… San Siro (AC Milan, Internazionale) Stade des Martyrs (Vita Club) Maracaná (CR Flamengo, Fluminense FC,… LuzhnikiStadium Atatürk (İstanbulBüyükşehir Belediyespor) Old Trafford (ManchesterUnited) AllianzArena (Bayern Munich, TSV 1860… … EmiratesStadium (Arsenal) Stadio San Paolo (Napoli) VicenteCalderón (Atléticode Madrid) City of Manchester (ManchesterCity) Anfield(Liverpool) Stamford Bridge (Chelsea) Capacity Seats Source: Wikipedia; Deloitte Football Money League; own analysis AnnualMatchday revenue per seat EUR/seat/yr (13/14) 1.171€ 1.404€ 695€ 311€ 1.707€ 1.173€ 1.985€ 347€ 592€ 1.188€ 1.347€ 2.031€ 235€ VIP Matchday revenue % of total Matchday revenues No Ownership Affluent fans VIP capacity
  • 14.
    1313 Broadcast revenue distribution BACK-UP LaLiga Source: Roberto Bayón; UEFA; other Premier League Champions League 140 140 48 42 32 32 32 30 28 25 25 25 22 22 22 18 18 18 18 18 Real Madrid FC Barcelona Valencia Atlético de… Sevilla FC Athletic Bilbao Villarreal Real Betis RCD Español Real Sociedad Málaga Getafe CA Osasuna RC Celta de… Levante Granada CF Elche CF Real… Rayo… UD Almería •Negotiated deal. Static over the contract’s term •Unequal distribution (Gini: 0,365) •Short term win, long term loss? •Dynamic. Moderately depends on team’s performance •Equal distribution (Gini: 0,083) •Ensures regular income to small teams •Dynamic and aggressively dependant on team’s performance •Unequal distribution (Gini: 0,274) •Performance bonus. Invest it wisely EUR Mill.; 2013/14 season 117 116 113 111 108 107 102 93 92 91 89 88 88 87 86 80 79 77 76 74 Liverpool ManCity Chelsea Arsenal Tottenham ManUnited Everton Newcastle Southampton Stoke Swansea West Ham Crystal Palace Aston Villa Sunderland Hull West… Norwich Fulham Cardiff Total: 755 Total: 1.875 Total: 905 57 54 50 45 45 43 43 42 39 38 35 35 32 27 27 26 24 22 21 21 19 18 17 15 15 15 14 14 13 13 12 11 Real Madrid PSG Atlético Madrid ManUnited Bayern Munich Chelsea Juventus FC Barcelona Napoli AC Milan ManCity Borussia O. Marseille Olimpiakos Arsenal B. Leverkusen Shalke04 Kovenhaun Ajax Galatasaray FC Zenit Celtic Real Sociedad Benfica CSKA Moskva Steaua Porto S. Donetsk Basel Wien Anderlecht Viktoria Plzen 7,8x 1,6x 5,2x
  • 15.
    1414 Soccer big-ticket sponsorships Shirt Source:Forbes; The Economist; other Note: Stadium ranking is not exhaustive BACK-UP 80 45 40 39 31 Manchester United (Chevrolet) FC Barcelona (Qatar Airways) Bayern Munich (Deutsche Telekom) Real Madrid (Fly Emirates) Liverpool (Standard Chartered) Kit 41 39 38 38 37 88 Real Madrid (Adidas) Liverpool (Warrior) FC Barcelona (Nike) Bayern Munich (Adidas) Manchester United (Nike) Signed Adidas for USD 88 mill. for 13 seasons beginning 15/16 •Manchester United -and other English teams- are pushing hard by signing very profitable big-ticket contracts. The reason behind why they sell at higher price might be that the English Premier League has more TV eyeballs. •We may infer that RM, FCB and BM must be very good at the rest of the Comercial revenue drivers: long-tail contracts, loyalty cards, summer tournaments, etc. or that part of the revenues of the players are invoiced through the club. •Stadium’s naming rights deals are a great potential source of new revenues in the future. However clubs are reluctant to hear offers that are not large and long enough (Real Option framework). Yokohama just signed with Chelsea for USD 61 mill. beginning 15/16 Stadium 8,8 5,5 Emirates (Arsenal) Etihad (ManCity) EPIC (Real Madrid) Allianz (Bayern Munich) Veltins (Shalke 04) USD mill./year Real Madrid signed pre- deal with IPIC (terms not disclosed) Joint deal with Shirt ? ? ?
  • 16.
    1515 Stadium Naming Rightsin the USA as of 2013 Source: New York Times BACK-UP •75% of US clubs have sold stadium naming rights. •Business much more developed than in Europe. Perhaps because sponsors have developed a better ROI framework. •Best deals in recent years. •European Soccer teams can and should be able to reach similar deals for their global audience. Interactive chart (NYT)
  • 17.
    1616 Top Soccer clubsrevenue breakdown 2013/14; EUR mill. 0 € 100 € 200 € 300 € 400 € 500 € 600 € Commercial Broadcast Matchday Source: Deloitte Football Money League, 11 Goals & Associates Arsenal stadium (Emirates) is considered as the most VIP facility, with high Matchday revenue ~50% of home broadcast revenues in Spain go to Real Madrid and FC Barcelona Being UEFA CL finalist made Atlético to increase Broadcast revenue by 86% in 1 year PL’s large broadcast contract, and its flat distribution, secure smaller teams with enough income RM’s and ManU’s international focus and strong salesforce pays-off Milan teams do not own the stadium PSG huge commercial inflow since Qatar Investments Office took over Income per capita drives Matchday revenue. Chelsea Vs Napoli Bayern Munich big-ticket sponsors are strong, and shareholders of the club…
  • 18.
    1717 Cost drivers Source: ownanalysis based on Annual Statements (2013/14); UEFA (2012) ILLUSTRATIVE EXAMPLES Ratios to revenue 44% 48% 74% 69% 69% 69% 61% 51% 65% 17% 12% Real Madrid FC Barcelona Average Turkey Average Italy Average England Average Russia Average Spain Average Germany Average UEFA Other Amortization Wages •Team wages account for the most part of an average club costs •There are significant differences in cost management among clubs (e.g. wage steps) •57% of UEFA member clubs are loss-making •Cost is the main driver of a Club’s profitability. Most Clubs are loss-making because they are not enough diligent on the cost base •UEFA is concern about these issues and is implementing “Financial Fair Game” policies 0%-8%-11% 2% -8% Net profit to revenue ratio EBITDA: 164 M.€ EBITDA: 134 M.€ -9%-22%
  • 19.
    1818 Source: Transfer Markt;own analysis Note: Some transfers data are estimations Player transfers of selected clubs -200 -100 0 100 200 300 Profile 1: Super-Investors Ronaldo; Kaká; Alonso; Benzema Departures income (GBP mill.) Arrivals expenditure (GBP mill.) Net income (GBP mill.) Real Madrid CF 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14Season 473 998 -525 -200 -100 0 100 200 300 FC Barcelona 281 640 -359 Total 05/06 to 13/14 Ramos; Robinho Diarra; Gago Robben; Pepe; Sneijder Huntelar DiMAría; Özil; Khedira Coentrão Modric Bale; Isco James; Kroos Suárez 14/15 Henry; Milito Alves Ronaldinho Ibrahimovic Villa; Masch. Fábregas; Sánchez Neymar
  • 20.
    1919 Source: Transfer Markt;own analysis Note: Some transfers data are estimations -50 0 50 100 150 Profile 2: Net investors profiting from opportunistic sales Departures income (GBP mill.) Arrivals expenditure (GBP mill.) Net income (GBP mill.) Atlético Madrid Season 336 426 -90 -50 0 50 100 150 Valencia CF 280 291 -11 Total 05/06 to 13/1405/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Agüero Forlán; Simão Torres Falcao Costa Villa Joaquín Albiol Mata Soldado Mathieu Player transfers of selected clubs
  • 21.
    2020 Source: Transfer Markt;own analysis Note: Some transfers data are estimations -20 -10 0 10 20 30 40 Profile 3: Capital generators (concentrated in few players) Departures income (GBP mill.) Arrivals expenditure (GBP mill.) Net income (GBP mill.) Real Sociedad Season 77 46 31 -20 -10 0 10 20 30 40 Athletic Bilbao 84 49 35 Total 05/06 to 13/1405/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Griezmann; Bravo Illarramendi Del Horno Aduritz Martínez Herrera Player transfers of selected clubs
  • 22.
    2121 Soccer business models •Large, well-established teams with a long track record on the pitch and a large fanbase all over the world. • Revenues, large and stable, finance the team. • Key to profitability is being able to restrain the payroll cost of the players. • Usually have successful junior academies, but it is difficult for a player to walk all the steps onto the first team. Description • Real Madrid • Manchester United • Bayern Munich • FC Barcelona • Manchester City • Paris Saint-Germain • Chelsea Examples • Mid-sized teams with strong junior academies or a key long-term investor, working to build a Commercial stream and an international brand. • Transfer fees come not only from the junior academy, but from trading players who become stars in 2-3 years. • From time to time succeed in Europe and get significant revenues. Money buys time to build-up Commercial. • Revenues are volatile and cash must be watched. • Atlético de Madrid • Shalke 04 • Valencia CF • Fiorentina • Ajax • Monaco • Small local teams with little chances to build-up a Comercial revenue stream. • Best source of revenue are transfer fees from players coming from their junior school. • Teams that do not succeed in developing talent are usually money-losing clubs. • Real Sociedad • Villareal CF • Elche CF • Stade Rennais • Atalanta B.C. • FC Sochaux-Montbéliard • Many Latam clubs Factory of players “Lucky striker” (prizes, trades, or key investor) Commercial funds team (wages & capex) • Very small and small clubs that live almost exclusively on tickets. Adapt budget to revenues (Cash In=Cash Out). • Usually no formal business plan Survival mode Top ~1% Next ~5% Next ~20% Source: 11 Goals & Associates; UEFA (2012) Most clubs
  • 23.
    Organizational development ofsoccer clubs 22 Sport Stadium Commercial • Late 19th and early 20th • Late 1940s • 1990s Years • English teams • Real Madrid • Manchester United Pioneer(s) • Spain’s La Liga1 • Arsenal • Real Madrid Current leader(s) •Every time a soccer club adds a new organizational structure there is some degree of conflict, specially with the previously dominant one. •Leadership (new organization) usually comes from the club’s chairperson (examples: Santiago Bernabéu with Real Madrid stadium, Florentino Pérez with commercial department at Real Madrid, etc.). •Broadcast is irrelevant in terms of organization. It’s a contract with few people managing it. 1 IFFHS
  • 24.
    Typical organizational chartof a large Soccer Club 23 Chairperson (some executive role) CEO BU Sport BU Operations (Stadium) BU Commercial (incl. Broadcasting) Board of directors (some executive role) ILLUSTRATIVE Staff departments (Comm, Legal, HR, IT, PR, Finance, etc.) In real life, line departments work so independently that they rather be considered Business Units (BU), specially in larger clubs. ‐ Transversal communication is small ‐ Some activities are replicated across BUs (e.g. Marketing) ‐ Difficult to implement horizontal projects. ‐ Metrics and KPIs pretty much based on the BU space • Some clubs formally assign the chairperson, or even the board members, some executive role (e.g. FC Barcelona) • Anyhow, with rare exceptions, the Chairperson/Board always plays some executive role, like hiring/firing coaches BU output BU P&L?
  • 25.
    Agenda  Soccer asa business  Is the current model exhausted?  Key Qs for Digital Transformation
  • 26.
    Is the soccerindustry about to be disrupted? 25 Today Source: https://www.techdirt.com/articles/20120916/14454920395/newspaper-ad-revenue-fell-off-quite-cliff-now-par-with-1950-revenue.shtml Soft change? Hard change like newspapers?
  • 27.
    2626 Is the currentmodel mature enough? Exhausted? YoY growth rate by revenue source; World’s top soccer 20 teams of each year -5% 0% 5% 10% 15% 20% 25% 30% 35% 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Matchday Broadcast Commercial Total •Revenues growth rates are not only not maturing, but accelerating •Growth is specially driven by Commercial •Matchday is maturing •The marginally decreasing rates until 08/09 are explained by the crisis 23,8% 14,2% 11,6% 3,6% Source: Deloitte Football Money League; own analysis
  • 28.
    2727 YoY growth rateby revenue source; World’s top 4 teams (RM, MU, BM and FCB) -5% 0% 5% 10% 15% 20% 25% 30% 35% 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Matchday Broadcast Commercial Total •Taking only the 4 most “advanced” teams we see no pattern of exhaustion •Total revenues grow strong again after the crisis, driven specially by Commercial •Matchday is maturing -0,7% 9,0% 9,9% 16,4% Source: Deloitte Football Money League; own analysis Is the current model mature enough? Exhausted?
  • 29.
    2828 EUR -> GBPexchange rate Source: Google Finance GPB depreciated significantly against EUR in 2007-9 BACK-UP •Currency distortion around 2008 for British teams, especially in regard to local income such as Matchday or domestic Broadcast rights
  • 30.
    2929 Soccer in McKinsey’sDigital Transformation curve Source: McKinsey&Co (framework); 11 Goals & Associates •Soccer’s industry is at a point where digital innovations could be done, but not close to the tipping point, thanks to commercial strength and growth •However a club could trigger and accelerate an industry digital transformation, specially if new revenues are generated (impact on sport performance) •Digital newcomers are unlike to appear due to the sports’ nature and historical leverage, but some incumbents are very committed to their digital operations (e.g. ManCity) CONCEPTUAL
  • 31.
    3030 Wrapping-up ¶Although Commercial revenueseems to have a bright future ahead, and the industry is resilient to non-digitalization, a digital first-mover could enjoy extra revenues to continue investing on the team and ensuring its success. ¶A successful first-mover could trigger and accelerate the digital transformation of the industry. ¶Is it possible to significantly create value from digital without a strong Comercial Business Model? What’s the difference between using digital for “business as usual” and creating a digitally-based business model?
  • 32.
    Agenda  Soccer asa Business  Is the current model exhausted?  Key Qs for Digital Transformation
  • 33.
    3232 #1 What kindof Digital Transformation? • Same Business Model, different processes • Incremental innovation • Seeking efficiency, but not always • Low risk, medium return • Suboptimal strategy, but creates value • Ex.: Most large commercial banks such as BBVA or Grupo Santander Performance DT Strategic DT Soccer clubs have much more to win from Strategic DT , but only if conditions for a good execution are set, specially Chairperson/Board leadership and commitment • New Business Model • Disruptive innovation, but it does not have to affect the core business if execution plan is well shaped • Seeking revenue growth • High risk, high return • Optimal strategy, but not easy to execute • Ex.: Netflix, Coursera (~Stanford), edX (MIT, Harvard)
  • 34.
    3333 Strategic DT onthe innovation curve(s) PerformanceDT #1BACK-UP StrategicDT • Strategic DT requires to invest time and cash in developing a Business model before it becomes a better alternative. • The Chairman and the CDO (Chief Digital Officer) should negotiate and agree what investment and time seems reasonable before beginning to see business returns. • E.g.: It took Dick Fosbury 5 years to refine his high jump style until it showed better results that the incumbent style. Same BM BM 1 BM 2
  • 35.
    3434 #2 What kindof Digital Business Model? Factory of players “Lucky striker” (prizes, trades, or key investor) Commercial funds team (wages & capex) Survival mode Digitally-enabled Business Model? D+Factory of players D+“Lucky striker” (prizes, trades, or key investor) D+Commercial funds team (wages & capex) D+Survival mode The question being, how the new BM would look like? Strategic DT Performance DT
  • 36.
    3535 Pioneering a newbusiness model • Several top teams working on digital Business Models. • Creating a fan-centric community to increase fan engagement, ticket and commercial expenditure, and TV audience, seems to be the most interesting model. • Digital enables fan-disintermediation, opening a wide range of business opportunities directly captured and managed by the clubs. • Runs away from newcomers to “Commercial funds team” BM, and leverages on existing fanbase. #2 Factory of players “Lucky striker” (prizes, trades, or key investor) Commercial funds team’s (wages & capex) Survival mode Digitally-enabled Business Model?
  • 37.
    3636 #3 Mission ofDigital in a Soccer Club Mission To create a technologically-enabled fan-community with superior customer experience in order to close any distance (physical, informational, cultural, emotional, commercial, etc.) between the Club and the fan, whoever he/she is. Open new sources of revenues. Improve current revenues directly (e.g: eCommerce) or indirectly (e.g: increase demand). ILLUSTRATIVE EXAMPLE Awareness Familiarity Consideration Purchase Loyalty Active Evaluation Post-PurchaseExperience Initial Consideration Purchase Trigg er Brand touchpoints Brand touchpoints Purchasing funnel Customer journey (McKinsey)
  • 38.
    3737 Strategic shift #3 Contentand Brand provider Leading relationship with fans (customers) E.g.: Nespresso, Apple, Ferrari USA, Tesla Motors, Zara
  • 39.
    “Marketing is dead” HarvardBusiness Review – 9 Aug 2012 Source: http://blogs.hbr.org/cs/2012/08/marketing_is_dead.html Traditional marketing — including advertising, public relations, branding and corporate communications — is dead. Many people in traditional marketing roles and organizations may not realize they're operating within a dead paradigm. But they are. The evidence is clear. Buyers are checking out product and service information in their own way, often through the Internet, and often from sources outside the firm such as word-of- mouth or customer reviews. Actually, we already know in great detail what the new model of marketing will look like. It's already in place in a number of organizations. Here are its critical pieces:  Restore community marketing  Find your customer influencers  Help them build social capital  Get your customer advocates involved in the solution you provide. Most read article in Aug 2012 From Brand to Fan BACK-UP #3
  • 40.
    Soccer is social 0FFLINE (CIRCULATION) Marca:177.866 /day Diario As: 155.443/day Real Madrid: ~0 WEB 1.0 (DAILY REACH %) WEB 2.0 (FANS/FOLLOWERS) Facebook/Twitter (mill.) Marca: 0,98/1,49 Diario As: 0,34/0,67 Real Madrid: 82,8/15,0 MD: 67.704 /day Sport: 61.981/day FC Barcelona: ~0 Facebook/Twitter (mill.) MD: 0,28/0,64 Sport: 0,29/0,89 FC Barcelona: 83,4/14,3 Web 2.0 allow football clubs –better than ever before- to be in touch directly with their fanbase 39 Sources: OJD (2014), Alexa.com, Facebook Inc. (5-3-15), Twitter Inc. (5-3-15) BACK-UP #3
  • 41.
    4040 Soccer should bemobile too, real mobile Source: The Economist; Ofcom BACK-UP #3
  • 42.
    4141 Frameworks to designa great community strategy Football fans Team Supporters General public “Pools” “Web” “Hub” Web 2.0 and Community Marketing (SlideShare) Fan segmentation Type of Affiliation Gamification #3 Role in Ecosystem Copy Ignore Minimum presence Combat Complement
  • 43.
    CommercialSport 42 Stadium Digital • N/ATypeof Marketing • Experiential MKT • Brand Management • Relational MKT • TeamCore Asset • Stadium • Brand • Tech • Industry’s, very strongCulture • Club’s, strong • Sales-oriented • Tech savvy • QualitativeSkills • Mixed • Qualitative • Negotiation • Deal-making • Quantitative • Team-working • Product-building • #Championships • Tournaments’ classification KPIs • Ticket sales • License sales • # fans? • Fan engagement? • Digital revenue? • Team • Flat Organizational pattern • Functional • Hierarchical • Product/Geography • Hierarchical • Project-based • Flat • Short-TermTime horizon • Short/Long-Term • Short-Term • Medium-Term #4 Where to set Digital in the organizational chart? • Live & TV fansClient • Local fans • Client brands • Global fans Often, Digital Transformation is all about Digitanization, or how to shape the organization to tackle the digital challenge. The different nature of the Digital business leads to think of the creation of a Digital BU. Output
  • 44.
    4343 Organizational implementation ofDT #4 Chairperson CEO BU Sport BU Operations BU Commercial Board Staff dep. Digital Short-Term •First, a small Digital unit is created to begin understanding the club dynamics, creating links to other departments, and proposing a Digital Strategy. •Unit depends on the Chairperson, to protect it from “business as usual”, specially when CEO comes from a strong BU. •Priorities: Strategy and Organizational changes •Once the club buys the Digital Strategy, the units grows until create a BU and have a seat in the steering committee. •Still depending from the Chairperson who provides motivation and leadership, and who helps coordinating with other BUs while readapting internally the BM. •Priorities: Executing strategy, implementing changes. •When new BM is implemented, BU processes are well established, and an attribution model is in place (see forthcoming chart), the BU changes dependency, to depend from the CEO. •Under the new model, CEO sets goals and demands performance to the unit. •Priorities: Revenues, direct or indirect according to what the attribution model measures. Chairperson CEO Medium-Term Chairperson CEO BU Commercial Long-Term BU Digital … … A) Strategic DT; large club ILLUSTRATIVE EXAMPLE BU Commercial BU Digital
  • 45.
    4444 •Alternatively we mightcreate a Digital Projects Office and focus on each BU’s performance. •Advantages: ‐ Less “turf battles” with BUs over what is digital or not. ‐ BUs do not have to worry about building up digital competences. ‐ Digital gets some “quick wins” that allow it to consolidate within the organization and win the respect of BUs. ‐ Chairperson does not have to play an active role. •Disadvantages: ‐ The Digital Projects Office is not a true leadership office. Projects optimize each BU goals, but not the global organization. ‐ Continuity between the Digital Projects Office and the BU Digital is hard due to the different nature of the structures and its people. It’s harder to change we something is grown-up. Chairperson CEO BU Commercial Short-Term Digital Projects Office #4 B) Performance DT; large/mid-sized club Organizational implementation of DT ILLUSTRATIVE EXAMPLE Chairperson CEO BU Sport BU Operations BU Commercial Board Staff dep. Long-Term (if shifts to Strategic DT) BU Digital BU Sport BU Operations Board Staff dep.
  • 46.
    4545 Chairperson CEO BU Sport BU Commercial + Operations+Digital Board Staff dep. Short-Term •For small and medium-sized clubs where stadium and commercial is managed within the same department, there is the opportunity to integrate all those activities with digital into a team with goals aligned and high aspirations. •Small teams do not need to “overcomplicate” the fit of Digital into the organization. •The fitness of this model depends not so much in the size of the club, but on the dynamics of the organization, although there is some correlation. Chairperson CEO BU Sport BU Operations BU Commercial Board Staff dep. Long-Term (if significant organizational growth) BU Digital #4 C) Strategic + Performance DT; mid-sized/small club Organizational implementation of DT ILLUSTRATIVE EXAMPLE “It’s good to be young”
  • 47.
    4646 #5 Measuring valuecreation dependencies between BUs BU Sport Cost center Championships BU Stadium Profit/Inv. center BU Commercial Revenue/Profit center BU Digital Cost center? Revenue center? Fan base and engagement Revenue Attribution model Titles -> Revenue Attribution model Fans -> Revenue Without an attribution model someone could even argue BU sport is not a revenue generating activity… When externalities among BUs exist, attribution models (Bayesian, Big Data, etc.) should serve to understand interrelations and to assign transfer costs and revenues among BUs (BU’s P&L; cost accounting). Attribution model Titles ->Fans Attributionmodel TV ->Commercial
  • 48.
    4747 #6 What’s theright digital culture? ILLUSTRATIVE ¶ The actual culture to implement depends on the strategic goals and specially on the organizational chart we are implementing. ¶ In general each Club BU has its own culture. At least, BU Sport’s is different from Stadium's or Commercial’s. Culture is “fragmented”. ¶ So we would suggest to engine a specific culture for BU Digital, based on the following premises: ‐Flat, decentralized power. ‐Expert authority (instead of managerial authority) ‐Promote some “cultural tension” (not conflict) with the rest of the organization. ‐Openness, informality, individual initiative, express real feelings in a safe environment, tolerance to failure, etc. ‐Passion for testing and analytical research. ‐Constant search of fresh air: interaction with universities, rotation of professionals, workshops, out-of-office training, etc. ¶ But please, do not think this a high-tech start-up.
  • 49.
    #7 What tooffer Free, Cheap, or Premium FREEMIUM = FREE + PREMIUM “Attract audience with free versions of the product, introduce them to paying with affordable versions of the product, and monetize them with premium versions of the product” FREE CHEAP (Affordable) PREMIUM ILUSTRATIVE Online business models are usually Freemium. It’s an issue to manage in an industry used to charge for everything.
  • 50.
    Agenda  Soccer asa business  Is the current model exhausted?  Key Qs for Digital Transformation
  • 51.
    •Strategic consulting servicesin technology and digital marketing for top executives •We advise companies on digital transformation Francisco Hernández •MBA London Business School. •IEP University of Chicago. •11 years of digital experience. •Ex Director Online Strategy Real Madrid C.F. •Other companies: ABN Amro, Abengoa, McKinsey&Company. •Professor at ESCP Europe. •Lecturer in Europe, Latam and Asia •PWC: 10 e-Business talents in Spain. Sonia Fernández •MBA Stanford. •15 years of digital experience. •Ex CEO Vindico Europe. •Ex CEO Match.com Spain. •Ex CEO MercadoLibre Spain. •Other companies: Fon, Grupo Prisa, 3i, Lehman Brothers. •Professor at OBS-UB, EOI and MIB •Lecturer at universities and in- company training •Author of two books on networking and social networks published in 2004 and 2001 franciscohm francisco.hernandez@11goals.com | (+34) 605 58 66 55 soniafernandez sonia.fernandez@11goals.com | (+34) 619 721 781
  • 52.
    Thanks very muchfor your attention and interaction Francisco Hernández francisco_hernandez@11goals.com (+34) 605 58 66 55