An Investment Strategy For Professional Sports Clubs

At the beginning of December 2014 Deloitte published the latest “Finanzreport deutscher Profisportligen 2014”, giving an overview about the financial and economical situation of the four German sport leagues basketball (BBL), handball (HBL), ice hockey (DEL), and third league football. In summary the report certifies all four leagues increasing attendances and growing financial revenues. Main sources of revenue were commercial revenues, including incomes from sponsorships and merchandising, and match day revenues from ticketing. On the downside, gains from media right sales were negligible for clubs of BBL, HBL, and DEL as there were no considerable broadcast arrangements.

The outlook, given by the authors of the report, is more or less positive for all three leagues, thus we can expect also future grows in terms of attendance and revenue figures.

This circumstance raises the question where growth actually comes from? Using the example of the BBL and its development in the recent years we can see, that the governing body plays a crucial role when it comes to enabling and initialising professionalisation and commercial growth. However, in the end the individual participating clubs are responsible for acquiring commercial partners and establishing professional structures. By taking a look at the commercial business strategies of most of the clubs of BBL, HBL and DEL it can be assumed, that the top priority of the greater part of these clubs is to invest financial resources in the sports squads, rather than investing in infrastructure and commercial structures. This approach is based on the theory that high investments into the team lead to a better sportive performance and thereby to a higher attractiveness for spectators and commercial partners. The figure below exemplifies this approach.

Against the background of a sustainable long-term business strategy, which aims on stable, better increasing, financial revenues and sustainable numbers of spectators, I am convinced that the aforementioned strategy is not the most rewarding one. This view is based on the proven fact, that the greater part of fans and followers in diverse sports is not primarily interested in victories and excellent sportive performances of their teams, but rather in excellent customer service, CRM and fan engagement measures, and, of course, commitment and dedication of the players. However, last named does not require top-earning players. Consequently, in my opinion the investment strategy at professional sports clubs should look like shown in the figure below.

The figure shows, how an investment in the infrastructure and the administrative office staff enables customer (fan) service and therefore customer satisfaction, which is one of the key elements for customer retention. Additional manpower in the commercial department would also enable the sustainable management and acquirement of sponsorships and partners. A qualitative approach to potential partners is more likely to generate new contracts than only sportive success without the appropriate address. After a timeframe of two to three seasons the additional revenues will break even the investments and from that point on additional revenues could be invested into the actual performing team, without neglecting the requirements of a professional sport club of today.

The full report from Deloitte is available upon request: Deloitte Report [German only]