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Finance and economics, Football Business, Politics, Stadiums and events, World Cup

How Brazil Hopes to Get Rich off the 2014 World Cup

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With less than two weeks left before the World Cup kicks off this summer in Brazil, all the attention has understandably been on the football side of things, with all participants playing warm-up friendlies to ready their squad for the tournament.

For the Brazilian government and footballing authorities, who have attracted criticism for repeatedly missing construction deadlines for the World Cup stadiums, perhaps the recent attention to the friendlies makes for a welcome respite.

After all, most of the coverage in the past year or so (this is an example from The Washington Post) has focused on the state of the host nation. (I wrote an article on that only a few months ago.)

But the public protests in Brazil have not gone unnoticed. In fact, the demonstrations that started during last year’s Confederations Cup have provided a controversial backdrop to the upcoming World Cup: How will officials be held accountable for the massive overspending they have committed in their preparations for the tournament?

It is imperative that there is an answer to how Brazil and its citizens stand to benefit from hosting a glamour tournament like a World Cup—not just from glory and hype alone.

Let’s take a look at how the 2014 host nation hopes to make money off the latest installment of the World Cup—but as we see, not all the hopes and proclamations may ring true.

 

Jobs and the Local Economy

 

Eraldo Peres/Associated Press

 

Brazil’s tourism minister, Vinicius Lages, told AFP, via Yahoo: “The Cup is not an economic panacea but a catalyst for Brazilian development. It was a key factor behind Brazil finally overhauling its infrastructure.”

The World Cup, he predicted, would add about $13.6 billion to the Brazilian economy—already the world’s seventh largest—in 2014 alone.

It doesn’t stop there.

A report by Ernst & Young Terco on the social and economic impacts of the 2014 World Cup concluded that the tournament “should generate 3.63 million jobs/year and R$63.48 billion income for the population in the period 2010-2014, besides an additional R$18.13 billion in tax collections.”

EY’s projected impact on the national production of goods and services stood at R$112.79 billion, while the sectors most benefiting from the event—defined as economic activities with major increased output—were civil construction, food and beverage, business services, utilities, information services, and tourism and hospitality.

All of which sounds glamorous and sexy, but there have been contrasting reports on the actual long-term gains as a result of hosting the World Cup—and they aren’t quite as pretty.

A Moody’s report on the impact of the tournament on different industry sectors concluded that “the 32-day event will provide short-lived sales increases that are unlikely to materially affect earnings and disruptions associated with traffic, crowding and lost work days will take a toll on business.”

Then there is the very real possibility that the “World Cup effect”—defined by IBTimes.com as the phenomenon of countries being more harmed economically from hosting the event, as seen from South Africa 2010—may take hold in Brazil.

Four years on, the same uncertain material benefits from a World Cup are still yet to be transparent. As cited in the IBTimes.com article,University of Maryland professor Dennis Coates noted that even the 1994 World Cup in the U.S.—claimed as one of the most successful and transformational ever—ended in an income reduction of $712 million for the average host city relative to predictions.

 

The Tourism Industry

 

Eraldo Peres/Associated Press

 

Vinicius Lummertz, Brazil’s national secretary of public policies, toldThe Rio Times last November of his optimism that Brazil’s tourism industry would stand to gain enormously from the World Cup:

We hope tourism in Brazil rises to a new level after the World Cup. With infrastructure improvements that increase the competitiveness of Brazil as a tourist destination, and the high exposure of the country abroad, I expect to see a significant increase in foreign tourists—but mainly more Brazilians traveling through Brazil.

The Tourism Ministry predicted that tourists home and abroad would spend R$25 billion during the tournament, when 600,000 foreign and three million Brazilian travelers are estimated to visit the country.

The massive spending on infrastructure by the Brazilian government in recent years in preparation for the World Cup has likely been to maximize the revenue the country can make during the tournament—and with an eye on the future as well.

The EY study quoted above addressed such needs for investment in order for tourism income to be realized:

Once the actions that are required to enable the country to capitalize on the opportunities generated by the World Cup are completed, the event may result in an increase of up to 79% in the international tourist inflow to Brazil in 2014, with even possibly higher impacts in subsequent years. In the period 2010-2014, that figure should be as high as 2.98 million additional visitors.

The tourist inflow directly and indirectly induced by the World Cup is expected to account for additional income up to R$5.94 billion for Brazilian companies.

Yet before Brazil can throw a metaphorical carnival to celebrate their upcoming economic benefits, a few sobering updates on the tourism front may dampen the mood.

According to Claire Rive of The Rio Times, “The tourism sector in Brazil has had to adjust their inflated estimates concerning the expected influx of tourists…leading to big discounts on local and international flights and accommodation during the tournament.”

The reduction in projected tourist numbers has led to discounts on airfare prices and package tours, while demand for accommodation has “substantially decreased and prices have decreased.”

 

And, of Course, Corruption

 

Eraldo Peres/Associated Press

 

That a World Cup involves staggering amounts of money and an opportunity for businessmen and government officials to make a quick buck is no surprise—and Christopher Gaffney, professor at Rio de Janeiro’s Federal University, agrees strongly.

“There’s collusion of the Brazilian governmental elite with the business elite, and the game is rigged in their favor,” Gaffney said(via Yahoo). “This was an opportunity to make a lot of money and that’s what’s happened.”

But adding to the depressing reality that corruption will form a huge proportion of Brazil’s money made from the World Cup is the astonishingly public manner in which the embezzlement has been carried out.

See the case of the lead builder of Brasilia’s Mane Garrincha Stadium, already the world’s second-most expensive football stadium.

The Associated Press ran a story this May alleging that Andrade Gutierrez, a construction conglomerate, and Via Engenharia, an engineering firm, made up a construction consortium that billed the government $1.5 million for the transportation of prefabricated grandstands for the Brasilia stadium—a fee that was initially thought to cost just $4,700.

Auditors pointed out that “wasteful cutting practices or poor planning added $28 million in costs,” while “$16 million was lost when Brasilia’s government inexplicably failed to enforce a fine against Andrade Gutierrez for a five-month delay in completion of the main portion of the stadium.”

According to Al Jazeera, the same firm made political contributions totaling $37.1 million after confirmation of which cities would be hosting tournament matches, and after it was awarded stakes in contracts totaling “nearly one-fourth of the World Cup’s total price tag,” four years after it contributed a measly $73,180 in municipal elections, a 500-fold increase.

Moreover, auditors found $275 million in alleged price gouging with just three-fourths of the $900 million Mane Garrincha Stadium project.

The most damning part?

“Funding for Brasilia’s stadium relies solely on financing from the federal district’s coffers, meaning every cent comes from taxpayers.”

What comes around, goes around.

 

This article first appeared on Bleacher Report.

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Branding and marketing, Business strategy, Finance and economics, Football Business, Liverpool, Stadiums and events

Anfield Redevelopment Underlines Liverpool’s Financial Rejuvenation Under FSG

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Ahead of a crucial Premier League title decider against Chelsea this Sunday, Liverpool this week announced their expansion plans for Anfield, while managing director Ian Ayre today credited, via the Telegraph, the role of current owners John W. Henry and Fenway Sports Group in their financial rejuvenation.

Both the Anfield redevelopment announcement and the revelations behind the dire financial situation at Liverpool have not only boosted the feel-good factor around the club, who are five points clear in the Premier League and poised to win their first league title in 24 years, but also highlighted just how important FSG have been in their resurrection.

The Reds now seem a stark contrast to what they were just a few years ago, when Tom Hicks and George Gillett were in constant internal battles with then-manager Rafael Benitez and released plans for a new stadium in Stanley Park that got nowhere, a symbol of their failed reign that disillusioned supporters.

John W. Henry led FSG’s takeover in 2010, which saved the club from administration and that has subsequently transformed Liverpool’s fortunes on and off the pitch.

As Ayre claims that “the club is in a fantastically sustainable position now,” let’s look at just how Liverpool have been rejuvenated financially under the reign of Henry and FSG—and whether this can be sustained going forward.

 

 

Chris Brunskill/Getty ImagesCorporatization of Liverpool as a Global Business

It’s easy to say we were 10 years into a stadium move and it’s about time we are back in the Champions League, but if you think about where we were financially, just because you’re Liverpool it does not mean you have a right to get back up there. There are plenty of teams who could have slipped and slipped, despite new owners, so it’s an unbelievable achievement to get back where we are today. That is testament to the people who invested in it and worked on getting us back there.

Ian Ayre’s proud proclamations of the FSG-led transformation, dipped in bitter memories of the Hicks and Gillett reign, will reverberate around Anfield as a resounding endorsement of the way John W. Henry has run his sports empire.

Joshua Green of Bloomberg.com has encapsulated Henry’s reign at Major League Baseball club Boston Red Sox in a wonderfully revealing article on their baseball dynasty, and similar principles from Henry’s financial and business background have been applied to Liverpool.

The inevitable truth in the sports world these days is that it is becoming more and more of a global business, and Liverpool have, in many aspects, finally caught on.

When looking at models for sustainable growth in world football, perhaps Arsenal is always the go-to club given the building of their new Emirates Stadium and the well-known financial management of Arsene Wenger, but it’s no surprise that Ian Herbert’s column for the Independent draws comparisons with “the kind of machine that the Glazer family have developed at Old Trafford.”

That Manchester United have set up offices around the globe to push their marketing and sponsorship efforts is indicative of their aggressive expansion as a corporation; Herbert writes that their “far-sighted establishment of regional and global corporate sponsorship deals began well over a decade ago.”

This has only recently surfaced at Anfield—though, of course, it is a case of better late than never—with all kinds of backroom appointments boasting titles we would otherwise associate with financial organizations and the business world in general.

Liverpool, who have for years been in the top 10 of Deloitte’s Money League rankings despite missing out on the Champions League, have finally gotten in the sponsorship act and have begun raking in the millions as a result of the commercial push. Their announcement this week of a partnership with US restaurant chain Subway, per the Liverpool Echo, is only the latest chapter in their fast-growing business empire.

 

 

Liverpool FC/Getty ImagesAnfield Redevelopment: Finally Done Right?

When looking to expand the financial income of football clubs, the issue of stadiums will always come into the equation.

After all, gate receipts was the reason behind Arsenal’s decision to move from Highbury to a new stadium, and Manchester United, having expanded Old Trafford over the years, have been raking in a minimum of £3 million every home match since its capacity has come close to 76,000, per ESPNFC.

So it’s no surprise that much has been made over Liverpool’s next step in terms of their stadium: The question was always whether to develop the iconic Anfield, which would have a capacity ceiling due to construction constraints, or to move into their neighboring Stanley Park, which would require massive payments that might hamper their other financial activity, much as Arsene Wenger has experienced.

This Mirror Football article, in light of the new stadium redevelopment announcements, revisited the failed and widely mocked plans for a 60,000-capacity stadium in Stanley Park, which were first suggested in 2002 and then revisited in the Hicks and Gillett reign. They promised a “spade in the ground” within 60 days of their 2007 acquisition of Liverpool, but proved unable to finance the construction project.

By contrast, the £150 million redevelopment currently mooted will cost less than a third of the Stanley Park plans, and will likely eventually take the total seating capacity to 58,000 after expanding two main stands, according to Chris Bascombe of the Telegraph.

Surrounding all the recent fanfare has been the club’s shady policy of “buying up houses around the stadium and leaving them empty, driving the local area into dreadful decline” since the 1990s, which David Conn has uncovered in his revealing Guardian column.

The club apparently “used an agency to approach some residents, while some houses were bought by third parties then sold on quickly to the club. That left residents with the belief…that Liverpool were buying up houses by stealth, to keep prices low,” a tactic that has not gone down well with local residents.

But as Ayre and the club have published their plans publicly and also apparently been in dialogue with the local councils and residents with their Anfield redevelopment plans, the chance is there for FSG and the current hierarchy to redeem errors made in years past and commit to a bright future for the local area and the local community.

The public consultation of fans’ opinions on the Anfield redevelopment, through a public online survey on their official website, is a good start. The right opportunity has finally arrived for FSG to leave a positive legacy in the city of Liverpool, far beyond just bringing the football club back in the green.

 

 

Christopher Furlong/Getty ImagesLooking Ahead to a Promising Future

This week’s announcement of the Subway partnership is the latest sponsorship arrangement Liverpool Football Club have landed in 2014 alone: The likes of Vauxhall and Dunkin’ Donuts all joined the Liverpool corporate partner list this calendar year.

Following the money-spinning and multi-year deals with Standard Chartered Bank and Garuda Indonesia, an airline, Liverpool may even solicit financing for the expansion of the Main Stand via a “lucrative naming rights deal with a major sponsor,” according to James Pearce of the Liverpool Echo. Following Macron’s naming-rights announcement with Championship club Bolton Wanderers, announced this week as well via BBC Sport, naming rights may well and truly have entered the English football mainstream—Arsenal’s Emirates Stadium and Manchester City’s Etihad Stadium are but two famous examples.

For Liverpool, it’s been a story of financial rejuvenation, underlined by Ayre’s comments regarding the long and difficult journey of infrastructure-building at the club since FSG’s takeover:

When I came here seven or eight years ago, there were all these stories of the club shop being closed the day after the [2005] Champions League final [win over AC Milan in Istanbul], and only having a couple of sponsors. Over a long period of time, we have been trying to lay the foundations and build the infrastructure that services a great club like Liverpool.

As the club look to cash in on their successes in the Premier League this season—they confirmed, with their win over Norwich City last Sunday, a lucrative return to the Champions League next season—and continue to bear the fruits of their commercial exploits, their highest-ever annual turnover of £206.1 million this past year will surely be eclipsed considerably in a year’s time.

Add to that the image of the club as a young and energetic force, spearheaded by a visionary young manager in Brendan Rodgers and featuring a host of young stars in the team, as well as the rejuvenated Anfield stadium and surrounding area—confirmed to go through this time—and you have, for the first time in many a season, a healthy outlook for Liverpool Football Club for years to come.

To think that the Reds were “seconds from disaster” before John W. Henry and Fenway Sports Group swooped in for their rescue act.

What a roller coaster it’s been—and long may it continue.

 

This article first appeared on Bleacher Report.

Branding and marketing, Business strategy, Finance and economics, Football Business, Manchester United, Premier League

How Manchester United’s Global Brand Is Affected by Missing the Champions League

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An underwhelming season for Manchester United has been capped by the news this week that the Old Trafford club had dismissed beleaguered manager David Moyes, who succeeded Sir Alex Ferguson last July.

As rumors have surfaced aplenty across various media outlets speculating the causes of Moyes’ downfall and what exactly went wrong in his tenure at United, the club have appointed Ryan Giggs as their interim manager as they strive to look forward to the future.

Their underwhelming performances this campaign have led to a disappointing failure to qualify for the Champions League next season, as they are now well and truly mathematically out of reach of the Premier League top four, for the first time in 19 years, which has led to some concern about the direction of the 20-time title winners.

For a club of United’s size and stature, how costly would missing out on the Champions League be for their future and their brand image? How will they pick themselves up from the wake of their recent managerial departures—first Ferguson and now Moyes?

Let’s explore how Manchester United’s brand will be affected by missing the Champions League across three rough timescales: The short, medium and long terms.

 

 

CHRISTOF STACHEShort Term: A Harsh Economic Hit

The immediate future of Manchester United as a preeminent footballing superpower is murky at least: The notion that they are not a “sacking club” has been dispelled after Moyes’ dismissal, even though his results perhaps made his position untenable.
To fall from the lofty achievement of winning the Premier League title last May to a current seventh place with no hope of making the top four this season will rightly be considered a disaster from the club’s point of view, given Sir Alex Ferguson’s longevity and record of success, which helped built an image of the club as a perennial contender and a winning institution over the years of his legendary reign.

So to fall from conquering England less than 12 months ago—and conquering Europe six years ago—to the prospect of regular Europa League football, or even no European action at all, will be a massive reputational dent: How can United keep up their global reputation if they’re not even continental?

In the wake of David Moyes’ sacking, Manchester United will miss out on a reported £50 million due to a failure to qualify for Europe’s elite club competition alone, according to Simon Goodley of the Guardian, who suggests that the same riches that are available to competing clubs will serve as a double whammy on top of United’s losses, considering their debts.

Goodley’s comparisons of United’s current situation with Bayern Munich’s in 2007—that they would need to spend massively to improve their squad without European football in a bid to catch up with their competitors—led him to estimate a potential £100 million summer outlay in transfer fees alone.

Which doesn’t include the wage expenditures for their high-earning star players and the considerable compensation that Moyes and his staff will no doubt fight for.

Make no mistake: As United count the costs of missing out on the Champions League, it’s not just to their reputation in the short term as a global sporting brand, but also a blow to their already shaky financial situation.

 

 

Jon SuperMedium Term: The Rebuilding Must Be Done Right

Considering the massive financial commitment that the club will need to make to steady the ship and turn it around, the short-term hit will only be compensated by an ambitious and focused rebuilding job done at all levels of Manchester United.
This involves many aspects across the front and back of the club, not least including a revisiting of the overall backroom structure in place at Old Trafford, which Gabriele Marcotti of ESPNFC suggests should include a Director of Football to alleviate the workload of the modern football manager, and a thorough review system to ensure that players are not signed for inflated fees (see Marouane Fellaini) or rewarded with bumper contracts despite being clearly surplus to requirements (see Nani).

That United have splashed £64.6 million on just two signings will not be lost on any observers: If anything, it will serve as an “eyes light up” moment to the agents of United targets and a major obstacle for the club to overcome. A quick glance at Liverpool’s eye-watering spending in the summer of 2011 will make for a horrifying prospect for many a Red Devil fan.

But besides the playing staff that have been the public face of United, both on and off the field for better or worse over the years, the figurehead that leads them to silverware and sustained success will need to be appointed as well.

The bullish nature and at-times extraordinary proclamations of Sir Alex Ferguson all added to the Manchester United aura and myth, which were almost instantly shattered by the defeatist and pessimistic utterances of David Moyes, who also oversaw the transformation of Old Trafford from a home fortress into a cauldron of fear.

They messed up a managerial appointment once; they can’t afford to do it again.

 

 

Handout/Getty ImagesLong Term: The Structure Is in Place for a Resurgence

As a football club, Manchester United have led the way in England and in Europe for many years, both on the football pitch and off it in the commercial realm. United were perhaps the first club to have built any global brand of note and formulated a wining commercial strategy that was based around silverware won on the pitch and the superstars that brought United that distinct success.
News that the club’s share price on the New York Stock Exchange has rebounded to a pre-Moyes, according to the Mirror, is both cruel on the newly deposed manager and reflective of the club’s standing in the global financial game, while Alex Duff’s commentary on Bloomberg.com considers the club’s power in terms of attracting lucrative commercial sponsorships and strategic partnerships.

Any new manager arriving at Old Trafford would be walking in a dressing room, while needing the injection of some much-needed fresh blood, still featuring some world-class stars, and operating within a commercial giant that is peerless in world football with a brand name that still resonates around the globe. Any comparisons with Liverpool’s dramatic downfall are as a result premature and naive, as the Anfield club have only recently caught up on the commercial side of things, whereas United were pioneers at building a commercial enterprise.

But while United fans shouldn’t panic at the current state of their club, even if the Champions League anthem won’t be playing at Old Trafford next year, they will realize that the club will only be able to bounce back—and the club officials will realize its brand power will only be fully realized—if they overcome a potentially significant short-term hit and approach their rebuilding job correctly.

Because if they don’t do it right, the Manchester United brand, which has been built so strongly over the years because they have become synonymous with success, will wither as a result of their on-field disappointments.

It’s imperative that they get it right this time, before it becomes a vicious, self-defeating cycle.

 

This article first appeared on Bleacher Report.

Finance and economics, Football Business, Premier League, Stadiums and events, TV and broadcasting

Is a European Super League an Inevitable Next Step in World Football?

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The past couple of weeks in European football have thrown up some interesting scenarios, perhaps unthinkable just a few years ago, which have thrown into question the competitiveness and balance even in the leading domestic leagues around Europe.

When Chelsea loaned Thibaut Courtois, then one of the hottest goalkeeping talents in the world, almost three years ago to Atletico Madrid, surely they didn’t expect to have to waive a contract clause at the prospect of facing their loanee in the Champions League semifinal.

When Borussia Dortmund won the Bundesliga and upset the status quo just a few years ago, surely they didn’t expect that a comprehensive 3-0 win over Bayern Munich in the league would mean as little as it just did, given that Pep Guardiola’s side had just become the quickest team ever to win the German championship.

These are but two incidents that have reflected the reality of European football these days (and there are many more—think Bayern’s ruthless snapping up of Mario Gotze and Robert Lewandowski from Dortmund, supposedly their closest rivals).

And the reality is that, while the top-tier leagues, especially in England with the Premier League, have started to break away from their lesser domestic competitions, those cream-of-the-crop clubs at the top of the European game have begun to form a mini exclusive club of their own.

Perhaps it’s time to consider not whether a European Super League would be a fun and interesting side project for club owners to think about, but whether it is actually an inevitable next step in world football.

 

Kerstin Joensson

 

Booming broadcast and television revenues

It’s hard to point a finger at a definitive starting point for this spiraling breakaway of the European elite, but BT Sport’s staggering £897 million three-year exclusive deal to broadcast live Champions League and Europa League games starting from 2015, announced last November via BBC Sport, is a good start.

Given the amount of money involved in the European game, it’s no surprise that the likes of Arsenal and Liverpool have made qualifying for the Champions League essentially a barometer of their season-to-season success in the Premier League.

Of course, it’s a cyclical game—perhaps even a snowball effect—in which money drives commercialization and encourages clubs and league administrators to package the sport as a “consumer product,” which focuses on entertainment value in the form of stadiums, overall team play and individual superstars, which boosts widespread interest and thus potential income, and so on.

But it’s not as if those involved in the beautiful game at the top level are trying their level best to keep the game devoid of any adverse effects from the money involved. Far from it.

Just this January, the Telegraph reported that the Premier League wanted to bring forth the next “auction” of football broadcasting rights by six months, which sources allegedly claimed was a show of “opportunism” from the league in “attempting to exploit the fierce competition between BSkyB and BT, and the resulting increase in the value of sports rights.”

As the game of football evolves at the top level and clubs become ever more like global corporations, even the ordinary football fan has evolved into being a consumer from their clubs’ point of view.

And how do businesses engage with their consumers? By providing high-quality goods (in this case, high-quality performances with a dose of superstardom, delivered at every broadcast opportunity across every possible channel).

A further case illustrating the financial explosion of the modern game once again focuses on the aggressive increase of Premier League prize money: A Telegraph report in May 2013 mentioned that Manchester United’s £60.8 million in TV money, a record sum for a Premier League champion, would be eclipsed the following season by the club that finishes bottom of the league because of new broadcasting deals.

 

Gonzalo Arroyo Moreno/Getty Images

 

Exponential inflation of player valuations

The sheer amount of money involved in top-level football highlights the indispensability of the sport to TV networks and channels, which in turn drives up their bids to carry these matches.

But from both the clubs’ and the fans’ points of view, this is merely a reflection of an ever-increasing and ever-vociferous demand for the sport—especially as clubs and leagues are becoming more business-savvy and expanding into markets never previously thought lucrative or even possible.

Which means that top-level footballers and top-level coaches, who turn top-level footballers into top-level teams on the pitch, gradually become a premium commodity to be traded to those willing to shell out a fortune in anticipation of the potential upsides.

And so we have eye-watering deals like Gareth Bale’s world record transfer from Tottenham Hotspur to Real Madrid, who themselves set the previous record by signing Cristiano Ronaldo from Manchester United. And vastly inflated contracts like Wayne Rooney’s new extension at Old Trafford, which reportedly will land him a mammoth £300,000 a week, per BBC Sport.

Suddenly, the prevalence of money in the modern game has made it an essential part of both player decisions and transfer strategies. Players appoint ruthless agents to extract the best deal for themselves and their clients, while clubs head towards the murky waters of outbidding each other for star names.

The supply line has just shot up in value.

And those organizations who can afford to shell out the big bucks to procure such mercurial and overpriced talent—some through the generosity of a well-off benefactor—become the most important players in the financial game of football.

It’s no surprise, then, that Simon Kuper and Stefan Szymanski put forth in Soccernomics that football clubs in capital cities are best positioned to dominate the European game in the future: Take the financial “capital” in the cities and you instantly have the most powerful hybrids of money, geography and power across football clubs in Europe.

 

Marc Mueller

 

A whole new, exclusive playing field

Where does this bring us?

On the one hand, the growing demand of top-level football means that there will only ever be greater sums of money spent by fans and reflected in megadeals between leagues, clubs and broadcasters.

On the other hand, the explosion of player valuations means that agents will continue to grow in prominence and importance, while player power will entrench itself as an institutional concept in modern football—and only a handful of football clubs are even equipped to handle such major deals.

Which essentially means that the footballing world is their oyster.

As players vie to get into those clubs as a sign of their ability and ambition and as clubs strive to either maintain their place in that elite group or try their utmost to break into the oligarchy, a whole new, exclusive playing field has taken form for the big boys up top.

La Liga has traditionally been the easiest and most glaring example of a “top two” league, with Barcelona and Real Madrid maintaining a hegemony on proceedings in Spain until Atletico burst onto the scene this season, while recently Bayern Munich has become a textbook example of just how far a first-placed team can pull away from its closest challenger.

Sooner or later, as egos, ambitions and competitiveness are wont to trump all in sport, these big players will yearn for a platform where they can pit their wits against each other on a regular basis, to claim a title that will truly prove their dynasties.

The concept of a European Super League suddenly doesn’t sound so far-fetched after all. In fact, it almost sounds as if it’s going to be the next big evolution in world football.

And just as TV networks have continued to scramble for big broadcasting deals just to get a slice of the ever-growing pie, football clubs not yet in the “Super League” category will fight tooth and nail, and spend an arm and a leg to try to get there.

There will be plenty of new entertainment for football fans—and plenty of inadvertent and unfortunate financial casualties as well.

 

This article first appeared on Bleacher Report.

Business strategy, Finance and economics, Football Business, Stadiums and events, World Cup

Why the 2014 FIFA World Cup in Brazil Can Still Be the Best Ever

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As we enter the final few months of the buildup to the 2014 World Cup, we’ve heard much about the current state of host nation Brazil and how behind it still is in terms of building the necessary infrastructure to successfully host and support a worldwide tournament and festival.

Just last week, FIFA secretary Jerome Valcke told BBC Sport that Brazil may not be “totally ready” for the start of the tournament due to building delays, with two stadiums in Porto Alegre and Sao Paulo still not finished.

And with the current political climate in Europe, amid criticism of Russia’s recent actions following the Winter Olympics in Sochi and Qatar’s human rights record ahead of its own World Cup in 2022, Valcke has even gone as far as to emphasize FIFA’s political neutrality, per Al Jazeera:

FIFA is not the United Nations…We are not there to discuss with political authorities what they should do…We can discuss with them, and again be the platform for them to meet, to exchange and to make sure they are using football as a tool for change…But we cannot tell a country what should be [sic] their foreign policy. That’s not our role.

All of which has thrown a considerable spanner into the Brazilian works, as the country makes frantic last-minute preparations for the global event amid an unsteady domestic political climate.

For Brazil to put on a successful World Cup, 64 years after it was last hosted on home soil, no doubt there are still major hurdles to overcome—not to mention many people to convince.

Yet lost amid all the negative news is the undeniable prospect of a fervent and vibrant tournament, of a famed Brazilian party, of a mouthwatering tournament featuring footballing talent in abundance on the pitch—and the underlying possibility that the 2014 World Cup can still be the best ever.

 

Leo Correa

 

A National Legacy

Let’s begin by looking at the positive impact that FIFA can bring with its local programs in conjunction with the tournament itself.

Its recent announcement of a $1 million television production internship program for Brazilian students, allowing them the chance to gain “invaluable work experience at the world’s biggest single-sport event,” is a glimpse at the “legacy” impacts that FIFA has now made a big part of its tournament-hosting packages.

By involving local students and providing technical and professional training in a sure-to-be exciting opportunity for local youth, FIFA has laid the groundwork for a potential boom in interest in the international sports business and the financial workings of a global tournament—quite in contrast to the uneasy local sentiment on show during the Confederations Cup last summer.

Looking at the legacy factor from a macro, country-level perspective, the Brazilian government forecasts, via Fox News Latino, that the World Cup itself will generate around 62.1 billion reais ($27.7 billion) in revenue, three times its income from the Confederations Cup.

The significant economic impact from the boom in tourism has been projected to include a total number of 3.6 million visitors to the country and an increase of 47,900 jobs in the tourist and recreation sectors, which would be a considerable injection of activity and revenue into Brazil’s GDP.

Alongside the inevitable focus on consumption on Brazilian soil, the Brazilian government has also launched advertising drives to highlight its other attractions, including “the Iguassu Falls, eco-holidays in the Amazon, the historic city of Salvador and Brasilia,” according to the BBC, as well as to draw attention to its capacity and capability to host global events and conferences.

Said Marcelo Pedros, the director of international markets for Embratur, the Brazilian Tourist Board:

Everyone knows that Brazil can play football and throw a party, but we want to show just how well we can organize international events. When Germany held the World Cup in 2006 it was the other way round. Everyone knew they would be well organized, but could they hold a party? They did, and it was very successful. We are going to prove the same success with Brazil’s organization skills.

And, of course, there is the small matter of the tournament kicking off on Brazil’s own Lovers’ Day, which, according to the Metro, is already capturing the imagination of many an innovative and entrepreneur.

 

Dean Mouhtaropoulos/Getty Images

 

An Unpredictable Contest

We’ve managed to come this far without even mentioning the football due to be on show in Brazil, which is a strong testament to the off-pitch factors that could see Brazil become the biggest and most successful global party yet.

But while the World Cup has arguably evolved from a pure celebration of football into a money-making exercise, at its heart football is still the beautiful game, and we could well be looking at one of the most exciting iterations of the tournament of all time, given the unpredictability of the contest this summer.

As football fans look ahead to the 2014 World Cup, many questions will no doubt pop into their minds. Who will rise to the top this year? Will Neymar confirm his status as the next big thing in football by bringing his country the World Cup at home? Or will Lionel Messi finally deliver a World Cup to secure his place in the pantheon of all-time greats?

Will Spain continue their recent dominance with a fourth successive win in a World Cup or a European Championship tournament? Or will Germany’s youth revolution end its own wait for a world title?

What about the dark horses—will Belgium’s new golden generation fulfill their potential as they look to take the World Cup by storm? Or will Uruguay better their last-four performance in 2010? Is it time for an African team to go all the way? Or will England finally get over their quarterfinal hoodoo and fire their way into the final?

The presence of so many international stars on Brazilian soil—the mythical Zlatan Ibrahimovic excepted, due to Sweden’s playoff loss to Cristiano Ronaldo’s Portgual—will bring unprecedented levels of global coverage (and, of course, incessant marketing and advertising efforts), which will in turn drive up interest in the tournament around the world.

Even the statistic, tactic and formation buffs will be treated to an event of gigantic proportions, as the proliferation of data analysis in football will no doubt boost intelligent debate and substantiated discussion around the contest unfolding on the pitch. The different ideologies and philosophies adopted by different national teams may finally see distinct national “identities” form around the ball.

And we haven’t even gotten to the prospect of a nerve-wracking penalty shootout or a new Zinedine Zidane-esque flashpoint.

 

Handout/Getty Images

 

A Glimpse into the Future

All the talk so far has been of the present, but while the World Cup doesn’t involve the next host nation putting on a “teaser trailer” show to close out the current tournament—unlike the Olympics—one eye, as ever, should be kept on the future.

And this World Cup finds itself in a fascinating intersection between the old and the new.

On the pitch, what could be better for Brazil than to have traditional rivals Uruguay resurface as a strong contender? Or a new-look Argentina side to prove its dominance and legacy with Messi at the helm?

The prospect of a new Brazil team headed by Neymar winning on home soil is one that can’t be ignored—and no doubt one that would kick off an unprecedented party—while the recent dominance of Spain may start to make way for teams of the future.

We will get to witness the platform that Belgium may well set for itself in international football, while England is set to usher in a new generation of young talent following what will be a transitional tournament. And as ever, there are plenty of new names we might not have even heard of yet who will catapult themselves into the spotlight over just a few weeks in Brazil.

In the stadiums and on the streets, the local mood may well be poignant, as Brazil recalls hosting its last World Cup 64 years ago and considers the development and turmoil it’s gone through in that time.

From a traditional footballing heyday in 1950 to a global commercial extravaganza, those who have followed the tournament in years gone by may yet witness another chapter in the ongoing evolution of the World Cup as an event.

The fascination of welcoming visitors from around the world and partaking in a joint experience of an international tournament at home may inspire a new generation of Brazilian youngsters to not only embrace the power and potential of the simple game of football but also to serve the greater good of their nation through business and global collaboration.

And finally, Germany 2006 was a return to familiar European territory between two groundbreaking tournaments in Asia (Korea/Japan 2002) and Africa (South Africa 2010), while Brazil 2014 will be the last tournament to be hosted in a region with World Cup experience: The next two World Cups, if all goes according to plan, will be held in new frontiers—Russia (2018) and the Middle East (Qatar 2022).

For FIFA as much as for Brazil—depending on how this year’s event goes—the World Cup will be a key milestone and provide a glimpse into an exciting or murky future.

For if Brazil successfully overcomes its last-minute hurdles and political differences and ends up hosting an excellent tournament, we can all look forward to successfully charting new territory in the years to come.

South Africa did it. Why not Brazil?

 

This article first appeared on Bleacher Report.

Business strategy, Finance and economics, Football Business, Manchester United

The True Financial Cost of Manchester United Missing out on the Champions League

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The gulf in class on the Old Trafford pitch was evident on Tuesday night as Manchester United succumbed to another 3-0 home defeat to a major rival, but David Moyes added more insult to injury as he claimed that Manchester City’s standard and level were something to “aspire” to, per Sky Sports.

For Red Devils fans, who had been used to seeing years of Premier League dominance and a true winning dynasty under Sir Alex Ferguson, this statement—that United were now, suddenly, looking up to their “noisy neighbours”—will have irked, much more than their overall lethargic play has already this season.

It hurts, not just because it was United’s sixth home defeat in the league this season—their most ever in the Premier League—but also because a glance away from the scoreboard and at the league table shows just how far they’ve fallen from their supreme title-winning season last year.

As we approach the final weeks of the 2013-14 Premier League season, Manchester United are left staring up rather than down, contemplating what exactly a failure to qualify for next year’s Champions League—and they are on the brink—would mean to the future of the club.

But what exactly would it mean? Here’s a brief study on the true financial cost of Manchester United missing out on the Champions League—and it doesn’t look too rosy.

 

Alex Livesey/Getty ImagesPremier League Payouts

Qualifying for the Champions League requires a minimum of a fourth-placed finish in the Premier League, so let’s go from there.

It’s a well-known fact that the Premier League provides payments to its competing clubs at the end of every season—and it’s because of the league’s astonishing financial successes that those in England’s top tier receive huge amounts of revenue from television rights and so on.

While we won’t know the exact payouts each club receives for the season until late May, after the season will have officially finished, our benchmark will be from last season, where the fourth- and fifth-placed clubs were Arsenal and Tottenham Hotspur respectively.

For their efforts last season, Arsenal received a total end-of-season payment of £57.1 million, £12.8 million of which were “merit payments” from the Premier League based on position, according to the league’s official announcement. Spurs, on the other hand, received £55.9 million and £12.1 million in merit payments.

It’s easy to calculate the difference just in merit payments as a reflection on the gap between the fourth- and fifth-placed Premier League clubs, but the other components of the payout—the “facility fees,” given each time a club’s matches are shown on TV in the UK, and “overseas TV” costs—are also tied intricately into their performances in the league and in European competition.

So the difference in overall payments is likely a more reliable indicator on the gap. In this case, it’s £1.2 million.

Not too significant as a lump sum, but when it comes to Manchester United, the fact that they were so successful in the league last season means that the hurt will be inevitable—and more considerable.

United finished the season as runaway champions, netting a league-high £60.8 million in payouts, which is a full £4.9 million difference from Tottenham’s eventual payout. And it doesn’t stop there: United’s current seventh place was where arch-rivals Liverpoolfinished last year, and the Merseysiders received £54.8 million.

If the Red Devils drop from first place and finish seventh come May, they will have missed out on at least £6 million just in league payouts—and we haven’t even adjusted for the inevitable league-wide increase yet.

 

Laurence Griffiths/Getty ImagesChampions League Payouts

Then there are the official payouts from the Champions League, which, if United do miss out on the competition itself, they will naturally not be entitled to next season.

For all their domestic woes this season, United’s run to the quarter-finals this season has by and large been smooth, barring a first-leg shock against Olympiakos in the round of 16. Their easy win of Group A was secured on the back of four wins, two draws and no losses—but this is also why an exit from Europe’s elite cup competition will hurt all the more.

According to the official UEFA website, the Champions League paid a minimum base fee of €8.6 million to each participant in the group stage last season.

An additional €1 million was awarded for each win and €500,000 for each draw, meaning that on their group stage form this season, United netted at least €13.6 million just from the group stage alone.

All clubs competing in the round of 16 received a €3.5 million payout, whereas each quarter-finalist received €3.9 million each.

Added on to the group stage payments, that’s at least a €21 million total that they will earn from this season’s Champions League run—and, again, that’s not adjusted for the inevitable competition-wide increase yet.

And who knows—if David Moyes manages to mastermind a famous victory over two legs against the fearsome and record-breaking Bayern Munich of Pep Guardiola, there could be further payments yet.

Translated into pound sterling, the Champions League prize money from this season is at least £17.5 million (and counting), which puts the total opportunity cost at £23.5 million.

Just exactly the amount Marouane Fellaini would’ve cost last summer—if Moyes submitted his bid before the Belgian’s release clause expired on July 31, 2013, according to BBC Sport.

 

Paul Gilham/Getty ImagesThe Intangibles

If only the cost of missing out on the Champions League was just £23.5 million.

Just ask Liverpool, perennial arch-rivals to Manchester United, who slipped into several years of mediocrity—including a couple through financial difficulty—after finishing seventh in what turned out to be Rafael Benitez’s last season at Anfield.

Whether it was down to the personal draw of the managers that succeeded Benitez, or due to the lack of top-quality competition that Liverpool were to be involved in, we may never know, but the truth remains that Liverpool’s signings since that exhilarating title challenge in the 2008-09 season had dropped down several notches—and only resurfaced in the past year or so.

In many ways, Manchester United’s current situation and Liverpool’s back then are similar, especially since both clubs are two of the most prestigious in England (and the world), two of the most historically successful and two built on pride and tradition more so than pure financial muscle.

To lose out on what has traditionally been a key part of the United brand—namely their winning tradition and stature in Europe—would be a huge blow to Manchester United’s appeal to prospective players.

David Moyes stressed in January that “the amount of big players wanting to join United is incredible. It’s because of the club and what it stands for in world terms. Players are not looking at the share price. They are looking at the football club,” per ESPN FC.

A Manchester United without the Champions League simply does not provide the same attraction and a scan at Liverpool’s reported missed signings over the years is testament to that.

Far more than the £23.5 million base loss, which less than half a season under the terms of their kit deal extension with Nike can already recuperate, via the Mirror, this might well be the true cost to Manchester United missing out on the Champions League.

Unless, of course, they change tack and throw their financial weight in to compensate for the lack of European competition, in which case the likes of Chelsea, Manchester City, Real Madrid and Paris Saint-Germain become their main competitors.

And they’ve all got Champions League football.

 

This article first appeared on Bleacher Report, where I contribute regularly on Liverpool and the Premier League.

Business strategy, Finance and economics, Football Business, Manchester City, Stadiums and events

Why Stadiums Are Increasingly Crucial to Football Clubs’ Commercial Strategies

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The Santiago Bernabeu revamp, the Etihad Stadium and the Anfield regeneration—it’s been a busy few weeks for high-profile stadium projects for high-profile football clubs.

From rebranding, modernization to capacity increases, stadium refurbishments and new stadium projects are becoming headline hitters for the amount of money they involve and the scale of commercial ambition they suggest.

The three examples above are some of the biggest news involving football stadia in recent weeks, but are by no means isolated cases: A big part of the discussions involving New York City FC and David Beckham’s fellow new Major League Soccer venture in Miami also revolve around the kind of venue and arena they select and subsequently develop.

It’s not just about Real Madrid, Manchester City and Liverpool: A look across the top clubs in Europe shows that besides stadium capacity and modern architecture, stadium experience also matters to fans and, increasingly, football clubs.

We’ve always known that the live experience of a football match inside a stadium is a defining part of being a football fan, and one of the key factors that continue to pull in match-day revenue despite rising ticket prices, especially in the Premier League.

But now we’re seeing that football stadia are increasingly crucial to the commercial strategies of football clubs for a variety of different reasons. Let’s explore some of them with a few brief case studies.

Matt Dunham/Associated PressCorporate Sponsorships: Arsenal’s Emirates Stadium

The first example that comes to mind is Arsenal’s move from Highbury to the Emirates Stadium in 2006.

Known as the “Home of Football” previously, Highbury was famous for its small pitch and the proximity of the pitch to the stands, and thus for its atmosphere.

While its peak capacity was in excess of 70,000, Highbury had to be reworked due to the Taylor report on the Hillsborough disaster in 1989, which recommended that football stadia in England become all-seaters. For the majority of the Premier League era, Highbury was known for being one of the most compact stadia for a top football club: They only seated around 38,000 fans every week.

Naturally, this posed problems for the Gunners, especially as they were building their fanbase and were looking to challenge Manchester United on the domestic front. While Arsenal were scraping by with gate receipts from 38,000 fans a week, Old Trafford had expanded to 55,000 seats by 1996, which meant a corresponding increase of matchday revenue for United.

With Arsenal’s decision to move into a new stadium at Ashburton Grove, so they leapt forward into the 21st century and fully embraced any corporate sponsorship and strategic partnerships as they came forward.

Not only did they start fully adopting a transfer policy of buying young and cheap and selling high to maximize financial return—helped by the astute Arsene Wenger, who holds a degree in economics—but they also explored commercial initiatives to alleviate a significant potential burden in financing their new stadium.

Granada Media took a 5 percent stake in the club by investing £47 million, as reported by the Guardian, while Nike signed a new shirt sponsorship deal with Arsenal for a reported £130 million, according to the BBC. (Puma have since replaced Nike as kit makers in a lucrative deal announced this January by the BBC.)

In 2004, Arsenal added to their coffers with a £100 million naming rights deal with Emirates Airlines, which at the time was reportedly “by far the biggest deal ever undertaken in English football,” according to the BBC.

Out of the total £390 million that the Emirates Stadium cost, three major sponsorships footed at least £277 million, and in January last year, Arsene Wenger publicly stated that Arsenal had finally finished paying off their loans for their new stadium and would be ready to finance big-name signings, as reported by the Daily Mail. He stayed true to his word by smashing the Gunners’ transfer record with the deadline-day signing of Mesut Ozil.

As seen from their stadium move, Arsenal transitioned into the corporate age of football and became a commercial giant in the process. With their existing deals set to end and new, lucrative partnerships about to kick in, the Gunners may finally realize their full potential on the pitch with their advances off the pitch. The Emirates Stadium provided a platform and opportunity for Arsenal to become a modern, commercial organization.

Jan Pitman/Getty ImagesTournaments and International Prestige: Bayern Munich’s Allianz Arena

This January, Bayern Munich revealed plans to increase its Allianz Arena home stadium from its current capacity of 71,137 to 75,000, as reported by ESPNFC.

The expansion plans will only boost Bayern up the stadium capacity ranks in Germany by one position, above Hertha Berlin’s Olympiastadium and behind Borussia Dortmund’s Signal Iduna Park, but Bayern’s ambitions, as we saw from their summer appointment of Pep Guardiola to take over from treble-winning Jupp Heynckes, aren’t limited to domestic triumph.

Consider the stadium’s use planned from the get-go: Since opening in 2005 with one of the most widely recognized exterior stadium designs in world football, it has been the home stadium of both of Munich’s professional football clubs, Bayern Munich and TSV 1860 Munchen, as well as a frequent host of the German national team.

Then there are the finances. In this 2013 article by the Economist, Bayern’s total revenue in 2012 was the fourth highest in the world, after Real Madrid, Barcelona and Manchester United. The nearest challenger from within Germany was Borussia Dortmund with €189.1 million, about half of Bayern’s €368.4 million.

Yes: The same Borussia Dortmund who finished second to Bayern in both the Champions League and the Bundesliga in 2013 had just half the total revenue of Bayern.

Having conquered home soil, Bayern are going after world domination, and with a new stadium, they can place themselves at the forefront of German football—if they weren’t there already.

They have 2020 in their sights. Named as Germany’s candidate city for the 2020 European Championships, which will be taking place across European cities, Munich will be bidding for “Package A,” which includes three group-stage matches and one last-16 or quarterfinal fixture, and “Package B,” which includes both semifinals and the final.

The problem at the moment is that UEFA’s requirements are that stadia must meet 70,000 seats to qualify to host matches in the tournament: As Allianz Arena’s capacity is reduced to 67,812 for international games and UEFA competitions, it currently falls just shy.

Of course, there’s no stadium expansion or corporate super-club that doesn’t have its fair share of commercial deals and strategic alliances: The Economist article quoted above has plenty of coverage of Bayern’s considerable financial might as a result of their sponsorship deals, all the while operating in the Bundesliga context that mandates not more than 49 percent of football clubs can be owned by corporations.

Denis Doyle/Getty ImagesThe Next Level: Real Madrid’s Santiago Bernabeu

For around just £60 million (lower than what Cristiano Ronaldo cost) less than what Arsenal’s Emirates Stadium cost to build, Real Madrid are redeveloping their iconic Santiago Bernabeu stadium for a whopping £328 million (€400 million).

According to the Guardian, Real Madrid president Florentino Perez didn’t mince any words in his proclamations for his club’s goals: “It’s time to face another challenge; we want to make the Santiago Bernabeu the best stadium in the world.”

Currently seating 81,044, the Bernabeu is already one of the biggest in world football, but with the planned redevelopments, according to Marca, it will become the third-largest five-star stadium in the world with 93,000 seats, behind Barcelona’s Camp Nou and the Azteca Stadium.

But it’s not purely about capacity expansion: A quick look at the mockups shown by the Mirror shows the sheer scale of Los Blancos’ ambitions. They will be building an entirely new exterior and adding a retractable roof, in addition to expanding the lucrative VIP areas and corporate box offerings like those at the new Wembley, which Marcasay generate at least €10 million a year alone.

As ever with football stadia these days, the Mirror claim that Real Madrid are looking to negotiate a lucrative naming rights partnership, with Microsoft and Coca-Cola as strong contenders to land a potentially record-breaking deal.

In a league where Real Madrid and Barcelona dominate television revenues due to a lopsided arrangement that earn them about 6.5 times the smallest team in La Liga, according to Bloomberg, despite an impending law that is expected to reduce this inequity, the dominance of Madrid will continue to hold when their redeveloped stadium opens for use.

The politics and implications of reducing the financial duopoly of theel Clasico teams are best left for another article to dissect, but while Madrid may not be able to recoup their eye-watering TV revenues in the short to medium term, their new stadium may provide a very comfortable cushion.

Not that Barcelona will be left behind, though. They’ve already put their own stadium expansion proposal to a vote this April: The upgraded Camp Nou would seat 105,000 fans, surpassing the Azteca Stadium’s capacity and becoming the biggest football stadium in the world. It would cost a whopping €600 million, according to ESPNFC.

The duopoly goes on.

Sharon Latham/Associated PressA Footballing Empire: Manchester City’s Etihad Stadium

Football clubs don’t seem to be content on just winning on the pitch anymore. Our last case study will be on Manchester City, who have caught the eye not just with their achievements in the Premier League and their star-studded squad, but also with their remarkable expansions across the globe.

Their entry into Major League Soccer with New York City FC has already been well-publicized and much anticipated, and just this January they extended their already considerable footballing might into Australia with their acquisition of the A-League’s Melbourne Heart, as reported by the Guardian.

With their tentacles spreading across the globe, City are well and truly building a footballing empire, and right at the middle of this are a few architectural projects back in Manchester.

If Arsenal, Bayern Munich and Real Madrid have all capitalized on their existing fanbases and historical success and catapulted into the 21st-century super-club, Manchester City have broken emphatically into that category in just a few years.

According to the Manchester Evening News, City’s commercial deals in 2012 helped them to increase revenue by 51 percent to become the seventh highest-earning club in the world, behind Arsenal, Chelsea and the aforementioned big three.

Besides City’s well-regarded social media campaigns and money-spinning world tours, they are also going ahead with plans to increase the capacity of their Etihad Stadium from 48,000 to 62,000, which would make it the second-largest stadium in the English top flight and take them into the realm of the European footballing elite.

And just like Florentino Perez of Real Madrid, City’s power brokers have been vocal in their ambitions for their team: Chief operating officer Tom Glick claimed that Manchester would have two of the top-five clubs in terms of worldwide revenues by the end of 2014.

If, as reported by the BBC, the Etihad expansion will be completed by the 2015-2016 season, then City will have with them a mighty financial arsenal in just a couple of seasons’ time. A far cry from its initial capacity of 38,000, and a development fit for an empire.

By that time, however, they might have a new competitor to deal with: Liverpool, who have continued to be a fixture in the top 10 of Deloitte’s Money League for the past few years, despite being the only club there without Champions League football, look ready to return to the European big time.

And, according to the Telegraph, they are planning to submit their own redevelopment proposals for Anfield by the end of the 2013/14 season.

 

This article first appeared on Bleacher Report, where I contribute regularly on Liverpool and the Premier League.

Business strategy, Elsewhere, Finance and economics, Football Business, Politics, Stadiums and events, TV and broadcasting, World Cup

The World Cup: Evolution from Celebration of Football to Money-Making Exercise

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“No decision will be taken before the upcoming 2014 FIFA World Cup Brazil, as agreed by the FIFA executive committee.”

Source? An official FIFA statement, via the Guardian. Topic? Whether the 2022 World Cup in Qatar will be held in the summer or winter, of course; it’s only been the topic that’s consumed most international football fans and FIFA observers in the past few months.

The timing though? Immediately after Jerome Valcke, the FIFA secretary general, suggested to a French radio station that the World Cup might be moved to November 2022 after all.

Confused? You’re not the only one. But what’s been made apparent from the Qatar World Cup 2022 debacle, is that besides all the confusion and suspicions, the focus has firmly been taken away from what the World Cup is supposed to celebrate: football, the game itself.

Sure, the talk has revolved around Qatar’s temperatures in the summer, which would make for harsh conditions for players and fans alike, but surely that would’ve been a factor in the decision-making process leading up to awarding Qatar the host rights, instead of a topic to be discussed afterwards.

That Sepp Blatter and FIFA want to bring the World Cup to the Middle East is not a secret: Back in November, he even entertained the idea of hosting the tournament across several countries in the Gulf region, according to the Telegraph. So the globalization of football and the expansion of FIFA are two key items on the agenda, and both politics and money are equally prominent at the heart of all this, as we studied in an earlier article on the World Cup controversies.

But how exactly did the World Cup get to this current state? To answer that question, let’s go back and trace the evolution of the world’s most prestigious tournament from celebration of football to money-making exercise.

Laurence Griffiths/Getty Images

The Olympics: Eternal Rival and…Founding Father?

To understand the World Cup’s evolution and growth, we must first consider the history of the Olympic Games, eternally seen as the World Cup’s rival tournament in terms of global reach and prestige.

The distinction is always made that the Olympics celebrate not just one sport, but sport as man’s pastime, while the World Cup is only the gathering of footballing nations in the world—and before the United States’ entry and strong showing, not even encompassing the entire world. The World Cup’s proponents point to the final as the premier spectacle in world sport, with no single sporting match able to match its global appeal.

In reality, while they might be rivals now and trying to outdo each other every two years, it didn’t start out that way. In fact, the World Cup has the Olympics to thank for its current iteration and success, because it was the Olympics that gave birth to the World Cup as we know it.

When FIFA was founded in 1904, international football—indeed, professional football—was a phenomenon only affordable for a few countries, and when football was inducted into the Olympic Games in the summer of 1908, only amateurs were represented. Any attempt at organizing a truly international football tournament was undermined by the lack of professional setups in most countries around the world.

But when Uruguay won both the Olympic football tournaments in 1924 and 1928, FIFA, with then president Jules Rimet as a visionary driving force, stood up, took notice, and most importantly, set about realizing his dream. The first FIFA World Cup was to be staged in 1930 in Uruguay, with politics—what else?—at the heart of the host location decision: It was to be the 100th anniversary of Uruguay’s independence, and it was to be made not a great celebration of the game itself, but a spectacular political statement.

How else to explain it, given that the Uruguay national football association was willing to cover all travel and accommodation costs incurred by participating teams? As even FIFA.com concedes, that possible profits would be shared with participants and deficits taken on by the host country won Uruguay the first ever World Cup hosting rights.

The 1934 competition was held in fascist Italy under the dictatorship of Benito Mussolini, and Rimet, according to this excellent Independent feature on his life, was already criticized for politicizing football.

Before the advent of television and the phenomenon of globalization, the World Cup had surrounded itself with politics and money.

(A footnote to add, though, is that Jules Rimet’s vision and dream of uniting the world through sport and creation of the World Cup earned him a Nobel Peace Prize nomination in 1956. Perhaps, hopefully, the World Cup at its heart was actually more than a celebration of the beautiful game, but a triumph of humanity.)

Carlos Alvarez/Getty Images

The Context: Globalization and Technology

But just as we can’t give the Olympics all the credit for introducing the concept of a FIFA World Cup, so Rimet and FIFA can’t claim all the glory for growing the tournament from a small competition featuring just a few countries in Montevideo, Uruguay, to the global spectacle that was the 2010 World Cup in South Africa.

As ever, context is key, and the explosion of global business and trade, just as it’s played a huge role in the history of the 1900s, is an integral part of the World Cup’s continued evolution. Before the business side of things took over, though, first came the phenomenon of television.

According to this TIME feature, the impact of television on the World Cup’s boom cannot be understated: From 1954 to 1986, the number of TV sets worldwide “increased more than twentyfold, from a little more than 30 million to more than 650 million.” This laid the foundations for a truly groundbreaking moment in football history.

The first live World Cup games were broadcast in Europe in the 1954 tournament, which reached only a handful of audiences due to the low volume of matches shown, but the potential of television and TV advertising was already apparent. (Not that the Olympics were to be beaten, of course: The 1936 Summer Olympics were the first to be broadcast on TV to local audiences. International broadcasts came in 1956.)

Fast forward a decade and a half. Spying an opportunity to conquer the world of football and reap the ensuing economic benefits in 1974, was new FIFA president Joao Havelange, who upon taking office turned his organization into a modern international NGO, putting in place the infrastructure, people and income-centered mindset of a corporation.

The only thing left to do for the World Cup, which previously featured 16 national teams, was to expand. And expand Havelange did, opening the doors to developing countries with eight additional slots (which have since been further increased to a total of 32 participants since France 1998), as discussed by Tim Vickery for The World Game. The Havelange era also saw the introduction of the FIFA U-17 World Cup, FIFA U-20 World Cup, FIFA Confederations Cup and FIFA Women’s World Cup.

The costs of hosting such an immense global tournament in one country were too much to bear for one host country and FIFA, and thus came the idea of corporate sponsorship of the World Cup. Havelange struck deals with Horst Dassler, heir to the Adidas fortune, for the German sportswear company and other big-name corporations like Coca-Cola to fund the tournament, paving the way for the commercialization of international football.

So while the advent of television advertising led to increased premiums for marketers to get their spots onto World Cup TV screens, behind the scenes within FIFA itself was a concerted movement to pump money into the World Cup—with political and economic influence once again the main motivation behind all these changes.

(The name Joao Havelange may be familiar. He was the same FIFA ex-president that resigned in April 2013 after a FIFA ethics report ruled that he had taken bribes, as reported by BBC Sport. The culprit in question? International Sport and Leisure [ISL], founded by Horst Dassler. Politics and money, indeed.)

Getty Images/Getty Images

The 1990s and Onwards: Spiraling Out of Control

If ever there was a curious decision in the history of world sport, the idea to host the 1994 World Cup in the US was clearly one, at the time. In hindsight, however, it was just another calculated plan from Havelange to bring the game to North American shores, which had yet to be consumed by football fever.

The legacy was stunning: To this date, USA 1994 still holds the total attendance record (over 3.5 million) and the average attendance record (68,991), according to USSoccer.com. The US’s advancement to the round of 16 for the first time since 1930 contributed to soaring TV ratings.

(Leading up to its hosting of the World Cup, the US also put in place their first ever professional soccer league. It’s no surprise that Major League Soccer was founded in 1993, a year before the 1994 World Cup. We explore the growth of soccer in the US in another article.)

The introduction of the World Cup in practically uncharted territory in 1994 was met with enormous financial successes, and since its foray into the world leader of commercialized sport and corporate sponsorship, FIFA have never looked back. The World Cup has since traveled to Asia (2002) and Africa (2010), goes to Russia in 2018, and brings us to the Middle East in 2022.

According to this Economist article, the World Cup broadcasting rights for France ’98 were sold by FIFA in 1987, before the stunning 1994 American success, for $344 million. An indication of how far the World Cup and FIFA have gone: In 1998, at the time of the article, ISL—which would later collapse, of course—had agreed to pay $2.2 billion to show the games outside America.

The groundwork for corporate sponsorship was laid by Havelange, but was taken to new levels under the leadership of current president Sepp Blatter. Let’s consider the 2010 World Cup, for example: According to a UPenn study, FIFA’s revenues related to the South Africa tournament amounted to a staggering $1.022 billion, of which $650 million belonged to broadcasting rights.

Participating national teams are in on the act too: FIFA was to provide $420 million to all participants and the football league teams providing players to the national teams, $30 million of which would go to the World Cup-winning team (Spain). First-round teams qualified automatically for $8 million each, while $1 million in preparation costs were provided to each participating football association.

This was brought about by the stellar line-up of corporate FIFA sponsors, known as “partners,” which included Adidas, Coca-Cola, Emirates Airlines, Hyundai-Kia Motors, Sony and Visa, who were “guaranteed exposure in the tournament stadium” and would receive “direct advertising and promotional opportunities and preferential access to TV advertising.”

The cost? A minimum of between 100 and million euros through to 2014. By which time, of course, the next World Cup cash cow will be held this summer, this time in Brazil.

Clive Mason/Getty Images

Conclusion: It’ll Only Get More Expensive From Here

Is it damning or merely inevitable that corporate sponsorship and incessant marketing efforts are now part and parcel of any World Cup?

In the build-up to this summer’s tournament, the allegations of corruption have been brushed aside after Havelange’s resignation in 2013, while all the talk of political and commercial interests have been directed towards the distant 2022 World Cup in Qatar, still eight years away.

It’s no longer news—rather, it’s an accepted fact—that the World Cup is now considered an extremely lucrative opportunity for brands and nations alike; this Fox article on Nike and Adidas’ brand battle pre-World Cup is now just part of the fabric. In fact, any sports company—or indeed any business entity at all—would be condemned for not taking advantage of a World Cup year to promote its business.

And so it’s only going to get more expensive from here. The spending and rights associated with the premier world football tournament have skyrocketed in the past decade or so, with the help and under the influence of a few key players, but the brand-new stadiums that are to be constructed in host countries are just the tip of the iceberg when it comes to World Cup spending.

But it’s the World Cup. Just as FIFA continue to rake in the cash, we football fans will continue to ignore the commercial influences and political battles and focus on the spectacle that will unfold before our eyes when the first whistle is blown on June 12 at the Arena de Sao Paulo.

An event of this magnitude only comes once every four years, after all. When the winning team hoists the Jules Rimet trophy on July 13, for once the celebrations will be directed entirely towards the football that they have played, not the money they will make.

This article first appeared on Bleacher Report, where I contribute regularly on Liverpool and the Premier League, and at times on the business of football.