Photo: Onderwijsgek via Creative Commons

(This post from August 28 disappeared after a server migration – here it is again, thanks to Google cache….)

What makes a soccer club work as a business?

I’ve now spent six years in this industry, and earlier I worked as an economist and strategic consultant. Throughout my time in soccer, I’ve tried to take note of the strategies that club owners and executives pursued: what they wanted to do coming in, what they actually did, and how they coped when things went wrong.

As in any industry, a negligent leader is unlikely to get good results, whatever his or her intentions. But even for a leader who’s involved and intent on success – both on and off the field – there are only a few approaches that seem productive. I’m going to focus on European soccer here, since the landscapes in other regions can be very different.

Create a global brand as a commercial platform. This is what City Football Group has done. By creating sporting and commercial outposts around the world, it has managed to add sky-blue shirts to the wardrobes of young people around the world. Those shirts are still outnumbered by Real Madrid shirts (and probably Barcelona, Arsenal, Liverpool, Manchester United, Chelsea, and Juventus as well…). Yet not long ago you hardly saw them at all.

Use the club as an anchor for local business development. Roma is building a small city around its new stadium, and it’s probably not a coincidence that its Boston-based owners’ plans look a bit like what the Kraft family did around their Gillette Stadium, which houses the New England Patriots of the NFL and the New England Revolution of MLS. The club becomes the center of a commercial and residential real estate boom.

Become a clearinghouse for young talent. Whether it’s Ajax’s decades-old youth system or Brentford’s relatively recent data-driven recruitment and B team, finding and showcasing those talented young needles-in-a-haystack can be profitable. It often means selling your best players, though, and this can limit your sporting success. Ajax isn’t going to win the Champions League anytime soon. And though Brentford may someday gain promotion to the Premier League, its tenure there could be short-lived if it maintains the same business model.

Get promoted, stabilize, and sell. Promotion from the second tier to the first tier in Europe’s top leagues – except in Germany, where clubs at the top aren’t supposed to be majority owned by private investors – can raise revenues and enterprise value by four times over or more. This is a classic private equity play: buy an asset, improve it, and then sell it. The strategy can even work in the lower tiers of some leagues; just watch what happens with Portsmouth under Michael Eisner’s ownership. The only catch is that you have to sell the club to someone who wants to pursue a different business model.

These four approaches might not be the only ways to make money in European soccer today, but I think they’re the most promising.

There’s just one more thing to keep in mind. If you run a sports club and want to win sustainably, then you have to make decisions based on facts – just as you would in any other industry. The moment you allow emotion and machismo to affect your decisions, the club is no longer an investment. Rather, it is a vehicle for your personal consumption and enjoyment; the fans, players, coaches, and staff are just along for the ride.