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SBJ/July 16 - 22, 2007/This Weeks News
Rebirth of a Galaxy
Published July 16, 2007
Alexi Lalas’ family vacation disintegrated last January. What was supposed to be a quiet week away from work in Palm Beach, Fla., turned into a week of nonstop, international phone calls and e-mails.
Is it done? Lalas, president of the Los Angeles Galaxy, would ask every few hours.
We’re close, AEG Sports President Shawn Hunter would say. Still no signature.
But late on the night of Jan. 10 that all changed when Lalas got word that David Beckham had signed to play for the Galaxy. He immediately got on his computer to e-mail his staff the good news. After labeling the subject, “The Star of David,” Lalas wrote:
It’s a go. Let’s have some fun.
He hit send and felt a mix of pride and excitement as he thought about the historic significance of the signing. But those feelings quickly faded under the weight of his new responsibility.
The team had just signed the world’s most iconic soccer player to an unprecedented contract reportedly worth $250 million. It was a deal he would have to help make work not just for the Galaxy but also for all of Major League Soccer.
“No one had ever been through anything like it,” Lalas recalled. “I began to wonder how we were going to be prudent and maximize this in the short term and the long term.”
Lalas’ fear was addressed over the course of eight months, beginning in November 2006, by the staff of the Los Angeles Galaxy and AEG, which owns the team. During that period, they revolutionized their business model and reinvented the team, adding everything from a new logo to new season-ticket holders, from new sponsors to a series of exhibition games. And they did it all with an eye on increasing revenue and establishing a worldwide brand.
“For me,” Lalas said, “it was an incredible educational experience.”
Launching a brand
On Nov. 12, immediately after MLS’s board of governors approved the designated player rule, representatives from AEG, the Galaxy, Adidas and SME Branding met in the dining room at the Westin Stonebriar Resort in Frisco, Texas.
AEG CEO Tim Leiweke explained that the designated player rule (a.k.a. the Beckham Rule) would allow each team to sign up to two players whose salaries weren’t limited by the league’s $2.4 million salary cap. He planned to use the rule to reshape the Galaxy by going after international soccer stars. He didn’t name any specific players but said he wanted to rebrand the team before those stars arrived.
Leiweke wanted to create a team that would serve as the gateway to American soccer. For that to happen, he wanted to develop a logo as iconic as the interlocking “NY” of the Yankees. He wanted a logo that would be instantly recognizable throughout the world.
|Leveraging Beckham meant a sales spree involving
tickets, sponsorships and exhibition dates.
The project would be headed by Lalas, who would work closely with league partner Adidas and brand consulting firm SME to develop a new look. He felt a central aspect of the look should be the quasar, which is a bright and distant object that looks like a star but is actually a young galaxy. It would be the perfect symbol for the team.
Initially, Lalas and an SME team of designers developed a logo that featured the Los Angeles Galaxy name inside that quasar, but they dropped that look in favor of a traditional shield similar to other international soccer clubs.
Over the next two months, Lalas agonized over the logo, asking: Is it too simple? Is it boring? Am I over-thinking this?
The logo was a few months from completion when he got the call in January that Beckham had signed. Lalas immediately booked a flight from Palm Beach to Los Angeles, where his front-office team had already begun preparing to sell Galaxy tickets.
Taking the calls
On Jan. 10, the day a Beckham deal appeared likely, director of ticket sales Tim Martin briefed his 20-person sales staff on a new pricing structure for the 2007 season. Tickets would increase 15 to 20 percent, with general admission prices rising from $15 to $25 a game and prime sideline seats jumping from $50 to $75. The news unnerved the staff, but Martin assured them that the increase was reasonable.
Martin’s confidence came from his familiarity with the new pricing structure because he’d helped establish it a month earlier. He’d known since December that prices would rise. That month, during a meeting with other AEG teams in Denver, Hunter had pulled him aside with Lalas and assistant general manager Tom Payne.
“Look, this is a reality,” he said. AEG would sign a big-name player, he added, and the Galaxy needed a new ticketing plan to increase its revenue and maximize the benefit that the player offered.
Martin, Lalas and Payne immediately set to work. They arranged to sit together on their two-hour flight home from Denver. By the time the plane touched down, they’d drafted four new ticket models.
As AEG representatives worked in London to finalize a contract with Beckham, the Galaxy front office selected a pricing structure from one of the original four. Martin shared it with the ticketing staff on Jan. 10, explaining that the pricing model gave greater benefit to season-ticket holders over single-game purchasers. Savings for sideline season tickets could be as much as $31 a game, roughly 40 percent off the game-day price.
“We’d done all the planning already,” Martin said. “We were able to literally click our fingers, flip the switch and be ready.”
Martin returned to the office at 4 a.m. on Jan. 11, the day Beckham’s signing was expected to hit the press. Most of his ticket representatives arrived around 6:30 a.m., about the same time that the news about Beckham appeared on the Internet. Within minutes, the phones were ringing.
Calls flooded the office that day, and sales reps filled order after order. Extra phone lines were routed to the press box where additional staff answered calls.
Payne, who was in Indianapolis at the MLS draft, even pitched in. As teams made picks, he began an e-mail exchange with New Market Films partner Chris Ball on his BlackBerry. Two hours and several e-mails later, Ball committed to buying four field-side seats for $4,000 apiece.
In Los Angeles, sales representatives didn’t stop working the phones until 9 or 10 p.m. By the time most walked out of the office, they each had completed more than 100 season-ticket sales — far more than the five to 10 they might sell on their best day.
“We were all really shocked,” said Nick Mann, a senior sales manager who sold 125 season tickets that day.
The ticket sales continued over the next several weeks, pushing team ticket revenue from $6 million in 2006 to more than $10 million in 2007.
Getting the herb
As ticket sales soared, the team’s front office and AEG’s sales team turned its attention to building out the Galaxy’s sponsorship roster. The goal was to increase sponsorship revenue by 40 percent from the $3.5 million earned in 2006.
“We felt we needed to strike while the iron was hot,” Payne said.
To hit its goal, AEG and the team repriced some of its sponsorships, raising the value of its inventory by as much as 30 percent in accordance with what it felt Beckham offered in terms of national and international exposure. They also focused on finding fewer partners who were willing to commit more money.
Payne referred interested companies to John Greene, vice president of corporate sales for AEG. Greene and his five-person staff signed major deals with AutoTrader.com, Disneyland, Delta Air Lines, State Farm and The Sports Authority. The deals were all completed over the span of five months.
Collectively, the deals delivered more than $6 million in sponsorship revenue, but the biggest sales push centered on the front of the team’s jersey.
MLS’s board of governors had voted to sell jersey sponsorships in 2006, and Hunter had been gauging interest from five companies for several months. But after Beckham signed, that number skyrocketed.
Hunter heard from more than 12 other companies in less than a month. He entertained all offers, but by February the list had dwindled to CitiBank and Herbalife.
CitiBank put a final offer on the table of several million dollars annually over four to five years, arguing that its brand name was worth enough to match any dollar figure another company might offer. But Herbalife offered $20 million over five years.
Hunter was blown away by the offer. Not only did the value surpass some MLS stadium-naming-rights deals, but it also gave the Galaxy a chance to sell more than 75,000 jerseys to Herbalife product distributors and included a commitment to back other AEG Sports properties like the Amgen Tour de California.
The deal set the bar in MLS for what a jersey sponsorship could be worth. To celebrate, Hunter and Herbalife CEO Michael Johnson met on the final day of AEG’s Amgen Tour de California bike race. They opened a couple of bottles of red wine and toasted the historic agreement.
Hitting the road
As Hunter closed the deal, Lalas and Payne focused their attention on securing exhibition games for the Galaxy. Beckham offered the team the chance to earn close to a million dollars per exhibition — a major increase from the $30,000 to $40,000 that MLS teams usually command a game for two to six exhibitions, or “friendlies,” during the season.
But Lalas and Payne had a limited window to work with. Beckham was set to arrive in July and the MLS schedule had the Galaxy on the road for 12 of 20 subsequent games. They needed to identify dates when the team could visit other markets without hurting its MLS performance.
“It was a tough balancing act,” Hunter said. “I credit Tom and Alexi 100 percent.”
Payne and Lalas keyed on two major, non-MLS markets in North America — Minnesota and Vancouver.
Both markets offered indoor venues where the Galaxy could play during an available window in early October without being subjected to adverse weather. They also both pursued the Galaxy aggressively.
The Minnesota Thunder and Vancouver Whitecaps of the United Soccer Leagues drafted proposals that featured an up-front payment as well as a split of the revenue. Soccer sources familiar with the tours said the deals potentially could deliver $1 million each. Payne followed the agreements with Vancouver and Minnesota with a deal to travel to Sydney, Australia, on Nov. 27.
Like other international clubs that travel abroad, the deal is thought to be worth at least $1 million plus expenses. A preseason tour of Asia is also in the works, in which the Galaxy hopes to play up to six games.
Taking the field
By the time the team announced its trip to Australia earlier this month, Lalas had wrapped up his work on the team’s new logo and was making final preparations to unveil it to the public. The look he settled on featured a white quasar outlined in gold and marine blue perched directly above the letters LA. A gold ribbon ran beneath with the word Galaxy across it.
It was a look, Lalas said, that would allow the team to go “forward now with a brand reflective of the international game.”
The logo leaked out a week earlier than it was supposed to when someone posted it to Adidas’ Web site. Though he was angry, Lalas looked past it, saying, “We weren’t curing cancer.”
By that point, he’d already learned so much.
In a matter of months, AEG and the Galaxy front office had revolutionized the team’s business model, generating more than $23 million in revenue. Even with Beckham earning $6.5 million guaranteed plus a percentage of gate sales, merchandise and sponsorship revenue, Leiweke said AEG had already made its money back in the first year of the deal.
This Saturday Beckham will take the field for the first time in a friendly against Chelsea. He’ll follow that with his MLS debut in the SuperLiga tournament July 24. Suddenly, a league that often existed outside the sports pages will be under the spotlight of the world, and all the work that preceded his arrival will be scrutinized for the first time.
“It’s crazy, but it’s a good crazy,” Lalas said. “The alternative is no one pays us any attention and we just go on and on. We needed an injection, and that will be a great moment of truth.”