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SBJ/August 15-21, 2011/Franchises
U.S. sports executives who run Arsenal see slow gains, intense scrutiny
Published August 15, 2011, Page 1
The results so far are mixed.
Fox, the former head of sports marketing at Gatorade, earned recognition as Arsenal’s commercial director for remodeling the club’s suites and building out its commercial department. But he’s also been questioned as
|STUART MACFARLANE / ARSENAL FOOTBALL CLUB (2)
Ivan Gazidis (top) and Tom Fox have spent the last two years taking steps to position Arsenal to increase commercial income.
“We knew it would be a great challenge and a real learning experience,” Fox said. “For eight years, the club was focused on transforming itself through concrete and pouring a new stadium. We’re focused on transforming it through people, and none of us thought that would be easy or fast. The changing of a culture takes time. ”
U.K. sports executives and Arsenal supporters remain undecided about the duo’s performance.
“The perception is that they’re doing pretty well,” said Rick Parry, the former CEO of Liverpool. “The big issue and the big challenge for Arsenal is to start winning something. That’s what fills your stadium and sells your replica shirt. It’s that perennial challenge of being run wisely and sensibly, which they clearly are, and spending to have a competitive team.”
Tim Payton, a spokesman for the club’s fan organization, the Arsenal Supporters Trust, said, “There’s definite concern among Arsenal fans about performance of the club both on the field and off the field.”
Gazidis and Fox, who opened their third season with the club on Saturday, are acutely aware of that. They face perhaps more pressure than any other club to generate enough revenue to support their team.
Arsenal is the only team in the top seven of Deloitte’s Football Money League, which ranks soccer clubs based on total revenue, to be operating a self-sustaining model that pays for players exclusively from the revenue the team generates annually. It does so even as competitors like Manchester United and Real Madrid fund player acquisitions through debt, and rivals like Chelsea and Manchester City fund acquisitions out of their wealthy owners’ pockets.
“The ability to stand on our own two feet and not depend on anyone for our success gives us the ability to plan for the future with confidence,” Gazidis said. “It can be challenging because we’re in a market not constrained by salary caps, but the reason we believe in it is not just because creating something rather than buying it drives pride, but also because it gives you the capability to say, ‘Arsenal will be competing at the top of world football now, five years from now, 10 years from now.’”
Gazidis takes pride in leading one of the few clubs that can say that. The key going forward will be making sure he can continue to say that.
Arsenal’s jersey sponsorship is reportedly worth less than half of Manchester United’s deal with insurer Aon.
Manchester United and FC Barcelona brought in $133 million and $166 million, respectively, in sponsorship revenue in 2011, while Arsenal brought in just $71 million. Arsenal has just eight sponsors, and its jersey sponsorship reportedly is worth less than half of Manchester United’s deal with the insurer Aon.
The state of the club’s commercial operations is both Gazidis’ and Fox’s greatest challenge and their greatest opportunity. The duo knows their commercial operations are underdeveloped compared to their peers, and they’ve spent the last two years taking the steps to position Arsenal to sustain its matchday revenue and increase commercial income. They have built a sponsorship sales and servicing division, revamped premium seating, enhanced membership packages and taken the club on an international tour for the first time in 12 years. They expect all of those efforts to begin paying off this season with increased revenue.
“We’ve created a five-year business plan that we’re ahead of target to achieve,” Fox said. “The real proof will be in the next two or three years as the plan we put in place begins to gel.”
Ivan Gazidis had been approached before by Premier League clubs interested in hiring him as CEO, but none of the opportunities interested him until Arsenal came calling in 2008. The club, one of the league’s elite, was steeped in tradition and history. It had won 13 first division titles, 10 English Football Association Cups and held the record for the longest unbeaten streak in the EPL.
“Opportunities like that come along less than once in a lifetime,” Gazidis said.
He joined the club at an opportune time. Arsenal was three years into a new stadium, it had a manager in Arsène Wenger with a track record of success, and it had a brand that was recognized worldwide. Those pieces gave him a foundation to build on, and he thought they would give him a cushion as he adjusted to his first job as a top team executive.
But when Gazidis arrived in London in January 2009, he discovered Arsenal wasn’t in quite as good a shape as it appeared. The team was facing serious financial pressures as a result of the recession.
Arsenal had taken on $500 million in debt to finance its move from Highbury Park to nearby Emirates, and it had planned to pay off those loans by converting the old stadium into an apartment complex called Highbury Square. When the financial and housing markets tanked, Arsenal simultaneously faced pressure from lenders to repay loans and struggled to sell the apartments to generate the money to cover its debts.
Gazidis worked with the banks to reschedule the loans, which bought the club a year to get its fiscal house in order. It went on to sell 362 private apartments at Highbury Square and generate $300 million. The money allowed Arsenal to repay half of its debt by the end of 2010. It finished repaying the loans this year, and profits from the remaining nine apartments now go straight to the club’s bottom line.
“That wasn’t a strategic issue or an issue of setting a new direction for the club, but it was one of the most pressing,” Gazidis said.
Paying down the debt freed Gazidis to develop a strategy for Arsenal’s growth. He believed that the next phase would be driven by people, and he wanted to overhaul the staff to position it for the future.
The club that he took over had about 200 employees, but it was so focused on developing its new stadium that it lacked many of the fundamental pieces of an American front office. It didn’t have a general counsel, a director of communications, a human resources department or a head of IT, and Gazidis set about filling all of those positions.
One of his most important hires was Fox, who joined the club in August 2009 as commercial director. Gazidis had known Fox by reputation in the U.S. but never worked with him. He wound up selecting Fox from a pool of dozens of candidates because Fox shared his belief that the best way to develop Arsenal’s commercial potential was to raise the profile of the brand and then drive revenue through strategic sponsorships with companies that share the club’s values.
“We think that’s where the value of the brand lies,” Gazidis said. “Not in real estate, not in selling impressions, but in real partnerships.”
Fox was given nearly 10 months to make sense of the English Premier League and evaluate Arsenal’s commercial operation. The learning curve was steep.
Like Gazidis, he had no team experience. The bulk of his career in sports was built on the brand side with marketing stints at Nike, Pepsi and Gatorade. He not only needed to learn the team business, he needed to understand the team business in a different country.
He quickly was overwhelmed by the differences between the EPL and U.S. sports leagues. For example, the EPL plays 380 games a year, with 138 broadcast live and 142 games not shown at all. He could not wrap his mind around the fact that Arsenal games on Saturdays at 3 p.m. weren’t televised. Similarly, he saw that the team had a season-ticket waiting list of 40,000 fans and thought the club was leaving money on the table by not maximizing demand.
“You look at those two things as a U.S. sports executive and you think two things: one, you’re not charging enough for tickets, and two, you’re leaving money on the table by not showing games on TV,” Fox said. “I spent a lot of time trying to understand that.”
It took Fox time to appreciate that Arsenal had one of the highest season-ticket prices in the EPL, practically double what its London rival Chelsea charged, and to understand that the broadcast restraints were designed because, in a small country like the U.K., it was nearly impossible to develop the type of local territory rights that allowed the Boston Red Sox to launch their own TV network.
Once he developed a sense of the market, Fox began to develop a business plan. He recognized that the commercial department’s most immediate need was new personnel. The club had just one sponsorship-sales executive and one sponsorship-servicing executive. Fox added five people in each department, including a new head of partnership, Vinai Venkatesham, who came from the 2012 London Olympic Organizing Committee.
The club’s partners immediately began to notice a difference.
“With the success of Arsenal and the excellent Emirates Stadium which they built, it was always going to be difficult for new joiners, like Ivan and Tom, to make a big difference, but for us, as soon as Ivan was appointed, we noticed a modern marketing mentality that would lead the club to the next level, then later with Tom I can say we enjoyed one of our best relationship we have with any of our football clubs, a model all football organizations and clubs must adapt if they want to move on towards better future,” said Boutros Boutros, Emirates’ divisional senior vice president corporate communications.
The club also began overhauling its premium seating area. Fox recognized that Arsenal’s club section had a high amount of season-ticket churn. It was clear to him that the relatively barren look and feel of the clubs had become stale and offered fans little more than a warm place to spend time during halftime of a winter game. He looked to remodel the club level so it would appeal to a wider spectrum of fans.
For the most affluent club member, Arsenal created two high-end restaurants that offer five-course meals before every match at a price of $7,500 a season.
For the club member interested in a bite and a beer before the match, Arsenal converted a barren club room into a traditional sports bar, featuring portraits of past players commissioned from graphic artist Tavis Coburn and rows row of flat-screen TVs. Per caps are up 16 percent in the area since the remodel.
“Arsenal, now with Tom there, are probably the best hosts in London,” said Fred Popp, the former CEO of SME and the founder of Teamup, a European sports marketing agency. “The amenities that are available are so much more consumer appropriate for the fan segments they serve.”
Boutros agreed, adding, “We like what they have done in the new commercial hospitality areas, and the product offering at Emirates Stadium is second to none.”
The other incremental change Fox made after coming on board was to restructure Arsenal’s multimedia operations. Before his arrival, the media operations were divided into two businesses: a print publication business and a broadband venture. Under his direction, Arsenal created a single content group and signed an agreement with MP & Silva. The international sports media company pays Arsenal an upfront, multimedia rights fee, and they co-produce and distribute digital content. The deal has helped Arsenal expand its content, which Fox and Gazidis believe will drive the type of Web traffic that will keep fans connected to the club and allow them to increase revenue.
“What you’re seeing us do is … using modern technologies to find ways to engage with our global audience personally,” Gazidis said. “These are ways we can create communities, Arsenal communities, and we’re finding those communities can connect fans with the clubs very personally.”
This season, Arsenal eliminated the company’s broadband subscription offering, which had 30,000 subscribers paying approximately $70 a year, and added broadband service to the club’s membership service by increasing the price $8 on average to approximately $60. The hope is that the additional content will reduce churn among members, who buy in order to have the opportunity to buy individual match tickets, and expand the 190,000 membership base to include international fans.
“Suddenly, membership’s become about more than getting access to the stadium,” Fox said. “Now, they have another reason to be a member.”
For all of Gazidis’ and Fox’s recent efforts, Arsenal’s soccer business saw its revenue decrease from $364 million to $360 million between 2009 and 2010, and the pressure to improve revenue significantly has increased.
Fan criticism has soared since last season, when Arsenal won only one league game in March and April. Fans are unhappy with the team’s delay in selling player Cesc Fabregas, who wants to join FC Barcelona, and its struggle to sign new players to fill holes in the defense and midfield. The club’s manager, Arsène Wenger, has come under fire, as well.
Fans know Gazidis doesn’t control the on-the-field product, which is managed exclusively by Wenger, but he still is held accountable for the team’s performance because the more money the front office generates, the more the club will have to buy players.
Gazidis has said sponsorship revenue is the most important growth area for Arsenal, but the club has been slow to increase its list of sponsors in the last two years. It signed its first new partner in two years when it closed a multimillion-dollar deal with home appliance manufacturer Indesit last spring.
The Indesit deal gives Arsenal a total of eight partners. By comparison, Manchester United, which generates the most commercial revenue of any Premier League club, according to Deloitte, has 21 partners, including separate telecom partners in India, South Africa, Malaysia and other markets.
Arsenal’s opportunity for sponsorship growth is limited by both external and internal restraints. Externally, the club is locked into its two biggest deals with Emirates, its jersey sponsor, and Nike, its uniform supplier, through 2014. Internally, Gazidis and Fox have advocated taking a slow approach in which they have a limited number of blue chip corporate partners.
“We want to find the companies that fit with us, our values and approach, and there’s the other side of that, which is we believe we’ll do the best jobs for those companies if our values are aligned,” Fox said. “We’re not trying to sell inventory as much as we’re trying to identify what their businesses need to be successful and how we can help get them there.”
The combination of the long-term agreements and the executives’ business strategy has put Arsenal in a difficult position and made the fan base restless.
“Liverpool has moved past us (in commercial sales),” Payton said. “(Tottenham Hotspur) have new deals. It will get worse and worse for us until 2014.”
It’s also led observers to advocate waiting a few more years to evaluate the performance of Gazidis and Fox.
“I would judge them on what foundation is being created to be successful long term,” said Jeff Plush, the president of the Colorado Rapids and a member of Arsenal’s multimedia board. “There’s no question that’s happening.”
As they work to grow Arsenal’s commercial revenue, Gazidis and Fox will benefit from the club’s new ownership stability. Stan Kroenke, who owns the St. Louis Rams, Denver Nuggets, Colorado Avalanche and Colorado Rapids, this year put an end to a protracted struggle for majority ownership by accumulating a 62 percent stake in the team.
Kroenke supports the Arsenal executives’ vision for the club as Gazidis and Fox try to catch up with Liverpool, Tottenham and Manchester United by taking the Arsenal brand into new markets. They convinced Wenger this summer to take the club on its first international tour in 12 years.
“That’s real progress that they managed to get the team on an Asian tour,” said Bruce Bundrant, Liverpool Football Club’s head of commercial partnerships. “It strengthens your relationship with fans in core markets around the world and helps grow fan base.”
The tour helped the club collect data from 260,000 fans across Asia. Fox’s department is marketing to those people in hopes of convincing them to become club members. The department also is selling the passion of that Asian fan base to international companies.
Fox said the trip changed several sponsorship discussions because it underscored the value of the Arsenal brand overseas. He credited the trip with helping them close a deal with two new partners. It last week announced a new deal with Carlsburg, its first global beer partner, and expects to announce another partnership this week. It also closed a renewal, Fox said.
“It was a very successful overseas tour,” Payton said, but he added, there’s still “huge pressure” on Gazidis and Fox.
After two years, the two imports from the U.S. are fully aware of the pressure, but it’s not something that they spend time worrying about.
“We’ve put together a five-year business plan for a reason,” Fox said. “We knew we had to upgrade the infrastructure and change the culture. We think we’re headed in the right direction and at the right pace. We’re incredibly confident we’ll get there and reach our goals.”