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SBJ/Jan. 13-19, 2014/Franchises
The Roma revolution
U.S. ownership group’s aggressive approach revitalizes Italian club
Published January 13, 2014, Page 1
|Roma’s fans put their passion on display, though the club has been for the most part free of bad behavior plaguing others in the league.
Even as the national team was winning the World Cup in 2006, a game-fixing scandal initiated an unrestrained free fall in professional soccer in the country. The proud Italian Serie A — once second only to the English Premiership — had fallen among European leagues behind Germany’s Bundesliga and Spain’s La Liga in revenue, attendance and reputation.
This year, Italy lost one of its four positions in the Champions League, the revenue-generating, Europe-wide competition that provides additional games, television revenue and added value for sponsors. Racism and violence have driven Italian women and children from the sport. And at a typical Serie A match, there are more empty seats than occupied ones.
But the poor condition of the league didn’t discourage U.S. investment. In fact, it may have prompted it. According to Roma President James Pallotta, “We were able to acquire the team at a distressed price. Our franchise value will grow at a faster pace than an American sports franchise.”
Pallotta, chairman and managing director of the Boston-based financial firm Raptor Group, was part of a four-man investment team that acquired 67 percent interest in the club from Rome’s Sensi family, which was in debt to Italian banking giant UniCredit. They paid 70.3 million euro, which in April 2011 was a little more than $101 million. That group was led by Boston Red Sox limited partner Tom DiBenedetto and included Pallotta. It also included Michael Ruane of the Boston-based real estate advisory firm TA Associates and Richard D’Amore, a partner in Northbridge Venture Partners of Waltham.
Pallotta acknowledges that Italian soccer “has died” and must change, but he said, “Our primary goal is to run a good business.”
Running a “good business” in Italian soccer can be difficult. The goal of the 19 other Serie A clubs is to spend as much money as they take in. Ownership, in the European system, is a vague concept. The teams are run by clubs, normally with elected and temporary leadership. The concepts of profit and equity are much less definable than in the American commercial system. Franchise value relates more to a team’s standing on the competitive “table” than in the marketplace. As a result, pleasing fans is more important than pleasing accountants, and clubs spend all available cash, and often more, on player personnel.
Pallotta said his investor group knew this was the state of the marketplace, but they believed they could bring some discipline and a sophisticated form of marketing and sales to the venture.
At the time of the acquisition, and independent of it, UEFA was tackling the issue of unrestrained spending on players. To control poor management and excessive salaries and to achieve a modicum of competitive balance, the governing body of European soccer instituted Financial Fair Play in 2011. It prohibits soccer clubs from spending more than they earn.
Pallotta acknowledges that “fair play” is good for the league, but he said it was not considered when acquiring the club.
Longtime soccer executive Roger Mitchell called Financial Fair Play “manna from heaven” for owners and investors. Mitchell, the former CEO of the Scottish Premiership, who now lives in Italy, predicts that FFP will encourage foreign ownership and investment. “The Fair Play rules are not in the European culture. Controlling salaries is foreign. But Fair Play provides … an excuse for club leaders contending with zealous fans demanding increased spending for players.”
|The ownership group has made improvements at Stadio Olimpico, including a VIP club area with premium seating, a rarity among Serie A clubs.
In October, controlling interest in another Serie A powerhouse, Inter Milan, was sold to Indonesian investors led by Erick Thohir. They paid $344 million for a 70 percent stake.
Another group of Asian investors, led by China’s richest man, Wang Jianlin, is interested in a Roma investment. Pallotta confirmed that he met with the group “for background on our plans,” but vehemently denied Italian press reports that it was a “negotiation.”
Pallotta said, “We would love to have partners in different parts of the world. If we had a partner in Asia, we would want one with capabilities to export our brand.”
Indeed, an Asian strategy is a cornerstone of Roma’s marketing plans, according to both Pallotta and the team’s 39-year-old CEO, Italo Zanzi.
Zanzi said, “We are more organized, have a cleaner operation and have a solid strategy. We do things like hosting workshops on activation for our sponsors. And we’ve developed core partners that identify with our aspirations of applying the best business practices.”
Their marketing efforts have produced initial success. While the rest of Serie A is struggling with sponsorship in a dreadful economy, Roma has increased top-tier sponsorships and landed such blue-chip brands as Disney, Volkswagen, Nike and AOL.
“We’d like to set a positive example for the league by creating a sound business environment,” Zanzi adds. “We feel there is lots of opportunity in that area. But our concern is the success of AS Roma.”
Business executives in the country are taking notice at the new approach. Stefano De Alessi, co-CEO of Dao Consulting, a Rome-based marketing agency that represents the team, said, “The American business model has improved the whole situation.” He goes on to add, “Italy is not in a great economical period, but the American philosophy is helping us do our job. We are learning how to apply the American way of business in the Italian marketplace.”
Roma created an all-new VIP club area, which Dao took the lead in marketing. It includes premium seating, a club with high-end food and drink and the amenities that American club-seat patrons have come to know. Club seats are rare in Serie A. As an example, fans of Lazio, a Serie A rival, which shares Rome’s Stadio Olimpico, do not have access to the new VIP area.
Roma has also invested in a playground and safe area for children on the stadium grounds, which was the focal point of the 1960 Olympic Games. Fan safety has been a major emphasis, as violence is sometimes part of the in-stadium experience. And death threats at all levels of Italian soccer have caused the cancellation of matches. This drove away many, but new efforts by Roma have seemed to help, as women and children have started to return to the stadium after years of being turned off by the violence, racism and poor creature comforts.
Zanzi takes pride in such game-day improvements. “You have to understand that to this point, Serie A stadia are spartan. They were not designed for comfort, but rather for a hardcore football experience.”
The team has seen positive results at the gate. Roma attendance has increased by 2,000 a game in each of the two-plus years of American ownership, according to Zanzi. The current average of more than 42,000 a game is nearly twice the average of the league, which is less than 23,000 a game.
Initially there was a backlash against American ownership and commercial business operations. But winning has helped.
“We’ve had problems,” admits Zanzi. “But that was about the product on the field. American sports leagues have to create collective value. But here, it’s more about winning.”
Roma is winning. The team — with American midfielder Michael Bradley and longtime national team star Francesco Totti — did not lose in its first 16 matches of the 2013-14 season. It broke a Serie A record by winning its first 10 in a row. The first loss of this season came to Juventus on Jan. 5.
Roma’s success has reignited the interests of what Pallotta calls “the world’s most passionate fans,” turning a once-disparaging base into an open-minded community ready to give the American model a chance.
“Roma has had passionate fans for nearly a century,” said Gabriele D’Urbano, a lifelong fan who runs the team’s archival services. “Now we are ready to write a new history.”
Zanzi said, “Our ultimate goal is to become the best sports organization in the world, but our immediate goal is to play Europe. It will add substantially to our revenue.”
There are initially two ways to play in Europe that would boost the bottom line. The top three Italian teams will play additional games next season in UEFA’s Champions League. Right now, that includes Juventus, Roma and Napoli. The next two teams qualify for UEFA’s Europa League. Zanzi said, “Playing Europe [in either series] will add substantially to our revenue.” He estimated at least a 25 percent and as much as a 50 percent increase in total revenue.
So at the beginning of 2014, Roma was exceeding its objectives in terms of the number and quality of top-tier sponsors, attendance and team performance.
The best part, Pallotta pointed out, is that Roma has yet to hit its stride. The organization is expecting, but not now budgeting, European or postseason game revenue; it is waiting for the 10-year Nike sponsorship to kick in next season before enthusiastically marketing merchandise (it has no kit deal this year); it has developed Asian and American strategies in a global branding effort; and it has developed plans for a new stadium, the revenue from which Zanzi predicts will be “transformative.”
The ultra-modern, 52,000-seat stadium is expected to cost between $227 million and $289 million. It will be privately funded, with executives insisting they can complete the financing, without going into details. Working with architect Dan Meis and project manager Mark Pannes, Pallotta is deeply involved in the stadium project. He said he spends a majority of his working day “running AS Roma” from his Boston-based office. He travels to Rome roughly every six weeks, adding, “I have been involved in every detail of the stadium project. It’s close to my heart.”
At the root of the stadium is the passion of soccer-mad Italian fans, which often gives birth to an uglier side of the game. Super-passionate fans, called “ultras,” are responsible for racism and riots at Serie A matches. That behavior has unsettled many Americans.
“Americans don’t understand why the ultras can’t be controlled or banned,” said Mitchell. “What they don’t understand is that the ultras are the club. They start as game-day labor or merchandise vendors and work their way up through the ranks.” In that way, yesterday’s hooligan is today’s team leader.
Roma for the most part has been free of excessive behavior. Its fan base has proved to be more sophisticated. Zanzi said, “Our most passionate fans are great people. They enthusiastically support the club. Bad people have no place here.”
Mitchell agreed, and believes that meshes with ownerships’ efforts to enhance the commercial viability of the team.
“That’s why Roma is the only Serie A team that can sustain a commercial model that depends on a quality game-day experience and a growing and diverse fan base,” Mitchell believes.
Zanzi expects that Roma’s new stadium to enhance demographics, improve the game-day experience for families and aid in crowd control.
And that all leads to Pallotta’s vision of the big picture — connecting with the fan base, building bridges to the team’s rich history and planning for its bright future.
“At the end of the day, I dream of a Champions League trophy,” he says with a smile. “Of jumping into a Roman fountain with a bunch of celebrating fans and holding the trophy high.”