In the past, when there were economic crises, there was a general perception that the world of sport was immune to all sorts of recessions. This was because it was assumed that fans would attend their favourite teams’ matches, no matter what, which would have an overall impact on the scale of the football clubs’ revenues. However, a situation with COVID-19 has brutally verified these optimistic assumptions.
The sports sector has been hit particularly hard by the COVID-19 crisis in ways never seen before. As a result, sports organizations had to demonstrate skilful crisis management to offer not only high-quality services to their recipients but also athletes. For this purpose, it was necessary and still is to take risky and innovative actions. Teams facing the gap have turned to novel engagement strategies to compensate for losses, often through partnerships highlighting new forms of content monetization and the commercial use of sports brands. Viewers shifted their focus to social media and digital platforms in record numbers. Double-digit TV viewing growth has been overshadowed by three-digit growth on social and digital platforms, with several hundred million views of videos on TikTok, Instagram, YouTube, Facebook, Twitter and Snapchat.
The sports landscape will change much more in the next decade than in the previous few. This will bring a completely new spectrum of possibilities that, thanks to proactive and quick action, can be used by clubs to minimize the negative effects of the current situation as much as possible. The ongoing pandemic has changed the habits of players and fans so far and created an incentive for all stakeholders of the football ecosystem to adapt their business models to thrive in the post-COVID-19 world.
Financial management
The sports industry must generate new ideas and concepts to adapt to the current situation and survive, which is the obvious foundation for the future of any club. The teams that emerge victorious from the crisis will be those introducing positive changes that would otherwise take years without the shock of the current crisis. Ultimately, they will be bold, intelligent and determined teams, willing to take risks and adapt to new patterns of fan consumption around the world.
Financial challenges
The authorities of football clubs in recent years, based on financial data from previous seasons, began to assume that the future will continue to be characterized by systematic and enormous growth in financial aspects. The first warning against this approach was the signing of another agreement on the sale of broadcast rights to the English Premier League matches. The value of the three-year cycle in 2019-22 fell by 11% compared to the previous contract for the first time since 2004.
The decision-makers of Bayern Munich, which is widely recognized as the best-managed football club in the world, have noticed the essence and the need for changes. According to Herbert Hainer, the crisis is an opportunity to reflect and discuss football abuse to avoid similar problems in the future. He also found the current self-regulating football market to be positive, but only to a certain extent. Currently, the greatest opportunity for all sports organizations is an in-depth internal analysis of the potential restructuring of the organization and business model that would ensure profitability in the future after COVID-19. This is the best moment to implement a pragmatic approach to move away from debt, as is practised in many clubs, to maintain a proper financial condition. Karl-Heinz Rummenigge warns against this method of management, pointing to the financial situation of FC Barcelona.
The main challenge is to use the current time to restructure the organization so that it can prosper in the coming years. The post-pandemic environment should accelerate the shift away from a mindset that stubbornly refuses to accept rapid change and innovation. Competitive advantage will become more and more important, so teams will look for the right areas in which to obtain it.
Revenue diversification
In the beginning, the clubs will deal with solving short-term problems and financial obligations, probably aiming at reducing spending on transfers and their wages. But there is also an urgent need to reflect on the long-term economic consequences for survival. One of the strategies that football clubs need to consider is revenue diversification. The idea is very simple – attract new sources of funding. Diversification can at least mitigate the dramatic effects of crises by extending to new products beyond current goods or geographic regions. Some clubs have started to introduce this kind of innovation some time ago. Arsenal London and FC Barcelona have set up their own “innovation hubs” that collaborate with tech startups, for example, to discover new fan experiences through the use of digital technologies using artificial intelligence or virtual or augmented reality solutions – VR and AR.
In the context of revenue diversification, clubs should realize that they cannot just rely on profits tied to sports performance. An important role is to be able to apply general business rules so that the team still maintains financial liquidity after the crisis is over. Clubs need to put the client’s interests ahead of their own. Football teams need to focus on the next generation of fans who demand more convenience, comfort and an overall better sports experience. Having a solid foundation with fans, sponsorship, and media is key to systematic progress. The emphasis on short-term results needs to be balanced with the importance of long-term profitability. COVID-19 has created an opportunity, albeit under clearly undesirable circumstances, for sports organizations to undertake the internal self-assessment needed to mitigate the effects of future economic crises.
External investors
External financing could be one way to achieve economic goals. The right private equity partners often ensure financial discipline, knowledge and professionalisation on the business side. Russian oligarchs, Arab sheikhs and Chinese billionaires have regularly bought European football clubs over the past 20 years, while American private equity firms have also been significantly involved in the process in the last several months. Although in 2019 there were 45 transactions in European football involving ownership changes, both majority and minority, in 2020 there were fewer than 20 such transactions, however, as is well known, the world of sport has been hit by a huge recession, which completely changes the perception of the indicated number of transactions. The largest clubs from the top European leagues have rarely been the target of foreign investors, so they began to focus on other clubs with less potential, from teams from lower leagues with a chance to be promoted to the top league, to clubs with real opportunities to qualify for the European cups.
The COVID-19 pandemic has created special circumstances that can even be encouraging for investors who are looking for a bargain while waiting for football to return to normal. The football clubs’ costs increased compared to their revenues during the pandemic as all revenue streams were severely hit by a lack of matchday revenues for much of the season and some media and commercial deals that were contested by sponsors. Consequently, many clubs experienced a significant drop in market value, making them a potential investment target. In addition to being able to buy a team at a lower price, investors are attracted to the opportunity to find players for lower amounts in the upcoming transfer windows, as some clubs may have to sell players to increase their funding.
Manchester City example
The significant influx of investors enables many clubs to safely survive the critical months, which in the long run may help the entire football industry to recover from the recession that has occurred and to develop innovation. The report of the American research company Sport Innovation Lab shows that currently, the most innovative sports club in the world is Manchester City, which will certainly be an asset in going through the crisis. Certainly, the innovativeness of the Manchester club is very closely related to the entire structure of City Football Club, as well as the vision and long-term strategy implemented by Ferran Soriano. The essence of innovation for the English team can be demonstrated, among other things, by the fact that City Football Group (CFG) is an investor in Sapphire Sport, a venture capital fund in the field of sports worth 115 million dollars. However, it should be remembered that the investment diversification of CFG is much broader than it seems, and therefore it can be concluded that Manchester City may be the innovation leader in the world of sport for the next few years.
Digitization of the football industry
Certainly, the current crisis forces and will force organizations to accelerate their digital transformation. It’s a key moment in the context of the digitization of business processes, products, experiences and services and the rapid progress of innovation in these areas. For example, financial services moved physical channels to online, healthcare providers swiftly moved to telehealth and tele-advice, or retailers developed non-contact purchasing, online booking and delivery systems. Such digitization will continue and will include more products, services and experiences in the sports industry. With no sporting events and limited travel options, we’ve seen a lot of clubs focus on social media content. This trend will develop even in the world of live sports events due to the positive response to new formats of sports consumption.
Interactions with fans
Broadcasters and commercial partners face economic challenges as a result of changes in both fan attendance and consumer interaction with the sport. Clubs that can and are willing to innovate have a unique opportunity to stabilize and grow. On the other hand, clubs that accept the status quo risk staying put or even going backwards in these uncertain times. The impact of COVID-19 is therefore a catalyst for fresh ideas and innovation.
Overall, sport is a field of entertainment. At the elite level, 99,9% of the team’s fans are outside the stadium. Through TV, social media or OTT content, fans consume the sport differently. However, when the world of sport came to a standstill, 100% of the fans were outside the stadium at all times. This meant thinking outside the box, making decisions outside of the comfort zone, and a move away from the traditional activation of sports marketing. From a content point of view, the winners in this period were and are those who can think creatively about the resources to which they have access.
In the future, due to technological advances and global distribution, sports and entertainment brands will have more fans around the world. They will compete for the best possible experience, making fan engagement crucial. As the sports industry is forced to invent new strategies to interact with fans as a result of the coronavirus, innovative technology may simply stand out as its saviour, and the real winners will be teams and rights holders who are prepared to do so.
Cryptocurrencies
Cryptocurrencies and blockchain technology are undoubtedly among other “game-changers” on the sports market that have developed dynamically during the pandemic. On the surface, it may seem that the world of sports and cryptocurrencies constitute two completely separate and unrelated industries, but after a closer look at the matter, they have a lot to offer each other. The sports industry is rapidly adopting blockchain solutions, revolutionizing its revenue streams. Fan tokens are similar to membership cards in that they give fans the option of voting on various club matters, for example. Fans can take an active part in such events as proposals for outfits for the new season or the selection of charity initiatives.
At the moment, it is difficult to find a league case among the largest in the world with no relation to cryptocurrencies. This trend is popular not only in Europe but also in the USA. The NBA Portland Trail Blazers team recently announced a partnership with the StormX cryptocurrency app. Previously, Miami Heat signed an exclusive name rights agreement with the FTX crypto exchange, renaming its hall “FTX Arena”. The contract, which will run for 19 years, is worth 135 million dollars.
Fan experience and stadiums
Staying with issues related to sports arenas, it must be remembered that creating an unforgettable experience for viewers is extremely important in the context of their monetization. This can be facilitated by creating a positive environment in the stadium where it is easy to find seats and seamlessly buy goods, food and drinks. Social distancing requirements are likely to accelerate the use of digital technologies to improve the fan experience. This may include using contactless technology to reduce physical touchpoints and optimize queuing times, or to ensure delivery to a specific seat in the stands. Some of the clubs that have recently implemented similar solutions will certainly gain a competitive advantage. An example of this is Tottenham Hotspur, whose stadium opened in 2020 is the first, completely cashless facility of this type in Europe.
The COVID-19 crisis has accelerated digital trends and sports facilities will increasingly foster “phygital experiences” by connecting the physical and digital worlds. In recent years, several sports entities have developed their own OTT platforms to be able to fully customize the frequency and type of content delivered to fans according to their requirements. As the crisis prompted the consumption of short, non-live and varied content, experts believe that the number of such platforms owned by football clubs is likely to increase soon.
Another digital solution used during a pandemic is the broadcasting of artificial sounds of fans coming from the stands. This is to compensate TV viewers for the lack of real fans in the stands. On a European scale, broadcasters also very often allowed viewers to watch matches naturally. The representatives of the Spanish La Liga went a step further, deciding to impose virtual fans during the broadcast of league matches.
The dynamic development of e-sport
One sector that has benefited significantly from the current pandemic is the ever-evolving world of esports. As the focus turned to digitization, football clubs also changed their communication strategy, focusing on new forms of engagement, trying to create innovative online content, mainly through social media platforms. In addition, gamers also realized that esports could provide a platform for building their brand away from the real football pitch. Most of all, it provides a natural way to connect with a new, younger audience. Moreover, the esports community boasts a global audience, which gives the club greater opportunities to communicate its brand internationally. Therefore, football clubs must include computer games in their modified operating strategy, even as audience sporting events return to normal.
Finally, esports is not only a brand-building marketing tool but also a potential source of income in the long term. According to the latest forecasts by research company Newzoo, revenues for the entire industry could reach 1,6 billion dollars in 2023. In addition, esports teams could be next in line for huge capital gains thanks to market value gains, just like football clubs in the past two decades. While current valuations are considered on the high side, an esports investment can act as a kind of hedge fund for clubs, against a potential future decline in football revenue compared to other forms of entertainment.
Marketing and commercial trends
According to media trend research, before COVID-19, approximately 25% of consumers watched live and videotaped videos of other people playing video games every week. In the case of Millennials and Generation Z, it was about 50%. These numbers have increased significantly since the start of the COVID-19 pandemic. After the pause of football, many pro athletes stayed in touch with their fans by uploading their online games. In addition, during the lockdown, the Premier League launched the inaugural ePremier League Invitational. According to the data, the final between Trent Alexander-Arnold (Liverpool FC) and Diogo Jota (Wolverhampton) attracted three million viewers on Facebook and 394,000 viewers on YouTube, indicating a 275% increase in viewership of the final compared to the opening of the tournament. It is likely that this phenomenon of playing, streaming, watching and making new friends in video games will continue to grow and expand even as the blockages and restrictions related to the pandemic are eased.
In the world of marketing, it has been known for a long time that content is of key importance. If a club does not establish contacts with fans outside of won matches, it is doomed to failure in terms of marketing. Undoubtedly, once the COVID-19 ends, the spectator experience in the stadium will be completely different. Many football teams should take advantage of the current situation to start collecting data about their fans to get to know them better and deliver more personalized content. By having the right data architecture and a set up digital foundation, a football club can improve many areas within its organization.
Milan Media House
Football clubs have the chance to go beyond their die-hard fans and reach new audiences by segmenting them and understanding them better. They also need to create high-quality, compelling, and insightful content to draw fans to the stadium. Delivering content that enhances the fan experience should be a priority for any club. This is why the management of AC Milan has decided to invest millions of euros in developing a strategy to increase fan engagement and unlock additional value for sponsors. The Serie A club launched “The Studios: Milan Media House”, its own media centre designed to provide greater control over the production and distribution of content. The headquarters of the studio has over 1,000 square meters of space equipped with the latest technology, including 4K cameras and LCD-LED displays. The new concept is set to revolutionize content consumption for over 500 million Rossoneri fans worldwide, offering a comprehensive and engaging experience. This is another example of how clubs try to gain a competitive advantage over other clubs in an off-field context.
Commercial issues
Sponsors expect real partnerships to be created. Companies are looking to better align branding and purpose while placing more value on digital marketing platforms and data-driven partnerships. In the long run, commercial partners will still want to be associated with football, but clubs will increasingly have to prove their worth to sponsors. Sponsors will pay more attention to organizations that have a deep understanding of their fanbase, especially if that knowledge is backed by data. Football clubs can no longer rely heavily on their brand for sponsorship deals. Clubs able to provide sponsors with useful information will have a competitive advantage in an increasingly difficult sponsorship market.
Data will play a pivotal role in understanding how habits and behaviours have changed as a result of COVID-19. In the wake of the pandemic, clubs and leagues should adopt a more detailed and behavioural approach to fan relationship management. This should increase your ability to sustainably attract, engage and retain more fans through an insightful decision-making process. Improving analytics by obtaining data more efficiently using AI to understand individual actions can help discover key drivers of fans and expand existing knowledge in clubs. Understanding the personality and behaviour of fans will ultimately help clubs deliver the right fan experience while providing additional opportunities for club partners and sponsors.
Conclusion
The devastating impact of COVID-19 has forced football clubs to reassess their business models and recognize the need to accelerate their digital transformation. Club authorities can learn many valuable lessons from the world of business corporations. Digital technology, numerous data and knowledge of customers have become the pillar of successes of, among others, Amazon and Netflix. Football clubs should apply the relevant elements of this strategy in their new business models. Understanding the group of fans and their different personalities will allow clubs to act in such a way as to thrive both inside and outside the stadium.
