WHAT'S IN A GAME? PART III
Game theory: How knowing the type of game you’re really playing can inform your vision and values, and shape the overall perception of your success.
PART III: THE MONEY LEAGUE
(You are reading Part III, click here to read Part II)
For 25 years, the Deloitte Football Money League has profiled the highest revenue generating clubs in world football—providing an annual, independent analysis of the relative financial performance of the top clubs in the game. The English Premier League (EPL) football club, Tottenham Hotspur, for example, has been featured in the Money League for its entire publication history, despite having won only two trophies in that period of time–the secondary English Football League cup competition, known commercially as the Carabao Cup, in 1999 and 2008. In the 19 championship seasons, between 1996 through 2015, the club’s average finishing position on the EPL table was 8th, never finishing higher than 4th. Tottenham, in terms of football performance, for much of the last three decades (with one or two notable exceptions), would be described by most football fans as a “mid-table club,” yet today they rank as the 10th most-valuable property in soccer, at $2.35B.
Tottenham’s growth story is better understood when observed through the context of the rise of the English Premier League itself, from its very controversial foundation in 1992–as a domestic super league that officially broke away from the country’s English Football League altogether–and into its place as THE dominant global soccer brand that it is today. EPL growth, especially in international markets, has been absolutely stunning by pretty much every objective commercial measure. Most notable has been the rise of its global TV audience.
The Premier League today is broadcast in over 800 million homes in 188 different countries. That has translated into dramatic growth in global TV revenues–with a compound growth rate of over 71% through its first 8 international TV deals. And in 2022, for the very first time in its 30 year history, the EPL’s overseas broadcast revenues will actually exceed its domestic receipts.
When you finally consider that Tottenham competes in the world’s most-watched soccer league and plays its home matches inside of a newly constructed 62,000+ seat stadium in London, England, their enterprise value comes into focus much more clearly.
While these main financial drivers for sports entertainment in Europe are mostly aligned with the US leagues–global TV audience, game day attendance, merchandising and other commercial partnerships, etc.–the league organizational structures are very different. As noted in Part I, North American professional sports leagues, such as Major League Baseball, operate in a “closed league” ecosystem, with a fixed number of franchises working together every year to ensure the collective financial stability of their product overall. MLB owners have traded financial risk in exchange for parity and competitive balance. On the other hand, European football leagues are often referred to as “open leagues,” which operate under a system of “promotion and relegation” where the worst-performing teams in the league are relegated, or demoted, to the lower division. Yes, Tottenham Hotspur have not been good enough to win meaningful trophies in England, but they also have not been bad enough to be demoted to the 2nd tier of English Football, either.
In North America, failing spectacularly is actually rewarded with better entry draft picks and revenue sharing. However, another English Football club, Nottingham Forest FC, was considered a giant of European football in the late 1970s and early 80s, winning two European Cups (now known as the UEFA Champions league, the most prestigious of club competitions, and its most coveted trophy), but the 2022-23 Premier League campaign marks the club’s first season back in the top tier of English football after a 23-year absence. In Europe, failing spectacularly could actually condemn a club to indefinite obscurity in the lower divisions, where revenues are not nearly as strong, and the players are second rate.
You can find variations of this throughout European Football, too. SSC Napoli, the Italian football club from Naples, Italy, today competes in that country’s top flight Serie A. The club’s historical significance is inextricably linked to the all-time great footballer, Diego Maradona, who enjoyed the most successful period of his club career while playing for the Italian club between 1984-1991–winning 2 league titles, 2 domestic cups, and a UEFA Cup (now the Europa League), not to mention the 1986 World Cup, representing his native Argentina. But in 2004, after years of mismanagement and without any organizational safety nets to support it, SSC Napoli was declared bankrupt and dissolved. Current owner of Napoli, the Italian film producer Aurelio De Laurentiis (nephew of Dino De Laurentiis, and cousin of Giada), refounded the club later that year and began a rehabilitation project that started from the lowest tier of professional football in Italy, Serie D. Over the last 2 decades, however, De Laurentiis, to his credit, has built a formidable contender, in both the Italian top flight and in Europe. SSC Napoli has featured in every Money League since 2008 and, at the time of this writing, sits atop Serie A after 15 match days, and has qualified for the round of 16 in the UEFA Champions League. The club has enjoyed a long period of relative success on the pitch and, perhaps more importantly, off the pitch, as well.
Throughout this renaissance, Napoli’s on-field success, in terms of silverware, has been modest–like Tottenham, securing only a handful of the lesser-coveted domestic cup trophies. However, the club has competed in the elite European football competitions, either the Champions League or Europa League, in every season since 2010, the longest current streak in Italy. De Laurentiis, perhaps owing to his experience as the financier of profitable b-movies in Italy, has been praised for his “financial fortitude,” once dubbed by the Italian media as “King of the Balance Sheet” according to football finance expert, The Swiss Ramble. The club takes on very little debt; manages their athlete-assets shrewdly, with exceptional international youth scouting and timely sales of rising players; and they’ve never sacrificed their balance sheet for the sake of on-field success. ADL, as he is affectionately known, is a true “infinite” player who prioritizes long-term organizational stability even over short-term sporting success.
Fans of football clubs often find themselves “in quagmire” because they only care about winning. Glory on the field of play is what motivates us. The fans of SSC Napoli do not throw a party at the Shrine of Diego Maradona to celebrate the club’s EBITDA growth. Much to the contrary, the fans in Naples–regarded as some of the most passionate on the Italian peninsula, if not all of Europe–are often very publicly at odds with the President because he seems to prioritize the bottom line even over the league table. But what is most intriguing about this dynamic is that both parties are behaving rationally within the context of the game that they care about and it speaks directly to this conflict between the finite and the infinite.