Host Richard Parkin interviews John Stensholt from the Australian Financial Review to discuss club finances in the A-League. We also get our weekly analysis from Kate Cohen on the A-League and Ann Odong covers the W-League.

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Part 1

(Interview begins at 24 min 34 sec)

Richard Parkin: Welcome back you’re listening to the Leopold Method Radio Show. Our very special guest today is John Stensholt from the Australian Financial Review. He’s here in the studio to talk about the business side of football. Welcome John.

John Stensholt: Hi Richard, how are you?

RP: Yeah, good. Good to how you. Now look, the A-League has reached it’s tenth season, you write very much about the business side of all sports, but how is Australian football now positioned in the landscape compared to some of the other major sports?

JS: Look it’s starting to punch a bit above it’s weight I suppose, but it’s got a long way to go at the same time. I mean if you think about how far football has come in the past ten years it’s been a pretty quick ride. It’s been a roller coaster along the way. But it having said that, if you think about ten years ago when the A-League came in, maybe what 18 months before that when the NSL was shut down, well talking about a business it literally had to start over again. So it’s coming from a long way back compared to the other codes, if you’re looking at let’s say cricket as an example – it’s the national game, a bit like football is – Cricket Australia probably gets three times as much revenue as Football Federation Australia does. So you think about what you can do with a lot of money – you can spend it on grassroots, you can spend it on the national team, player wages and so on and so forth, you can run your own league as FFA have to do and Cricket Australia do to a certain extent with the Big Bash League.

RP: But that’s just revenue you’re talking about as opposed to say media rights deals and all the other add ons that Cricket would have a pretty strong advantage…?

JS: That includes broadcast rights as well, and Cricket are about to go into a second season of a $550 million five-year deal, so that’s roughly $110 million a year in cash and contra where as the FFA are working off a $40 million a year deal. Look, you know that’s probably a good comparison for listeners to where football is compared to the other codes.

RP: Compared to some of the other codes, say the football and rugby codes, are making grounds?

JS: Yeah I think it is, look AFL’s the behemoth of Australian sports right now, it’s going to be always I think bigger than anyone else. Rugby league does very well as well, they’re both operating off broadcast rights of about $200 million annually, plus huge amounts of sponsorship. You think about how big the State of Origin is in rugby league, AFL’s huge around the country, so that’s somewhat of a marker. I think where football is coming up to and has probably surpassed one sport is rugby union. The ARU – the Australian Rugby Union – has had significant financial issues and it will do for at least another year or so. They’re losing a lot of money, I think FFA’s probably positioned pretty well compared to that, but notwithstanding the fact that rugby is about to get bailed out the year after next with a significant increase in TV rights. Which just goes to show how important live sport is, and that’s where the FFA can cash in next time round.

RP: Looking at the Football Federation of Australia’s strategic plan, this ends at the conclusion of the Asian Cup. Their revenue target was $100 million, is the Federation on track to achieving this?

JS: Yeah they would have got there in the past financial year – the 2014 financial year, so the year to June 30. Look, let’s face it, a big boost comes from making the World Cup, FIFA pay a lot of money to the participants, you know a good $10-15 million. It would cost a lot of money for the Federations to go as well, right, so the players, got a fair chunk of that, obviously the luxurious travel and accommodation that they do, and probably the VIP people that go along with FFA – that all costs money as well. But they still would have made a decent amount of money from it, don’t forget as well they also got money from selling the Wanderers for $11.5-12 million at the beginning of the financial year now, so a windfall comes in there. Again they’re going to distribute some of that. But absolutely though, on a revenue base they definitely would have passed $100 [million].

RP: They’d be profitable?

JS: David Gallop has told me they were profitable in the past financial year, so some of that are because of the one-off items I suppose like the World Cup and the Wanderers.

RP: The challenge might come, say next financial year?

JS: Yeah, absolutely. I think they’re fully on target to go ok anyway. There are still some holes in the balance sheet they need to address but its not exactly in a position like AFL, who have got a $60-70 million future fund where they can lock away for investments in the future. Football’s not there yet, it takes time to get there and that’s exactly what they’re aiming to do.

RP: You mentioned some of these one-off factors, but where does the bulk of the revenue come from?

JS: There’s still that $40-odd million that comes in broadcasting rights every year, and significant windfalls for them include Socceroos games if they’re playing here at home – which is not very often obviously – A-League finals are a big one for them and sponsorship and so on from the big names. The Hyundai A-League obviosuly puts in a lot of money, and other associated sponsors as well. But really, you know a good 40% almost, or at least a third comes from broadcast rights.

RP: Looking at the opportunities and the threats ahead for FFA and the game in general, what are these facing it’s revenue increasing potential?

JS: The big opportunity is the next round of broadcast rights. So we’re in the second year of a four year deal now, so two more years to go on the current one. You’ll find next season they’ll start going to market. What sport likes to do is sign a deal a year ahead so they’ve got a bit of certainty for when the current contract expires and what’s happening next. That’s gives certainty to sponsors, that gives certainty to teams and so on and so forth, so next year they’ll be in the market. They’ve already done pretty well in terms of spreading the love around the broadcasters – look at Fox Sports and SBS have got the rights to the A-League now, and to Socceroos matches, the ABC has come in and got rights to the Asian Cup, so there’s another broadcaster that is interested in football all of a sudden. You’ve also got Seven, they’ve managed to sell the Foxtel All Stars rights to, you know the Juventus game, the Manchester United game over the last couple of years. So you’ve got another broadcaster that’s dipped their toes into the water into football. So this way of kind of getting everyone a little bit interested in the sport augers well for getting some sort of competitive tension going in the bidding process for the next rights deal, and that’s a crucial thing for the FFA.

RP: Speaking of some of these other commercially interested parties though, we know the AFL and the NRL media rights are up before Football Federation Australia’s – how much will this have an impact on the next deal?

JS: The AFL is certainly the biggest game in town and look, broadcasters say to me ‘we’re saving our money a little bit for that’, and it might affect other sports, but then at the same time you hear stories of rugby union getting a bigger increase in rights. I think the AFL are always going to do pretty well just because they’ve got that big market spread, you know they can sell coast to coast, football’s a little bit like that as well. Perhaps more teams will help with that, you might want to talk about expansion in a little while, but I think every sport is going to do quite well and I don’t think the bubble has quite burst in terms of the broadcast money that comes in for live sport. I think it’s only going to become more and more important, so I think the FFA will achieve an uplift, but the big uplift comes if they can get a commercial – one of those three big free-to-air commercial – broadcasters in there. That’s where the real money is.

RP: That’s the interesting thing – if we’re talking about these NRL rights and AFL rights coming up, and there’s a bidding war and one of the commercial parties misses out, is there a chance that you will see a Channel 10 or a 7 come in with a lot more cash than SBS or Fox can offer?

JS: Absolutely. Look I’m probably going to be spending the next 12 months talking about the AFL broadcast rights. 7 are really keen to keep it but 10 are going to be really big bidders, I suspect what will happen at the end of the day is that 7 will keep the bulk of the AFL rights, they might let Channel 10 get one or two, but Channel 10 are desperate for live sport so I think that’s where it could be a little bit of a key there for football. But what you’ve got to remember is that football is primarily a summer sport – now who doesn’t have much summer sport? Well, 9 has the cricket, 10 has a little bit of cricket now, 7’s got tennis, that really only peaks for a couple of weeks there. Maybe there’s an opportunity for FFA to go to them. Look, let’s put it on one of the digital networks, lets play the occasional game on the main channel, digital networks get better reach than SBS do already so maybe that’s an opportunity for them. I think the big money is in the commercial networks. 7 is an interesting one for me, they’re really keen on all sports.

RP: Now the FFA have also come out and said they’re looking to expand to 12 teams by the time the next media rights deal comes around. Is this going to be a factor in the location of the new teams?

JS: Oh I suspect so. There’s no doubt about that – what happened with the big uplift in the AFL rights was having a second team in Sydney. Now look I know that football fans have rightly compared the Wanderers with what the GWS Giants are doing at the moment. The Wanderers are doing so much better than the Giants in terms of getting crowds in and sponsors, people watching and so on. But having said that in terms of TV audience if you can have two home games in Sydney every week as the AFL do and as – by the way as the A-League do as well – that shows that the big broadcasters in the big cities need to be interested in it and therefore they’ll pay the money for it. While we rightly sort of look down on the Giants at the moment they are a crucial component of the AFL. So what that means in terms of the A-League rights is I suspect you’ll see the teams that come in – and Frank Lowy is on record saying there should be two teams come in next time round – I reckon there’s no doubt that David Gallop will say to the broadcasters ‘where do you think you might want a team?’

RP: So it might be looking at these bigger markets like a Sydney or a Melbourne or a Brisbane as opposed to say Wollongong, Canberra and some of these markets?

JS: I really think Sydney, and David Gallop has already talked about South Sydney. The southern parts of Sydney, Cronulla Shire, extending down to Wollongong. South Melbourne, maybe… I think that’s a really intriguing idea. I know that they’re prepared to get in there as some sort of a boutique team I suppose in the A-League. South East Queensland is also an intriguing one, I know we’ve been to the Gold Coast and that’s been basically a failure. Is there perhaps a chance of a place like Ipswich where there is a big growth corridor? I’m not sure if there are a lot of participants there but maybe it’s a really intriguing option for the A-League as well.

RP: It’s a very interesting trade-off, as opposed to a place that has a strong base of football players and strong footballing cultures, we’re looking at these bigger media markets. So that’s something to watch. Just very quickly, the FFA Cup has been a big success with the football community, possibly surpassing Fox Sports’ expectation, will this play a role in boosting the value of the rights?

JS: Oh it’s surpassed their expectations by ten-fold probably. It’s really out-rating the National Rugby Championship, there’s double the amount of people on Foxtel for that. As to whether it plays a big component of the rights deal – I don’t think so, it’s not necessarily worth tens of millions of dollars or anything. It’s probably a really nice add-on for Fox more than anything.

RP: Great. I’m speaking to our special guest John Stensholt about the business side of football, we’ll be back shortly after this break. 

Part 2

RP: You’re back listening to the Leopold Method Show on 2ser, your home for intelligent, insightful football analysis. John Stensholt joins me in the studio to talk about the business side of football. Now David Gallop has come out and said that he expects at least 5 teams to be profitable or at least to break even by the end of this season. What are some of the reasons why clubs may have struggled to make a profit?

JS: Look some of it’s probably down to the acumen of the owners of the commercial operations of the teams. They tend to be pretty small, only fish locally I suppose. You look at the big brand names that are on shirts around the A-League it’s probably not many national brands even. They’ve got to think bigger and say it’s a national competition. Melbourne City with Etihad is a bit of an exception to that. Costs have probably been a bit higher for the owners from the start all the way through that they expected. So what’s probably happened now once we get into that tenth year is the owners are starting to cut their cloth accordingly. Maybe you’ve seen that – let me give you an example. How many marquee players are there now in the league? There’s probably less than there was before, so what I’m saying is, yes the commercial side is growing but owners are tightening their belts a bit and reigning in some of those extraneous costs, and therefore they’re getting to that break-even level. There’s exceptions to that, there’s some clubs like the Brisbane Roar that are wanting to grow towards a profit rather than shrink back towards break-even, and the Melbourne Victory is a notable exception.

RP: Certainly as you say there’s almost a feeling that the bigger markets – the Sydney FC or the Melbourne Victory or teams like this are more likely to grab a marquee and its almost like subsidising some of the smaller clubs. Now let’s look at a team like Central Coast or Wellington, I mean, is the model sustainable for these clubs with smaller population centres?

JS: You’ve got to be smart about it I suppose, and some of that involves having a business model where you bring young players through, you know relatively cheap players and perhaps sell them to overseas as they mature. There is money you can get that way. Look, it’s really part of getting really close to that community. The Mariners have had that at times, I think under the current owner they’re probably struggling with that a little bit, there’s been a bit of a disconnect. People talk about the Newcastle Jets in that way under the current owner Nathan Tinkler as well. Look they’ve had crowds of 20-odd thousand when they were flying high not too long ago. With a market like Newcastle you’ve got to be really good with the community, you’ve got to say that you’re here, not have idiots in the team, or lairs that will upset the local market and just be really good to them and they’ll respond accordingly and be really loyal. And they’ll along to the games, they’ll buy the shirts, they’ll make you money that way. But if there’s a disconnect then all of a sudden they drop off quickly and it starts costing the owners a lot of money.

RP: I was going to say, we’ve certainly seen the community crossover with someone like Lawrie McKinna – a very very popular coach working hard in the community at Central Coast, then went on to get elected as mayor of Gosford. So it cuts both ways. Lets talk about the front office, bringing in more revenue for the clubs. You’ve writtten about teams like the South Sydney Rabbitohs in the NRL. So obviously we’ve heard this story, what 10-12 years ago they’re almost dead, almost about to get kicked out of the league. They’ve come back with a strong bank balance – what are some of the things that South Sydney have done to increase membership and corporate dollars that A-League clubs could learn from?

JS: Well Souths unashamedly borrowed the AFL’s membership model where they went out to the fans. You’ve got to remember that while Souths were on their knees they still had a huge latent supporter base that was around but wasn’t necessarily engaging with them. So they did have that to tap into. They unashamedly borrowed a lot of things from the AFL including the membership thing where they said to their fans: ‘in order for us to survive and thrive you’ve got to come along on the journey with us and buy a membership.’ That means they got their money up front and they were able to invest accordingly throughout the year. The A-League has certainly got onto that in the last couple of years, absolutely. They’ve hit that 100-odd thousand mark, but there’s ten teams, so there’s still plenty of scope for growth in that regard. I think commercially they’ve got to do a better job. Some of them do a very good job, Melbourne Victory are a fantastic example of engaging in business and having a business club there where they get a lot of corporate support. More of that, I think.

RP: I mean, let’s talk a bit more about Melbourne Victory. Certainly they’re a profitable club, they’ve got about a $16 million revenue, they make possibly $1 million profit on that. So what’s their key to success?

JS: Look, Melbourne is a great market for sport, don’t get me wrong. They had success early on and they grew that fanbase. One of the really interesting things from a business point of view with what the Victory have done: they’ve got this program called ‘Victory in Business.’ They hold, lets say, a quarterly function, four big functions down in Melbourne every year which draws more corporate support than any of the AFL clubs so they’ll have 1000 or 1200 people in the room for a function. I went to the season launch a few weeks ago, Frank Lowy was guest speaker there and they had 1200 people in the room! And all these corporates join what’s called ‘Victory in Business’, they set up other networking opportunities for them, they do business matching programs for them and the common thread is that they all like the Melbourne Victory Football Club. And then once they get in there and do ‘B to B’ – business to business deals because they met through football. I think it’s a fantastic program, it taps into that sort of Melbourne identity, it taps into the business support that is out there for football, and people make money from getting involved with a football club. That’s just a really fantastic blueprint for all sports, not just the A-League.

RP: Is there scope for other clubs in the A-League to pick this up? Certainly in some of these more parochial markets like Central Coast or Newcastle where the business community might be a bit smaller and might be looking to make those ties?

JS: Yeah, exactly. They’re more tightly knit I suppose. Anything that helps, you know, or even promotes the businesses outside. I mean, Central Coast, I remember when they first went into the Asian Champions league they wore the Central Coast brand, you know that supported them through the local council. So you can almost act as like a vehicle for the community to get out there as well. Sydney have certainly started to copy the ‘Victory in Business’ model, and that’s a really good start. I mean Sydney – what a great corporate town that is, you know they’ve got such big names on their board, they should be doing that as well.

RP: Now you’ve also done a story recently about the Brisbane Roar and how they’ve invested into a database system to better market itself to its members. Can you explain some of the success they’ve had with this investment?

JS: Look, any business, in particular a retail business which is what sport is – you’ve got customers and so on, I know that’s a funny term to use but run with it – if you know who your customers are, if you know as much information about your customers as possible, then you know what they like, what you can sell to them and how much you can sell it to them for. It’s exactly what Brisbane Roar are doing with their program. So they’ve built their own database system that collects as much information about their members and fans as possible, so they know what offers they can push out with them, they know what memberships they like to buy, they know what sort of demand there is for membership upgrades so the more income comes in. The more sort of yield per person I suppose – that’s what it really is – you’re making more money off your fans by knowing them better. At the same time they feel more engaged with their club, so it’s about looking after your fans so they spend more money with you.

RP: I guess that also is the method of saying ‘well we’re listening to what it is that you want on a matchday experience, or what it is you want on a membership package.’ That possibly has a benefit in that sense as well.

JS: Absolutely. We’ve all got our favourite shop or whatever we spend more money in because they do enough to keep us coming back. Look sports have got to tap into that sort of idea as well.

RP: So maybe Allianz Stadium could think about something less than a $7.20 light beer?

JS: I’m not sure stadiums are ever going to go backwards in their food prices unfortunately.

RP: I’m sure the fans would push for that. Do other clubs need to invest more into some of these resources like that to increase memberships?

JS: Absolutely, memberships is crucial. Grow your membership base and make more money from members. I see some of the clubs, you know operating off 4-5000 members and look that just tells me that there is so much more demand, so much more opportunity for growth there. Look, some of them have a long way to go. The Victory with 23,000 odd members, the Wanderers with 17-18,000 they’re there already. Although the Victory can keep growing, the Wanderers not so much at the moment anyway.

RP: They need a new stadium.

JS: Well that’s right, and if they get that they need to push for the new stadium by saying ‘we can’t get any more people through the gate!’ So that’s another business model to I think.

RP: Lets talk about stadium deals. I made a flippant comment about the beers obviously, but are some of these deals hurting the clubs bottom lines?

JS: Well they did at the start of the A-League in particular, some of them were a bit onerous, there’s some pretty high sort of break even figures. There was talk of Brisbane Roar needing 15-odd thousand people through the gate just to break even. Pretty tough in those days, but it’s much better than it used to be. So the stadiums, which are mostly owned by government authorities, have recognised that if they inflict pain on one of their tenants then maybe those tenants won’t be around eventually. Look it’s getting better, there are still some heavy restrictions and advertising but some of that comes down from FFA. They still find it hard at times to get people through the gates, and some teams are going to draw better than others, so it’s getting better than it was.

RP: How is the negotiating power of some of the clubs flipped vis a vis some of these stadium owners through the strength and the growth of the A-League?

JS: Yeah, I suppose what they’ve shown is that 10 years on the A-League is here to stay. So they’ve got this ‘summer tenant’ really, when most of the other rectangular stadiums have football teams which play in the winter. So it’s important for the stadium to have people coming through the gate year round, and clearly the A-League has got a bit more strength in that sort of bargaining power.

RP: Again, looking at a smaller club like Central Coast Mariners, their stadium deal is reported at $7500 per game. I mean surely that’s not too onerous on the club?

JS: No, that doesn’t sound onerous at all, and perhaps there are some other payments they’ve got to make around other facets or security or whatever. I think the bottom line with a team like the Mariners is that, you know, it’s a real mum and dads sort of family crowd. They’ve just got to do as much as they can in terms of getting corporate people through the gate and it’s a tough market for that up there I suspect.

RP: Excellent John. look I could talk all day, but thatnk you so much for joining us, it’s really greta to hear about this side of the game.

JS: No problems at all Richard, I appreciate the invitation.

RP: Cheers. John Stensholt there from the Australian Financial Review.