In early 2014 FFA granted the nine Australian A-League clubs a 20-year licence extension, leaving only Wellington Phoenix to negotiate terms to secure its long-term future. Although disappointed, the club came to the table with a proposal for a ten-year licence and was hopeful it would succeed with its request. A reasonable proposal, that took into consideration that there is not overwhelming amount of support within Asian Football Confederation for a team outside its jurisdiction to be playing in the Australian competition, and the shorter licence period would be easier to negotiate with FIFA and AFC. It would also give the owners, the Welnix consortium, some certainty to further invest in the club.
FFA has always internally reconciled the reason for an A-League team in New Zealand is to give it a footprint in a market of 4.5 million people. However, the governing body has not been impressed of late with the financial returns and sees the club as becoming relatively stagnant. Average attendances over the last few years have been one of the worst in the competition, and even with Phoenix reaching record membership levels, it is still the lowest in the A-League. There are also greater economic issues at play here with FFA disappointed with the reportedly $180,000 a year deal with Sky. This has lead to some soul-searching within FFA about what the New Zealand market brings to Australian football.
The argument presented in the case for why the Phoenix should remain is relatively weak, especially when processed through a simple cost-benefit analysis. From a financial perspective, FFA could reinvest the $2.55 million it gives to the New Zealand club to cover the salary cap for an Australian franchise. Even if FFA chief executive David Gallop falls significantly short in obtaining his desired goal of doubling the existing media rights deal to $80 million a year, the upside would still be significantly more than the small change provided by Sky.
Even the crowds for any new entity only have to be greater than the sub-8000 crowds Phoenix have been getting in the last few years. There is a very small threshold any new entity has to achieve in surpassing Phoenix’s Australian television audience figures. As part of the objectives of the Whole of Football Plan, Gallop wants to increase the number of Australian junior participants who support the A-League from its current level of 22% to 75%. It is a lot easier to achieve this target with an Australian club than with a foreign one.
In regards to player development, a new Australian entity would produce more opportunities for Australian players, along with a National Youth League and W-League programs, and also a youth league structure.
The reality is that Phoenix’s value to Australian football is purely an economic one. Twitter hashtags and online petitions may rally up the faithful and provide media interest, but it is negotiations in the boardroom and tangible financial results that really determine the outcome.
Leverage is a common tactic used in negotiation and FFA has used their upper hand in a game of brinkmanship with Wellington Phoenix. A key leverage point in negotiation is knowing what the ‘walk away’ position is. With the economic argument stacked up against Phoenix, FFA rejected their application and offered a much shorter four-year term. The Welnix consortium has only two options: wind up the club at the end of this season or agree to the four-year term and work on improving the ‘metrics’ of increasing attendances and memberships, and leaning on Sky to improve their investment in football. If Welnix decide to literally ‘walk away’, FFA has been preparing for this situation with plans for a new entity to be placed in the region representing southern Sydney and the south coast.
* * * * *
When Gallop arrived into his post as FFA chief executive in November 2012, the A-League had just come out of its most tumultuous period and into, what seemed at the time, a renaissance age. His predecessor Ben Buckley, after administering the game during failed expansion efforts in Queensland and an embarrassing 2022 World Cup bid campaign that garnered a single vote, capped off his reign by negotiating the code’s highest-ever media rights deal at $160 million over four years. Attendances and television ratings grew rapidly off the back of the arrival of Italian superstar Alessandro Del Piero and new club Western Sydney Wanderers.
Gallop focused his attention on improving the financial viability of the A-League clubs. The media rights money was used to cover the salary cap, plans were put into place to reduce the financial burden of clubs running their youth team programs and into a campaign to increase club memberships. Improvements have been made with combined club loses falling from $26.8 million in 2011-12 to $17 million in 2014-15. Two clubs are currently profitable – Melbourne Victory and Wanderers. Sydney FC and Melbourne City both have owners with deep pockets, and the financially prudent Welnix consortium can spread any losses the club makes across its owners. However, only more revenue will help improve the balance sheet of the A-League clubs and the next media rights deal is where the greatest opportunity lies.
Improving the top line is particularly challenging for small market clubs. Central Coast Mariners, throughout its first decade, have had to work hard to make ends meet. A community focused approach led by the then trio of chairman Lyall Gorman, coach Lawrie McKinna and chief executive John McKay helped galvanise support and brought sponsors to the club. In 2007-08 the club made a small profit. But all that changed when then majority owner, property developer Peter Turnbull, came into liquidity issues during the global financial crisis. As a result, Mike Charlesworth took over the majority share of the club in March 2013, which helped secure the club’s financial position.
Like any astute business operator Charlesworth looked at ways of increasing Mariners’ revenue. As a former football administrator once said, “sponsors give their money to whatever is popular” and the corporate dollars were gravitating towards the growing Sydney clubs. The club’s once lauded community engagement program began to erode once the successful trio of Gorman, McKinna and McKay was disbanded and the crowds suffered as a consequence.
Faced with the realities of operating in a small market, Charlesworth’s eyes moved towards the greener pastures of Sydney’s north. With its more affluent population that is two and half times the size of Central Coast, a football playing population three times the size and a much larger corporate market, it is understandable why the entrepreneur was tempted. But this sense of betrayal did not go down well with the people of Central Coast and the encroachment was met with stern resistance from Sydney FC’s chairman Scott Barlow, who vowed do whatever possible to protect the club’s primary catchment area. Realising the errors of his ways, Charlesworth pulled back his flirtations and the Mariners are refocused on winning back the love from the local community.
After spending more than $30 million, Sydney FC’s majority shareholder David Traktovenko has every right, via his son-in-law Barlow, to voice his disapproval on encroachment efforts by Mariners and the plans for a new team to come from a ‘super region’ of Sutherland, St George and the Illawarra. However, it is slightly ironic that a club is worried about losing fans as if it was a customer ‘brand-switching’ washing detergents. It’s almost an admission that Sydney FC has not built the personal connections with its ‘loyal’ fan base and it practically goes against the theory held in sports management that sport fan loyalty is stronger than consumer brand loyalty. Maybe respected marketing professor Byron Sharp’s theory on customer polygamous relationship with brands extends to A-League clubs. Certainly one for the academics to thrash out.
Gallop too, in the best interests of the A-League, also has every right to explore the option of placing a third team in Sydney. This battle over territory is symbolic of the structural challenges presented to him.
* * * * *
Sydney FC was created over a decade ago after FFA chairman Frank Lowy grew frustrated with the other Sydney bids. Lowy stumped up part of the cash for the club via his family’s trust, along with a consortium of owners that included Turnbull (who would later leave Sydney FC to invest in Mariners), actor Anthony LaPaglia and Tratkovenko (then a minority shareholder).
Sydney FC’s territory was protected by a strategy of one team per city, which was designed to ‘unite the tribes’, and also help the new clubs have a period of grace to build up a fan base and corporate support.
However, this one team per city concept went against the recommendations of the NSL Task Force, who were tasked in developing a new competition model. The recommendations were that Sydney could service a total of three teams – in north, south and western zones – due the sheer size of the city’s population and football supporting public. Then federation chief executive John O’Neill dismissed the proposal and went with one team only in Sydney. At the behest of Lowy, the federation then put together the Sydney licence and the home ground was centrally located at Moore Park.
With any start up, decisions are made on the fly and are generally well intentioned. No one goes out of his or her way to fail. But the decision to place Mariners in a small market and Sydney FC so centrally is what is causing angst for Gallop as he plans for the next period of expansion. Gallop can’t change history and he is finding it almost equally challenging to rectify its mistakes.
Deciding on expansion markets is more than just placing a dot on a map. Even though the failed expansion clubs of North Queensland Fury and Gold Coast United were mainly driven, in desperation, by the need to secure stadiums for the 2022 FIFA World Cup bid, there is normally a fair amount of variables that are taken into consideration before deciding where a new club should be based.
First of all, there needs to be a considerable population base to support a team. This is so there is enough people to convert into paid up fans and members, and also because of its desirability for television. Basically, both pay and free-to-air television want an increase in eyeballs with any new expansion club, but pay television also takes into consideration the potential to grow the subscriptions in that region. Another crucial element is that there is a football supporting population in the area and this can be crudely ascertained by registered playing data, as well as conducting surveys. Each club needs to be viable, and to achieve this it needs various sources of revenue, therefore the size of the corporate market is also taken into consideration.
It also explains the reason for why Gallop is pursuing with plans for a franchise to represent the regions of Sutherland, St George and Illawarra. Each region on their own is not deemed large enough in population to sustain a club. However, combined there is a total population of 900,000 people and playing population of more than 40,000, which makes this a more attractive proposition. The question is whether this super region representing quite a diverse area will work. The Tom Uglys Bridge seems to create a border between Sutherland shire and St George outer reaches. The south coast is another world again.
FFA believes they have a blueprint thanks to the lessons learned in launching Wanderers and they may have a case here. The misconception with western Sydney is that it is a diverse melting pot of people living in almost economic parity. This could not be further from the truth. The more affluent Bible Belt of the Hills district is very different to sub-continental enclaves that live along the eastern region of the Great Western Highway. The people of Penrith are just as parochial of their area as people on the Central Coast and Newcastle. Cabramatta and Campbelltown might as well exist on two different continents. Western Sydney is a disparate collection of communities and FFA was very successful in ‘uniting the tribes’.
But even with great execution in the set up, there is a fair bit of praying that the crowds will turn up and stay for the long haul. The decision to proceed with any new entity is educated guesswork and instinct, even if it is supported by mass amounts of data and expert advice.
Gallop’s legacy will always be determined by the size of the next media rights deal he can negotiate. With media rights being the single largest source of revenue for FFA, Gallop’s efforts in trying to double the current $40 million a year deal will make a massive impact on the federation’s top line.
It’s difficult to gain consensus on the impact that expansion will have on the value of any media rights deal. Even amongst former and current FFA administrators, they have differing opinions on this. Some err on the side of caution, while others see that increasing the amount of content adds value. Some media experts have cast doubt on the impact of expansion within the Sydney market will have on the current negotiations, but they too have been wrong in predicting the outcome of the last deal. The only real expert here is hindsight.
Welnix can pivot on FFA’s point of leverage to secure a win-win outcome by positioning the club as being vital in helping Gallop with his expansion efforts. By removing a financially stable Phoenix, FFA will need to find three licences to get to its desired 12-team competition. There is not exactly a conga line of willing investors, with deep enough pockets, who are willing to bankroll an A-League club. This presents an opportunity for Welnix to be seen to be working with FFA to reach its objectives, rather than Australian football giving a leg up to its neighbours.