13 July 2012

On Maxi, Summer Signings, and FSG's Business Model

Well, while waiting on pins and needles in the hopes that Liverpool have signed Fabio Borini (look, there's a picture of him in training gear!), we get news that Maxi Rodriguez's inevitable exit has finally come to pass.

Which Liverpool did an excellent job of promoting, as has become par for the course. While everyone's waiting for Borini news, Liverpool's Head of Content tweets this:



Everyone clicks, everyone goes to the website, everyone freaks out in anticipation. Nope, not Borini, not Dempsey, or not any of the other multiple names perpetually linked. Maxi's exit. At least we know where Liverpoolfc.com's priorities lie. Website hits.

It's not that Maxi – or Kuyt, as I wrote about five weeks ago, prompting many of the same squad depth fears – is irreplaceable. As many, many have already said, Maxi was criminally underused, with Liverpool's joint-best shot conversation rate and best league goals-per-minute rate last season. But both he and Kuyt are over thirty, had increasingly smaller roles last season, and were on comparably high wages considering each's relative value. This always seemed likely, as much as Maxi will be missed both on and off the field.

It's not even that Liverpool haven't signed anyone yet, despite the squad leaving for its US tour next week, despite the Europa League qualifiers beginning in just under three weeks, despite Liverpool having signed at least one player by this point in every summer transfer window over the last decade. And don't even start that Aquilani and Cole are like new signings because, come on. Let's be serious here. The lack of incoming players are obviously a concern, but it's an explainable one: Rodgers is still getting a handle on the squad, the Euros dampened business across the market, etc. Borini almost assuredly will be announced soon [Update (2:30pm): That didn't take long.], if not later today. And others will follow.

Still, as @AvoidingTheDrop cleverly quipped:



The perception is that LFC (read: FSG) care far more about commercial deals and the wage bill than the actual football. Granted, at this point, it's still perception, arguably reactionary perception, but the prevailing perception nonetheless. And with the season soon to start, frightfully close to becoming reality.

Of course, we were warned. A guest post from friend-of-the-blog Mike Anton said as much 21 months ago. The relevant section:

Boy, Do They Like Making Money: Their home field, Fenway Park, was first built in 1912, which they still use. It's an ugly matchbox of a stadium that people now consider "quaint" because they're too nice to use "horribly outdated." Most ownership groups who wanted to purchase the Sox in '03 were going to tear it down and build a new stadium. But not these guys! They believed that the park was the franchise, so they decided to keep the old barn because they couldn't envision a franchise without it. [Editor's Note: Please ignore the use of the word "franchise." A can of worms better left closed.]

Then they whored that thing out as hard as they possibly could.

The place only holds roughly 35,000, while most comparable stadiums fit 55,0000, so seats were placed everywhere. On top of the Green Monster, the space-saving giant wall that is meant to simulate a wall 380 feet away, there are now rows and rows of seats (at $200 a pop). There are new expensive club seats, banners and ads all over the Green Monster and anywhere else you look, corporate sponsorships all over the place. After games, on their own TV network, the Red Sox cut their post game show in half so they could sell "exclusive" naming rights to two different companies, one to their "Red Sox Post Game" show, and one to their "Post Post Game" show. They have a fan club named Red Sox Nation that costs about $20 a year, and a couple years ago they had a novelty "name the President of Red Sox Nation" vote....that cost 99 cents per vote.

That last paragraph sounds vaguely familiar. Especially given FSG's announced preference for renovating Anfield.

Just look at the stories on Liverpoolfc.com at the moment. Sure, there are articles on Maxi's departure and routine fluff about or from Henderson, Flanagan, and Enrique. But there are also links to the US Tour and Auto-Ticket Scheme – give us your money! – an announcement about Garuda Indonesia as the new official airline partner, a promotion for the new monthly magazine, a promotion for the television channel, and slide-show of kids in the new Warrior kits. A slideshow. Of little kids. In the new kit. I utterly despair. The football-to-business ratio is almost exactly split right down the middle.

Let's make no mistake about it. FSG are running a business here. But whether they're running a football club remains to be seen.

10 comments:

Steve Jensen said...

Nate:
I've only been a football fan for the past year, though I have devotedly followed the Reds since last summer. I am new to "real" football, but I have been a fan of American sports for at least 35 years. So, I think I'm speaking as someone who can look objectively at certain aspects of football culture, and compare how they are similar or different to corresponding aspects of American sports culture.

One difference that is apparent to me is that Americans have a greater tolerance, in general, for the commercialization of sports, especially professional sports. Apart from the shirt sponsorship aspect of football -- which, surprisingly, has never caught on in American sports that are not soccer (golf & tennis, also, I guess, but that's much more subtle) -- the importance of commercialization in football lags its importance in American sport. Therefore, many football fans get offended at the transparent marketing of football clubs. The sentiment is that the club has sold its soul by placing profits ahead of football.

And, to some extent, the sentiment is spot on. Clearly, corporate owners are looking to turn a profit. But, I would argue that the fans should not be shunning this corporate commercialization, as distasteful as it may seem. Especially supporters of clubs like Liverpool, which, unlike the Chelseas and Manchester Cities of the football world, are not going to undertake massive deficit spending to improve the squad.

FSG is in it for profit. But FSG's business model assumes that the BEST way to make a profit is for the team to win. And, for that reason, LFC supporters should be delighted at this ownership group.

From one perspective, Fenway Sports Group has "whored out" Fenway Park. From another perspective, FSG has turned around the baseball fortunes of a team that had not won the World Series in more than 50 years, and delivered two titles.

If, in the next 10 years, LFC has won two Premier League titles, won't the commercialization have been worth it?

And, isn't making money through as many sources as possible an important means for the club to reinvest at least some portion of that money in purchasing better players? Especially with the new Financial Fair Play rules in place?

I understand your sentiment. I sympathize with it. But, ultimately, I think it's wrong-headed for LFC supporters to get upset by commercialization of the club.

nate said...

The difference is whether the commercialization is to the detriment or benefit of the club. And for its fans.

Commercialization of the sport and of Liverpool FC is inevitable. It started before FSG, it'll continue after FSG. United were the first to truly exploit commercial deals, and it's no coincidence they've been the dominant club over the last 15 years – at least until Chelsea then City's money trumped everything.

But FSG seem focused on commercial deals, as if doing those will fix all of Liverpool problems, on and off the field.

It might. Maybe in the long-term, maybe even in the short-term. If Liverpool win the league once, not even twice, in the next decade, yeah, probably worth it. But we've seen little proof that it's been to Liverpool's benefit yet. And it certainly hasn't been to the fans' benefit yet.

Keith said...

Ultimately, I think the important thing is that the incentives are (or appear to be) aligned. For FSG to really cash in, Liverpool have to be regularly challenging for the CL. Actually one of the nice things about the European football versus our American sports. In MLB, there have been and currently are plenty of owners who are content to put out a mediocre product and make money through the various revenue-sharing schemes and taxpayer subsidies. So although some of this poor PR work is annoying ("Look at our black friends!" after the Suarez incident being IMO the most egregious), I think it's not much more than a minor annoyance.

Looking forward to your thoughts on Borini. At work so I can't link them, but someone on YouTube has compiled clips of most (all?) his touches in games this past season against Palermo, Lazio and Inter. You posted a stat on your twitter account about him being amongst Serie A leaders in tackles for forwards, and there are a few instances in the aforementioned clips where he's sprinting all the way back to his own 18 yard box to try and nip the ball. Really think he and Suarez are going to be a real handful for teams trying to build out of the back. In your early machinations -- Suarez out wide with Borini as CF? Suarez in the center as a false nine of sorts? Probably depends on what else the summer brings, but I'm nonetheless curious.

-Keith

nate said...

Posting this rant, while making me feel better, stole some of my Borini thunder because now I don't feel like posting about him until tomorrow. But yeah, got most of it written and planning on mentioning all that stuff you mention – links to YouTube videos, how he'll fit with Suarez, a bunch of Swansea/Roma statistics, etc. And even though it'll make it late for the go go go go internet culture, I'll probably have it up tomorrow morning.

Ryan McKain said...

Like Steve, my interest in LFC really only began with the team's acquisition by FSG. However, as a devout fan of their "other" team, the Boston Red Sox, I can attest that the business model as described by Steve does truly work, even if it is unpleasant/abhorrent. I would add that the best way for the ownership group to increase their income from corporate sponsorship is to field a winning team: Would you pay more to see your name on a perpetual champion or one that is struggling yearly to avoid relegation? After all, there are only so many places to brand with logos.

As for the stadium issue, I will reserve my comments. I happen to like the "nostalgia," except when I am visiting a "modern" stadium with actual amenities.

Seth said...

I like the rant. Frustrating to not see more signings yet. But, I don't get the connection between Liverpool's commercial department and finance guys working hard to grow topline revenues (to the point of annoying us) and a lack of focus on football. I don't know for certain but I can almost assure you that the football guys in the organization aren't spending their resources trying to generate revenues. They're doing football things. Brendan Rodgers is focused on the team. And likewise, the owners, PR team, twitter team (or whatever) etc are focused on the stuff they get paid to do, which is not football stuff.

Perhaps in summary, I doubt Tom Werner is telling Rodgers "don't even think about more signings or scouting or training until we get more sponorships and social networking hits.

Anonymous said...

BOOOORRRIIINNNIIIIIII!

Stephen said...

Nate,

First off...thanks much for the blog. Regarding FSG commercialization strategy, I think you need to take a broader view. To build a consistent contender, LFC must increase revenues to pay for developing & acquiring world class talent - something every LFC supporter wants. When compared to annual revenues from the best clubs in EPL, LFC are 50m euros behind Chelsea & Arsenal and 150m euros behind ManU. Same issue with the top clubs in Europe (Real Madrid, Barca, Bayern Munich). There are other clubs (Man City, PSG) that have owners with unlimited funds, with whom FSG can never compete. Punchline: they need to apply modern business practices to maximize revenues...in order to compete.

The next question is: will FSG plow incremental proceeds into the product on the field? The answer is yes. So far, FSG has invested ~$40m pounds (net transfer deficit) in adding talent to LFC...make that ~50m with the Borini signing. They invested similarly large sums to add free agents to the Red Sox ($154m on Adrian Gonzalez, $142m on Carl Crawford). With the Red Sox, they also made long term investments in paying above the odds for young talent and making the farm system (academy equivalent) first rate.

Last key question is will FSG be successful in their LFC strategy? While succeeding at world football will be more difficult than their Red Sox turnaround, I think LFC supporters should take a lot of confidence in the fact that FSG achieved success with the Red Sox, a team that faced similar circumstances. These guys are not clueless billionaires...they get how to manage sports businesses in the 21st century for success.

Give it time & you will see...FSG are the right owners for LFC.

nate said...

Nit-picking, but it's ~£40m with the Borini signing.

In: Suarez (£22.8m), Carroll (£35m), Henderson (£16m), Adam (£7m), Downing (£18.5m), Enrique (£6m), Coates (£4.9m), Borini (£10.4m) = £120.6m
Out: Babel (£5.8m), Torres (£50m), Konchesky (£1.5m), Mavinga (£1m), Ince (£500k), Ayala (£850k), Insua (£3.7m), Meireles (£12m), N'Gog (£4m), Kuyt (£1m) = £80.35m

Give or take a few hundred thousands on the fees, plus wages for free transfer exits, so a broad estimate. Still, a £10m difference nothing to sneeze at.

I understand the need to maximize every potential revenue stream. I just don't like the feeling – and again, as said above, right now it's no more than a feeling – that it's more a priority than the actual football. This is one of those times where being a over-emotional fan outweighed my pragmatism.

Also, I'm still not completely convinced FSG has a concrete football strategy, as much as I like Rodgers. Which seems evident in the wild differences between Dalglish/Comolli's targets and spending and Rodgers' (both rumored and, now with Borini, in practice).

Granted, I have zero insights for the Red Sox, because baseball is my least favorite sport ever and I do everything in my power to ignore it whenever discussed on ESPN, the internets, etc. But I'm under the impression that results have declined over the past few years, especially in relation to payroll (which I believe has steadily fluctuated between 2nd and 4th highest in MLB, and they haven't been one of the top four teams since that World Series win).

A quick look at Baseball-Reference, because I don't know shit:

Winning Percentage: 2007 = 0.593, 2008 = 0.586, 2009 = 0.586, 2010 = 0.549, 2011 = 0.556, 2012 (so far) = 0.506.

But again, "Donny, you're out of your element!" anytime I try to discuss baseball.

Suarez from the Car Park.. said...

well, well. I never had you for a rabid left winger Nate???

Seriously, c'mon man. FSG hark from the country that gave us Wall street, Enron and an entire [Western] world of insolvent banks.

They were what, hedge fund guys? Commodities traders? Spawn of the devil basically.

That said, it's hard to accuse them of sitting back and neglecting the footballing side of things.

Sure commercial contracts are their number one priority. Of course they are, it's an unexploited brand.

It would be stupid not to, especially when you've sunk £300m into the thing and your under achieving massively on the financial front.

Renovating stadiums makes sense because building new ones often doesn't.

With Anfield, they're talking about £400m for another 15,000 seats in a new stadium. Even with corporate boxes that's not sound economics. And character is what you get from old places.

I've been to the new Wembley, it's soulless, efficient, I'm on my way home on the tube in 20 mins after the game, and you're so far from the field you end up watching the screen not the pitch. I'll never go again.

Are you seriously looking for an Abramovich like sugar daddy?

But the footballing side of things hasn't exactly been left to rot at Anfield.

It's not their fault that Comolli and Dalglish had less idea about buying good players than a drunk vicar.

Hodgson wasn't doing it, they sacked him. Dalglish wasn't doing it or developing the players he bought so they brought someone in who a) would come and b) would actually develop players and bring in younger talent that is perhaps off the radar.

Seems pretty sound to me while we're in 8th.

It also seems like Rodgers has had pretty interesting young targets. Tello, Callejon, but we're unable to get them and I don't think that's about money.

Rodgers might get us further up the table and find his/the team's ceiling.

Arguably that's the time to judge FSG, on their actions then. Does their move at that point indicate ambition or a Wenge like attitude. The real point is they have to get to the Wenge position before we find out what they're prepared to do.

You, Ed and Noel (at the offside) are the best writers on the net without doubt, but I really don't get this article at all.

It's not like the official site was ever a gold mine of original literature and objective analysis.

Am I being blind?

btw, anyone from the offside reading this, I can't for the life of me get a confirmation email for the sign up process. Perhaps someone can post that over there for me.