October 4, 2022

Matt’s Monday Musings: a series with no rhyme or reason – just coherent thoughts on all things real Madrid published every Monday. Some weeks can be long, others are just short anecdotal thoughts. Either way, I will be posting reflective content about current, past and future club events:

Imagine growing and cultivating one of the biggest brands in the world. Now imagine that the brand has the ability to interact with almost 400 million people every day. These 400 million people have a real interest in the brand’s product and can be reached with a simple click. Yet despite the global breadth of this reach, the brand is unable to fully capitalize on the monetary value of what it has created. Frustrating, right? This is the reality of football clubs, especially “super clubs” like Real Madrid, Barcelona or Manchester United.

How can these multi-million dollar global entities, capable of hiring the best and the brightest, not maximize their brand potential? Because football clubs have fallen behind in recent decades, failing to truly penetrate the US and Asian markets, and they constantly find themselves paying middlemen or intermediaries for data and profits that should be theirs. Simon Kuper, author ofThe Barcelona complexsums it up nicely:

“About 45% of the world’s population lives in four countries: China, India, Indonesia and the United States. Barca and Real Madrid had more than five times as many followers as America’s premier sports team, LA Lakers, and more (as of 2016) than all NFL teams combined. Companies like McDonald’s and Amazon were still trying to convert their customers into fans. Barça had the opposite problem: they had to convert fans into customers. A fan in Mumbai, India, could walk around in a hacked Messi shirt and watch all the team’s games at a local bar, never paying the club a rupee. If he was one of Barcelona’s more than 100 million Facebook followers, then Facebook rather than Barca had his personal details. Barca might not even know the guy’s name. He had to pay Facebook to access it.

If Barca could turn their fans into customers, in the future they would be less dependent on sponsors, TV rights and ticket sales. This is where the whole football industry was headed, one executive told me: “instead of selling to sponsors and TV companies that sell to fans, cut out the middleman and sell direct to fans”. Super clubs need to start thinking more like digital start-ups.

These clubs have millions, if not billions of dollars in revenue on the table. A stagnant or declining business is a dying business. La Liga’s viewership numbers are down 30% since the 2018-2019 season and only 7.5% of their viewers fell into the 13-24 age bracket. Needless to say, these are alarming numbers, especially for a man like Florentino Perez who knows the true power and brand value of the club. The president suggested as much in his infamous interview with The Chiringuito on Super League reasons:

Formula 1, the highest class of international motorsport racing, experienced similar declines in 2008. Yet the sport has since transformed their fortunes and proved to be the perfect case study for Florentino and the creators of the Super League.

In 2008, F1 was led by Bernie Ecclestone. The sport was among the most popular in the world and was at the height of its popularity. But 2008 was a peak for F1 under Ecclestone. The British business mogul failed to acknowledge the underlying issues that led to year-on-year declines in viewership, sponsorships and overall earnings (sound familiar?). In 2016, the last year of Ecclestone’s tenure, the sport lost more than 200 million fans or fell 40% less popular than in 2008.

Among the variety of factors that led to F1’s decline, one of the main catalysts was Bernie Ecclestone’s utter disregard for the potential next generation of F1 fans. In an interview with Asia-Pacific magazine campaignEcclestone has been quoted as saying the following:

“Younger children will see the Rolex brand (watch) but are they going to buy one? They can’t afford it. Or our other sponsor UBS – those kids don’t care about the bank. Anyway, they don’t have enough money to put in the banks. That’s what I think,” he said.

“I don’t know why people want to join the so-called ‘younger generation’.

“Why do they want to do this? Is it to sell them something? Most of these children have no money. I prefer to take care of the 70-year-old guy who has a lot of money.

“So there’s no point trying to reach those kids because they’re not going to buy any of the products here and if the marketers are targeting that audience, maybe they should advertise with Disney.”

In 2016 Liberty Media acquired Formula 1 and revamped the strategy to expand geographically and better monetize its existing fanbase. It’s Liberty Media’s strategy that will be studied by the best in sports management for years to come. They relaxed social media rules and allowed race teams to use more “behind the scenes” footage, they incorporated fan festivals at races along with concerts and other family events. Liberty media opened up the ‘strategy group’ (formerly a small circle of executives) to allow the biggest names in Formula 1 to recommend and review potential changes, and they improved television broadcast angles. And of course the biggest driver of Formula 1’s new found success has been the partnership with Netflix and the documentary series “Drive to survive”, who was a smash hit and the real catalyst for the growth of the sport, especially in the United States.

Nielsen now predicts that Formula 1 will exceed one billion fans in 2022 and has achieved the following since its takeover by Liberty Media in 2016:

  • Average age of an F1 fan: 32
  • 77% of new fans are under 35
  • Fastest growing social media engagement in any sport globally
  • Captured the US market by allowing ESPN to broadcast races for free
  • Added a new track in Miami and increased US race day attendance by more than 50%. Planning to add a 3rd US circuit in Las Vegas.
  • F1’s share price has risen 250% since Liberty Media took over in 2016, capturing billions of dollars on the deal.

There’s no reason the success of Formula 1 can’t be replicated in football. There are plenty of opportunities for every club in the world to tap into under-monetized US and Asian markets. Perhaps the most concerning is the lack of growth among young fans. According to a study conducted by Gavin Bridge, young sports fans consume the game differently: they watch highlights rather than full matches, prefer to interact via social networks and want to watch the big stars. Gen Z devours online content rather than watching the full game. The value of TV deals will drop if this tide does not change.

In creating what was ultimately a flawed product, the Super League, Florentino Perez had the right intentions. There must be changes in football and clubs want more control over their financial future, rather than being beholden to UEFA and other intermediaries. Clubs are looking to create leagues and content that cater to a new generation of fans. Leaders like Florentino Perez recognize that an institution like Real Madrid hold untapped potential and can only be frustrated by declining numbers in various facets of the business.