As a Liverpool FC fan (or, more accurately, a Xabi Alonso fan), I have been watching the impending sale of the team with great interest. The back-and-forth over the holidays between the current owners and the Dubai investment club that had an offer on the table, and the interjection of the interest of Americans George Gillett and Tom Hicks, has been fascinating. Last week the team announced that they had accepted the Gillett/Hicks bid.
Over at the Sports Economists Skip Sauer quite rightly talks about the capitalists being ahead of popular opinion, and the growth of soccer’s popularity in the U.S. [certainly if he were with us at the Globe Pub on any given Saturday morning watching EPL, he would be even more convinced by the number of Americans in attendance. -ed.] The Sports Illustrated article on the acquisition makes the same point:
If you ask me, it means that some Americans, such as Gillett, Hicks and Kroenke, finally get it. They understand the global reach of soccer, that it’s really the world’s game. After all, it’s not just a sport. It’s the largest collective phenomenon on the planet, with billions playing it, watching it and discussing it every day. …
That’s what this buying spree is about. The massive network of soccer fans around the world, united by satellite TV that lets Malaysians become huge Manchester United fans and China become crazy for Real Madrid. These American businessmen want to tap into that network, and they can’t do it with traditional American sports.
The potential of soccer’s globalized nature, from a business standpoint, is bigger than the hype surrounding the Super Bowl each year. And Gillett, Hicks and Kroenke are all good businessmen — each one reportedly worth hundreds of millions, if not billions — who have had success with other teams they’ve owned.
This is all very interesting, but there is one aspect of this capital flow that intrigues me: Gillett and Hicks have just bought in to Liverpool on the verge of their construction of a new stadium. From the Bloomberg article linked above:
Liverpool’s proposed move from the 45,000-capacity Anfield to a new 60,000-seat arena in Stanley Park, where work is due to start next month, is an attempt to close the gap. United this season extended the capacity of Old Trafford to 76,000, while Arsenal relocated to a new arena costing 357 million pounds.
“The shovels need to be in the ground in the next 60 days or so,” Gillett said of a stadium costing 215 million pounds.
So G&H spent $343 million on a large ownership stake in a club that has a lot of debt and is about to embark on a $400 million construction project. Here’s my question: can you think of any U.S. sporting team that would have the same happen to them? More often than not, our team owners try to throw their weight around as political entrepreneurs and get taxpayers to pay for at least part of their new stadiums, even though no economic analysis has ever shown such expenditure to be worth it. Sadly, my beloved Penguins in my beloved Pittsburgh are in precisely that negotiation right now, arguing that the hockey team should get the same cushy deal that the football and baseball teams got when they built new stadiums.
So … if you can offload some of the capital expenditure on taxpayers that should increase your return on investment, right? If you can do that in the U.S. but you can’t do that in England, why is the capital flowing there? The best answer I can come up with is the extent of the market. Globalization and technology have increased the extent of the market for sports, and soccer’s universal global popularity gives it a head start in competing for global eyeballs (and expenditures on jerseys and scarves).
If that’s what’s driving it, is there a way to capture that extent of the market on behalf of smaller sports in smaller cities? Here’s my recommendation: restructure hockey so it’s like European soccer leagues, with promotion and relegation and simultaneous play in multiple cup competitions.
Think about it. Take the NHL, the AHL, the ECHL, etc., and structure them in the same way as the EPL/Champions League/League 1/League 2. They each play most of their games in their home leagues, but they also have some competitions across leagues (like the FA Cup and the Carling Cup in England). The top teams in each league get promotion for the next season, and the bottom teams get relegation.
Doing something like that would have interesting ripple implications for things like sportswear IP ownership rights. If you have teams going in and out of the NHL, they can’t have the NHL be the primary owner for the purpose of producing sportswear. I would bet that they would form some promotional goods revenue sharing agreement between league and team, and that those agreements would be pretty pro-forma and that teams would have to agree to them in both promotion and relegation.
Would that help to increase the extent of the market for hockey games? If so, would it help capital flow to the industry for the construction of arenas? Honestly, I’m not optimistic, because the lure of being able to offload the cost on taxpayers has a heroin-like magnetism. But it’s about time that people start thinking creatively about the investment and finance aspects of smaller sports, learning lessons from the global appeal of the beautiful game.