Game On: The Business of Sport

When His Highness Sheikh Hamad bin Khalifah al Thani, Emir of Qatar, held the World Cup trophy on the stage in Switzerland last month, agents, managers, company executives and others heard the clear ka-ching of cash registers ringing and the click of calculator keys across the globe.

It is well established that not many outside of Qatar, besides a few in the know, rated the chances of their 2022 bid. The country’s success is as much a victory for public relations, with a marketing budget of allegedly US$160 million (QR 583 million), as it is for the vision of a Middle Eastern tournament. But, within hours, not only did everyone know where Qatar was (if not how to pronounce it), but also how resourceful it was.

Indeed, Sepp Blatter’s announcement that Qatar would play host to the biggest sporting event in the world, signalled that Qatar is now open for business…the business of sport that is.

Sport branding, franchising, sponsorship, marketing and endorsements and events have become a huge global industry, creating their own ‘ecosystem’ and a self-sustaining business cycle, and nowhere will this become more apparent than in Qatar and the Middle East in the lead up to 2022.

Companies across the Gulf Cooperation Council (GCC) and the world are rushing to cash in on Qatar’s newfound celebrity status. You only have to consider the US$200 million (QR 583 million) deal struck in December between the Qatar Foundation (QF) and Barcelona in late 2010. The Spanish multiple champions ended their 111-year self-imposed ban on commercial shirt advertising (they have been carrying the humanitarian organisation UNICEF’s logo on their jerseys free of charge since 2006), when they signed a five-year deal with QF for shirt sponsorship.

And there will surely be more to come in the coming years.

Big Business

Sport has evidently become a global business in the past few decades, but in fact it has always been so. International sporting events for genteel cricket and tennis date back to the 19th century, and the commercial exploitation of sport is even older than that. At the ancient Olympics local merchants and traders often supported favoured local athletes competing in the games in Athens with money and other benefits.

In the 1930s, French tennis legend Rene Lacoste made a mint from his universally loved ‘crocodile’ logo t-shirts. In the 70s Bjorn Borg endorsed FILA sports gear and arguably helped grow the brand globally while at the same time earning a fortune for himself and the company.

Event-wise, in the 1980s an Australian billionaire businessman set up a rival cricket league to the traditional five-day game, and the institution of one-day cricket, with its colourful outfits and flamboyant personalities earning big bucks, was born. The 1990s and beyond saw the explosion of sporting millionaire superstars – basketballers, footballers, golfers, tennis players and others – endorsing products from razors and sodas, to sports cars and even real estate developments, such as David Beckham’s association with Dubai’s Palm island.

“Sport is a business driven by the same business rationale as any other corporate activity,” Seamus O’Brien, founder and chairman of World Sport Group, a sports marketing and event management company (that notably owns the rights to the Indian Twenty20 cricket one-day competitions) said in the Financial Times newspaper.

However, commercialisation is nothing new in sport. What is new are the levels thereof and its spread to potential-laden emerging markets such as China and now, Qatar. Case in point, Beijing’s Olympics were spectacularly successful not just on the field for China, but also in the entrée of many international brands into one of the last remaining large-scale world markets.

China spent close to US$40 billion (QR145 billion) to make the Beijing Olympics an event without parallel. In addition, it spent billions building city and tourist infrastructure and a significant amount on public relations.

In a report on the effects of the 2008 Olympics in Beijing, The Economist reported many global companies saw the event as a prime opportunity. “Coca-Cola’s highly successful marketing push during the Olympics also included elements that might have been viewed more cynically elsewhere. The world’s largest beverage company hosted a national contest for folk artists to decorate giant Coke bottles in ways that reflected their local culture, for example. But Coke also assembled a ‘dream team’ of China’s star athletes — Yao Ming, Liu Xiang and Guo Jing Jing —to take part in its promotions,” The Economist said in a 2009 report.

Numerous studies confirm that football is the number one sport in the Middle East and that the region has massive untapped football development potential. Qatar 2022 will deliver a commercially successful FIFA World Cup and act as the catalyst to help drive the growth of football across the Middle East and beyond. A report commissioned by the Qatar 2022 bid team, researched by consultants Grant Thornton, estimates that hosting the World Cup in Qatar will increase football related revenues across the GCC by a whopping US$14 billion (QR51 billion). That is an increase of 52 percent over the next 12 years alone.

On The Box

The modern sports business model is largely based on the idea that people are willing to pay to watch the best in the world compete. Television expands that potential audience globally, from tens of thousands inside the stadium to billions outside. For broadcasters this means more subscribers and advertising revenue. For sponsors, it means exposure. For businesses, it means turnover. And for the athlete it means huge earnings.

In fact, without television, sport would not be the big business it is today. According to a Grant Thornton report commissioned for 2022, the most profitable opportunities for income generation will come from broadcast rights. The report says given the central location of Qatar between east and west and proximity to the northern hemisphere’s lucrative television time zones, the potential match day peak audience will be 3.2 billion viewers.

As a result, football pay TV rights across the region are expected to rise by 30 percent to a conservative estimate of US$550 million (QR2 billion) by 2022.

Indeed, television rights everywhere are a boon for hosting nations and cities, as well as associated organisations and companies. The 2010 Champions Cup rights in the United Kingdom are worth EUR179 million (QR857 million) alone. In the United States, each year top brands pay millions of dollars to have 30-second advertisements screened during football’s Super Bowl, and organisations such as the International Olympic Committee (IOC) have become increasingly dependent on income derived from American television. The rights to the Beijing Olympics garnered more than US$2.5 billion (QR9 billion).

Star Power

Television also makes and breaks sports stars. Football and motorsport are the two most obvious contenders for the titles of ‘Kings of Sport’ with sponsorship, marketing and endorsements generating billions of dollars. The endorsement industry has also allowed others to make small fortunes, from event management companies and advertising agencies, to sponsorship specialists and agents and managers.

Sportsmen and women can also become their own superstar brands, known only by their first or last names – Beckham, Kaka, McEnroe, Venus, Tiger – or internationally recognisable team monikers by such as ‘Barca’ (Barcelona, football), the ‘All Blacks’ (New Zealand, rugby) or the ‘Knicks’ (New York Knickerbockers, basketball).

People and teams need to be managed. Indeed, their agents and managers are in a sense the driving force of the business, bringing together the talent, the money and the exposure into a perfectly marketable blend.

The Fan Base

Television attendance aside, the most devoted fans are the ones who attend matches. Venue turnstiles are another key aspect to the business of sports, many through expensive season tickets. It is also the fans who drive many associated aspects in cycle of sports business, from ticket sales through to whopping merchandising sales.

Rugby union also scores high on the list of money-spinners. With the rugby union World Cup due to be played in 2011 in New Zealand, the financially beleaguered island nation is expecting a ball-related boom. It is expected to pump more than NZD$500 million (QR1.3 billion) into the economy and attract more than 60,000 visitors.

Internationally, smart brands and sports organisations have targeted fans as an essential part of the marketing and money puzzle. For example, long-time sponsor of the US NBA basketball league, T-Mobile, has aggressively targeted male fans aged 15 to 30 years through social media campaigns. Fans also drive merchandise sales, which top more than US$4 billion (QR14 billion) worldwide in revenue yearly. Manchester United and Liverpool, for example, sell more official replica football shirts, for Nike and Adidas respectively, than any other teams in the English Premier League and are amongst the highest sellers in the world.

The Middle East has struggled with this aspect for some time with the exception of football. Until recently, the big-ticket events in Doha attracted small crowds and branded goods were not widely available, but with better marketing and acceptance, this is inexorably changing.

Eyes on the Prize

However, when it comes to endorsements and sponsorships, not all are created equal and as the world enters the post-recession phase, companies and are being more prudent with their sponsorship dollars and expecting more bang for their buck.

In the past, the selection of sports sponsorship by companies was a fairly random process, but with the growth of these sporting superbrands, with which companies love to be associated, this now far more scientific.

“Gone were the days when an owner of a company sponsors a club because he loves watching them,” said Roy Roedger, chief executive officer (CEO) of Canada-based SDI Marketing, a leading firm specialising in the field.

Speaking at the Aspire4Sport conference and exhibition held in Doha in November 2010. Roedger explained a strategic approach is crucial, and must involve research on what the sponsor is looking for, on the part of the athlete or club and determining their objectives and desired association.

Golf, for example, is one of the most lucrative sports in the world with huge prize money, celebrity players and even its own TV channel. Arguably, no sport is as intertwined with business as golf. The four majors and the Ryder Cup are among the most watched on the planet.

Television revenues for the main US Tour in 2009 are budgeted to reach nearly US$300 million (QR1.1 billion), and sponsorship from a slew of companies in the banking, automotive, information technology and financial services sectors are slated to contribute US$90 million (QR328 million), making up the bulk of the Tour’s total direct revenues of $465 million (QR1.7 billion). Meanwhile, across the Middle East, golf development is taking off with 20 courses planned in Dubai; and Abu Dhabi and Qatar have tournaments on the European Tour.

Qatar’s 2022 Legacy

The Barcelona FC deal is not the first time Qatar has been involved in the world of sport sponsorship. The country sponsors the prestigious Prix de l’Arc de Triomphe horse race in Paris, and this has been extended to 2022. Established as one of the great institutions of the sporting and cultural calendar, the Qatar Prix de l’Arc de Triomphe is an annual event, welcoming 70,000 spectators to Longchamp during the first weekend of every October. The challenge for Qatar and companies associated with the World Cup 2022, is to turn this newfound global sporting interest into real and tangible benefits – both financially and branding-wise.

Corporate hospitality and sports specialist, René Proske, who also attended the Aspire4Sport conference, said the issue for the country will be about the legacy of the event. “Winning a bid for a major international sports event,” he said, “should not just be about building great venues. The challenge is to make sure that a successful bid is a catalyst for lasting momentum of real change.

“Middle Eastern states are using sport as one of many ways to diversify from oil…but they have to consider how to use their vast economic resources.”

What does Qatar 2022 mean for the region and for the fledgling sporting business industry in Doha? What can it learn from other host nations?

South Africa’s experience is still uncertain. Hosting the World Cup 2010 definitely brought financial benefits to the country, from investment to tourism. A report by UBS Investment Research in February 2010 estimated that preparation for the World Cup – which started four years ago – has added between 0.5 percent and 2.2 percent to South Africa’s gross domestic product (GDP) and overall had created more than 300,000 jobs since 2006 – a 2.7 percent contribution to employment figures. UBS research also indicated that the three previous World Cup hosting-countries (France, Japan/South Korea and Germany) saw their GDP grow by 1.8 percent on average during the year of the tournament – although determining how much of the growth was associated with the tournament itself has been difficult to ascertain.

The interesting World Cups from a business perspective will be Brazil in 2014 and Russia in 2018 – both emerging nations and both with fervent sport-loving populations. Rich in oil and gas, Qatar doesn’t need sporting-based revenue to shore up its economy, but it does need to establish legitimacy and faith its ability to deliver a world-class tournament.

An Investment in the Future

The Grant Thomas study for Qatar 2022 revealed some interesting future development options for Qatar, the region and beyond.

A FIFA World Cup in Qatar will help increase football match attendances across the region in 2022 by 13.4 percent – an additional 4.2 million spectators (this excludes World Cup attendance). If the region reaches penetration levels similar to more mature markets, 140 million additional football players across all levels will emerge. Qatar’s hosting of the beautiful game’s tournament could see 1.1 billion people on the Indian subcontinent – just short flight from Doha – playing the sport by 2022.

Hassan Al Thawadi, CEO of Qatar 2022, said in November that the report “helps to quantify the significant commercial and football development opportunities for FIFA and football…this report adds to our belief that a FIFA World Cup in the Middle East in 2022 would not only make history but also open up a significant and exciting new football frontier for FIFA and its partners”.

Whatever way you look at it, from now to 2022, it is certainly Game On.

This article first appeared in TheEDGE 3.1, January 2011.