Expansion WS and GC clubs. Loss leaders or genuine products ?

[fishmonger]

I'm interested in the way that the AFL justifies these clubs, it often sells these clubs as "cash cows", yet in its arguments it also admits that they are loss leaders.

But this subject hasn't really been discussed at length.

Here is what I mean. In terms of cash cows, they would generate huge amounts of money themselves.

In business, a cash cow is a product or a business unit that generates unusually high profit margins: so high that it is responsible for a large amount of a company's operating profit. This profit far exceeds the amount necessary to maintain the cash cow business, and the excess is used by the business for other purposes.

Clearly this is not the case. In the case of these new clubs, they are question marks at best. Even if the AFL's Auskick is successful, they may even be categorised as "Dogs".

Now the AFL is prepared to wear millions in losses and pump millions into them for lucrative TV rights, but at the same time you get the sense it expects them to be well supported clubs in the future by some process of magic brainwashing or conversion or progressively buying fans over several generations.

For anyone who doesn't know what a loss leader is (from wikipedia):

A loss leader or leader[1] (also called a key value item in the United Kingdom) is a product sold at a low price (at cost or below cost)[2] to stimulate other, profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. The price can even be so low that the product is sold at a loss.

Now does anyone really believe that these clubs will ever be the real deal ?

I mean self-sufficient passionate clubs. Not just pawns in some game of national domination.

How will fans of these clubs feel about supporting a club that is essentially nothing more than a TV rights bargaining chip. Personally I would feel pretty hollow about it. I guess am not one of these people who thinks they are actually getting a mobile phone for free.

Then their is some hypocricy about the way the AFL goes about things. I mean the AFL doesn't want to promote its product internationally, because it doesn't believe it has the product, yet, they are somehow innately convinced that they have a better product than rugby league, something that people like myself grew up with from a young age.

Even after years, the Brisbane Lions and Sydney Swans still have half as many members in Melbourne. The STorm arguably have more supporters outside of Victoria who want to see them succeed so that league can remain competitive against Aussie Rules.

Tassie sits right in the middle of the Growth Share matrix, and doesn't present anywhere near the risk.

So are these new clubs simply loss leaders (in which case, passionate footy fans are being left in the cold in some business war) or legitimate AFL clubs in their own right ?

In terms of business logic, are the AFL any more responsible to their stakeholders (in this case us, the average footy fan) than Alan Bond or Christopher Skase were to their shareholders in the 1980s.

discuss.

 

[Papa G]

A Tasmanian team actually represents cannibalisation of an existing market - they already consume the product and thus the AFL would see it as spending money on another product when they don't need to as they already have the market cornered.

 

[Mickdog]

Get over it. Western Sydney and Gold Coast need teams more than Tassy does.

 

[Rob]

Pretty simple - they justify it through their role as keepers of the code - the new teams will expand the support and playing base of the game.

 

[littleduck]

Get over it. Western Sydney and Gold Coast need teams more than Tassy does.

No, if you read the OP you would have said "The AFL need Western Sydney and Gold Coast teams more than Tassy". It's a top down driven approach for sound commercial business reasons. There is no ready-made supporter base as their was and is for the Gold Coast Titans.

 

[cos789]

If you look at the history of new teams ,
the apprenticeship period is getting shorter all the time .
As these teams are in new markets then you are developing
market growth . Growth in supporters , merchandise , ratings etc .
People continually reflect on the money injected into the Swans and the Bears .The fact is these teams contributed to a balance sheet in the black
for the AFL . If the new teams were themselves to get back the value of growth instead of an eighteenth dividend of the the league ,
then there would be no problem .

.

 

[fishmonger]

People continually reflect on the money injected into the Swans and the Bears .The fact is these teams contributed to a balance sheet in the black
for the AFL .

How so ?

I think that both clubs have only made profits in one or two years out of a total 3 decades ....

I wish someone would answer the question I am asking ... do Brisbane people really love the Lions, do Sydney people love the Swans ? Or only when they are winning ?

or is it all hinging on speculative TV rights.

And all without fans, stadium deals, true government support or even the (non-contractual) support of the television stations themselves.

If you ask me, the AFL is behaving like a mother at the pokies down at Crown on a hot summer day with her baby sitting strapped in at the carpark ....

 

[Subprime]

How so ?

I think that both clubs have only made profits in one or two years out of a total 3 decades ....

I wish someone would answer the question I am asking ... do Brisbane people really love the Lions, do Sydney people love the Swans ? Or only when they are winning ?

or is it all hinging on speculative TV rights.

And all without fans, stadium deals, true government support or even the (non-contractual) support of the television stations themselves.

If you ask me, the AFL is behaving like a mother at the pokies down at Crown on a hot summer day with its baby sitting strapped in at the carpark ....

I saw some figures on the Lions profitability over the last decade when the North move was being discussed and they have been profitable in the main, around $6m in profits over 10 years or so. Of course crowds will be greater if there is more on field success than if not but that happens in every sport.

The AFL see the potential of West Sydney when large crowds roll up to Homebush and they're taking a punt to grow the game. In that sense the two new teams are probably "Question Marks" in terms of the matrix you posted in the OP.

The TV rights are no more speculative than the price of any other commodity, TV stations will need product in the future and will have to pay for it. 7 and 10 aren't going broke under the current arrangements AFAIK. I dare say the TV rights will increase next time round. The 16 clubs presidents seem to think so too.

The growth of the AFL is good for Australian football. The bigger the game is the more interest it will generate and so the bigger it will become.

 

[cos789]

How so ?

It was in the post .

"As these teams are in new markets then you are developing
market growth . Growth in supporters , merchandise , ratings etc ."

.

 

[RussellEbertHandball]

How so ?

I think that both clubs have only made profits in one or two years out of a total 3 decades ....

Outrageously incorrect. I have kept figures since 2001 using Kevin Taylor's Footy Stat's diary as a reference source as well as saving club announcements and press stories.

http://footystats.freeservers.com/Daily/2007financial.html has 2007,06 and 05 financial info

http://footystats.freeservers.com/Daily/2004financial.html has 2004 and 2003 financial info. Can't find other links but from my spreadsheet;

Year	Bris	             Syd
2007	1,133,000	1,531,990
2006	-994,919        1,507,189
2005	1,450,000	156,943
2004	2,180,000	888,855
2003	2,200,000	65,311
2002	1,249,371	-1,709,000
2001	-845,000  	n/a
2000	n/a	        146,000
1999	n/a	        475,000

Also from an article in the Australian on Thursday June 1 2006, which I have a copy of, titled "Swans hand out reveals cash stance" which was about the annual special distribution and how the swans got $460k for the cost of living allowance, what the clubs wanted as their increased distribution from the new TV deal and net stadium returns the clubs got in 2005. There were 2 tables one listing in order the net stadium returns and the other net assets. Net assets is basically an accumulation of operating profits and losses over the existence of the club.

Brisbane were 4th with $7.8mil only behind Ess $13.3mil, Adel $9.2mil, WCE $8.8mil. So given the figures I posted above it suggests Brisbane had accumulated earnings of $1.6mil at the end of 2000.

The Swans had -$0.66mil net assets or a deficiency of net assets at the end of 2005. They were 10th on the list but ahead of Rich -$0.7mil, Stk -$1.3mil, Melb -$3.9mil, WB -$4.4mil, NM -$4.6mil, Clt -$7.3mil.

I wish someone would answer the question I am asking ... do Brisbane people really love the Lions, do Sydney people love the Swans ? Or only when they are winning ?

or is it all hinging on speculative TV rights.

And all without fans, stadium deals, true government support or even the (non-contractual) support of the television stations themselves.

If you ask me, the AFL is behaving like a mother at the pokies down at Crown on a hot summer day with her baby sitting strapped in at the carpark ....

Having lived in Sydney since 1992 and having stints in SE Qld in 1996 and 2003-04 I would say that there is enough love and respect in those two cities to have a solid base. Early in the 2005 season Richard Colless said the swans were probably going to lose $1.5mil in 2005 and needed AFL help, a number of business people, not closely aligned to AFL, chipped in funds, basically because they saw the Swans as an integral part of the Sydney sporting fabric. They have a very different place in the hearts of Sydneysiders compared to 1992 when I would go to games with the crowd anywhere between 6,500 and 8,500.

I haven't seen that Boston Consulting Group Growth-Share Matrix for over a decade.

I reckon the WS team will be a financial dog for over a decade with the AFL having to subsidise the club $6mil to $10mil a year for the first 5 years and pretty much the same amount for the next 5 years.

The GC will be a question mark for most of the first 5 years and probably the next 5 years after that.

The point cos made about contributing in other ways is true. The TV deal is not equally provided by the 16 clubs ie 6.67% each. Sydney would count for somewhere between 10% to 15% because it allows the TV stations to sell national packages and Sydney TV advertising rates are about 30% higher than Melbourne. Brisbane would probably contribute between 8% to 12% of the TV value because once again the benefit of having national TV deals and the SE Qld market being such a dynamic TV growth market.

 

[Doctor Jolly]

Profit and Loss are meaningless in this context. Sydney have one of the most expensive football department in the comp. Whether they make a profit or loss is dependent on if they recruit or fire their 15th assistant coach. And why wouldnt any team spend as much as they can, when the AFL will bail them out with the CBF. Whats the incentive to make profit ?

Best way to compare teams is by Revenue. Both Sydney and Brisbane are in the top half of the teams, and have been for nearly 10 years.

 

[RussellEbertHandball]

Hi net margin revenues are what is important, not just gross revenue streams. There are plenty of clubs cranking up their revenue total, but they aren't making much net returns on those non football revenues, eg pubs, running side businesses etc.

 

[Ricardo]

The point cos made about contributing in other ways is true. The TV deal is not equally provided by the 16 clubs ie 6.67% each. Sydney would count for somewhere between 10% to 15% because it allows the TV stations to sell national packages and Sydney TV advertising rates are about 30% higher than Melbourne. Brisbane would probably contribute between 8% to 12% of the TV value because once again the benefit of having national TV deals and the SE Qld market being such a dynamic TV growth market.

Do you know if this percentage has increased or decreased within the last 5, 10 years?

With Melbourne expected to surpass Sydney population eventually (25-35 years?) do you believe this gap will narrow or is the difference between the two cities based on higher wages (per capita), international appeal, in other words, why are Sydneys ad rates higher than Melbournes?

With Sydney's advertising rates demanding an extra 30% compared to Melbourne it really shows why the Swans, even with fairly average tv viewing numbers compared to Melb, can bring in so much extra revenue for the tv networks and therefore the AFL through the tv rights deal.

No wonder the Western Sydney team is not that far off, IMO it will struggle for quite some years, but if it pays off in the long run the AFL would be 'in the money' as they say.

 

[RussellEbertHandball]

Ricardo, I don't know what has happened the last decade but remember we had this discussion in the AFL vs NRL thread on the expansion board. I suspect it hasn't changed that much especially Sydney and Melbourne relativities. Brisbane/Qld rates probably have gone up the fastest over the last decade due to population growth.

This is the post where I linked the advertising revenue total earnt by the 3 commercial networks for different 6 month periods, for Free TV Australia,
http://www.bigfooty.com/forum/showpost.php?p=9808442&postcount=77

If you read the rest of this thread between you and me we worked out the 30% figure given the total catchment population for both is only 200k difference.

Ricardo, this link confirms the catchment population numbers, gives a $/per ad revenue number and other useful info.

http://www.regionaltvmarketing.com.au/LinkClick.aspx?fileticket=vEBXuJryP8E=&tabid=87&mid=447

See page 5 which has a graph stating the TV cost (ie ad cost per thousand people in the market)

Syd $156
Mel $112
Bris $102 (this catchment Gold Coast + Bris + Sunshine coast)
Adel $84
Perth $97

Actually Ricardo, go to this page as it has plenty of documents you can download which given your interest in TV, you will find useful.

http://www.regionaltvmarketing.com.au/Downloads/tabid/87/Default.aspx#population

Don't worry about Melbourne passing Sydney. That will only happen if 2007 population changes is repeated 25 years in a row. Things change quickly. As the economy changes so will this trend. Who really knows if it is sustainable for 25 years. If climate change is so bad as some say, we might all end up in Tassie.

 

[Ricardo]

Thanks for that, i do remember us discussing the ad rates and OzTam catchment info now that you mention it, i am forgetful at times

I will search through the links when i have some spare time, i think its off to bed for me now though, Monday tomorrow