Is Yacht Racing a Pretend Business?

a-pretend-businessCan a sporting team be a commercial enterprise? Are there business models that allow for professional sports-teams to compete and make money – or will the need for winning mean that competitive teams will need to be topped up by wealthy benefactors or government sporting grants?

Certainly, if you look at the America’s Cup, you would have to assume that profit is not a motivator. A sense of (national) pride, the glory of winning and perhaps some R&D that might have a residual value all push wealthy individuals to spend millions of dollars, but without the backing of the team principals would the balance sheet stand up? Is sailing as a sport more akin to a web start-up – a big investment, some great technology but no real business model except for the ability to sell advertising to desired eyeballs?

The FT (UK) has published an article that asks similar questions of football. It is an interesting read. Many people in the business of Yacht Racing would probably think of football (soccer) as a sport to emulate. But for all the fans through the door, merchandise and media deals, football is supported by debt and wealthy benefactors. The article’s author sums it up as:

Hardly any football clubs will ever make profits. Football is abandoning the fantasy that it is a business.

Many in sailing believe that traditional brand equity, for trophies like the America’s Cup or regattas like Cowes Week, will allow the competition to continue, but many of these assumptions have been tested by the current economic climate.  In football, easy credit and strong brands allowed the clubs to deny the financial realities – according to the FT:

Clubs are immortal chiefly because creditors dare not pull the plug. The clubs’ brands are strong enough to cow banks and taxmen. And so clubs can incur debts without fear.

Take the following paragraph and substitute the word sailing for football. It is a reminder that professional sport relies heavily on the goodwill of sponsors and spectators to stay afloat.

The recession simply clarified how hopeless the football (sailing?) business is. It suddenly became obvious that most clubs (teams / regattas) would never make profits. Of course, few even aspired to profits: any euro they could borrow they immediately blew on players (skippers / crew / designers) to satisfy their media, fans and personal fantasies. Football (sailing) is an arms race, not a business.

But sport transcends business. Sport is part of the national identity and goes to the heart of a country’s culture and community. Where there is no commercial case for sports like sailing, the gap is filled by government funding – be it regions investing to generate tourism or national governments fuelling national happiness through gold medals and flag-waving.

In many countries football like sailing, lives off state support and here is a statement to make sailing entrepreneurs wince:

This (football) is a piddling industry. Total European professional football revenues for the 2007-08 season were €14.6bn, a quarter of Tesco’s.

The article’s author argues that only two financing models now remain, though for sailing, the second has always been the most predominant.

The first works for about six clubs, chiefly Manchester United and Barcelona: Have such a big global brand that you can generate money to pay great players. The second and rising model is the sugar daddy. Find an Arab sheikh to buy your club as a toy.

Does this mean that professional sailing is a pretend business? Knut Frostad of the Volvo Ocean Race or Mark Turner from OC Group would probably say no – but then they are pursuing financial model number 1. Frostad and Turner have stakeholders who demand return on investment and without satisfying their partners and fans they would not exist. With a new round of Volvo Ocean Race, Vendee Globe, America’s Cup and other expensive campaigns in the planning for 2010 and beyond, how many will have solid business plans and how many will have to fall back on the private owner model?

Read the original FT article here…