The trouble with new stadiums 2
Posted by John Beech on July 8, 2010
[See also The trouble with new stadiums 1, which looked at the argument that "We’re a club with ambition and we need more seats to reflect that ambition".]
The second case put for building a new stadium is:
- We’ve got the wrong sort of stadium. We need one better suited to maximising our revenue streams.
The first part of this argument I have no real problem with. Virtually all English football stadiums are either ‘new’ (less than twenty years old) or ‘old’ (from the Victorian era), and, if your club’s stadium is in the latter category, then it is almost certainly suboptimal for players, fans and revenue generation. Remember, I’m a Pompey fan, and Fratton Park was a disgrace for a Premier League stadium.
‘We need a better one’ in these circumstances can then seem perfectly reasonable. However, there are two key questions a club needs to ask itself: a) Can we afford it? and b) Is this the most effective way of maximising revenue streams?
I suspect that in 99 cases out 100 the answer to the first question is a resounding ‘No!’. Show me the clubs which already have the financial reserves to consider spending on a new stadium! The new stadium will have to be financed, and if the club is worried about failing to maximise its revenue streams it needs to have a cast iron case that new revenue streams will be sufficient to even cover the cost of the loans needed to finance the new stadium. Of course there will be exceptions, but it is worth bearing mind that even Arsenal, with a clear need for a bigger stadium and a sound business plan to finance it, have struggled because of the drop in house prices, and the subsequent difficulty in selling the houses on the stadium site.
If you want to maximise your revenue streams, the basic strategy model which is used for deciding the best way to grow your business is one called Ansoff’s Matrix. This model considers whether to look at existing or new customers, and existing or new markets. (There is a useful visual representation here which makes it much easier to follow.) The 2×2 nature of the matrix results in four possible strategies, each with differing levels of risk.
The safest is ‘market penetration‘ – developing the sales of existing products to existing customers. In other words, the simplest and most effective growth strategy for the vast majority of clubs, which have empty seats on a match day, is to try and get more bums on seats. Clubs like FC United of Manchester have tried interesting tactics with pricing to achieve this, such as varying the price that fans pay to get a season ticket (see 1 for a discussion of imaginative ticket pricing, and 2 for FCUM’s approach). Experimenting with different pricing strategies, such as BOGOF (buy-one-get-one-free), is quick, easy, low risk, and provides a useful indication of whether growth is possible – if you can’t get more bums on seats with this kind of approach, where’s the rationale for a new, bigger stadium?
Next two to consider, of medium risk, are:
- Product development - developing new products for existing customers
In other words you find new goods or services to sell to your existing fans. I’ve blogged before (see On clubs and club shops) on what I see as an unimaginitive range of merchandising that club shops offer, and clubs could do a lot more with this medium-risk strategy that does not require vast capital investment.
- Market development – developing finding new markets for the existing products
In other words you recruit new fans. Clubs do make efforts here, trying to encourage whole families to attend games for example. More could be done, and again without vast capital investment.
The final strategy is the one with the highest risk – Diversification, in other words, moving into to some other area to find new customers to buy new products. It’s here that the new stadium certainly raises it’s ugly head – without a new stadium we don’t have the right facilities to be able to do this, the proponents moan. Of course, they are right, but they fail to recognise the attendant problems. The problems with this case are twofold.
The first is the obvious argument that it is the highest risk strategy, and comes at the highest cost. It simply does not make sense to attempt it until all the lower risk, lower cost strategies have been tried.
The second problem arises with what exactly the new products to be sold to new customers are. A good rule of thumb is that the nearer the ‘fit’ with the existing product – in our case, football matches – and the nearer the fit withthe market – in our case, football fans – the better, the lower the new risk. Why, oh why, then, do clubs who pursue this strategy look to build a new stadium complex with a hotel, restaurants or shops? Could it just be that they think they are already in these businesses through their experience in ‘hospitality’? I would suggest that there is a gulf of blue water between ‘pies & bovril’ and even prawn sandwiches, and I know I’m not alone in this view! Similarly they see themselves as involved in ‘events management’ and see a connection between operating on match days and running conferences. As someone who attends both, I would again argue that there is deep blue water between attending a football match and attending a four-day conference – they are world apart in terms of customers and the service these customers are looking for. I would argue that the poorness of fit is every bit as big as it is with running a supermarket. In a nutshell, building the new stadium with a conference centre attached is as sensible as an existing conference centre which is in poor financial shape deciding to build a new conference centre with a football stadium attached to ‘maximise revenue streams’. Even if you sub-contract the running of the new business ventures, you’ve set up two poorly fitting businesses on the same site – not a recipe for success.
I’m sure you realise, and I readily, that I am generalising (and I’ll be looking at some exceptions in a later posting). There is one way of lowering the risk in a diversification strategy, and that is to diversify into something which, for example, the owner is experienced, an area in which he made his fortune which is he is in danger of turning into a small fortune. That is, with one major exception, which I will be looking at in my next posting in this series. To give a wee hint as to what I see as the one exception that does not reduce the club’s risk, I’ll just remind you of the third case that is put when a new stadium is proposed:
- There’s this amazing property deal we can do. We’ll sell the old stadium for redevelopment and there’ll be loads of money to build the new one.