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Creating upside: Four lessons for Australian football from US investors in Europe

It is often said that the United States has the biggest and best sporting market in the world.

According to the latest number from Forbes, the average value of a franchise in the National Football League (NFL) is $3.48 billion USD, a 14% increase on 2020.

In the NBA, the average franchise value is $2.202 billion USD, having steadily risen year-on-year since 2015 which was the first year that the average value crept over the $1 billion USD mark.

Even in the much-maligned MLS, the average franchise value is a cool $550 million USD up from $319 million USD in 2019 – a remarkable 72% increase.

So, with such a booming sports economy on their own doorstep, why are American investors turning to European football?

That was the question The Athletic Football Podcast hosts, Mark Chapman and Matt Slater, sought to answer in the latest episode of their podcast.

In two revealing conversations with US sports investors Michael Kalt and Brett Johnson, there were some potentially interesting lessons for Australian football to learn.

Kalt, who rose to sporting fame as part of the investment group that helped transform the fortunes of the Tampa Bay Rays in the MLB, now leads consortiums investing in European football clubs with current investments in AS Nancy in France and Oostende in Belgium.

Johnson is co-owner of Ipswich Town and also the owner and director of Phoenix Rising Football Club, which plays in the second tier of US football.

So, what do they like about European football?

Why don’t they invest the same sizeable funds into MLS teams?

What can Australian football learn?

Below we highlight four key lessons.

Upside Counts

The majority of clubs that Kalt and his consortiums look at investing in are loss-making businesses.

They don’t make money.

So why, when you have significant investment capital and can invest in a booming domestic sports market, do you choose to take your money to Europe and put it in loss-making clubs?

For Kalt, there are three things a club has to have to prove its investment value.

  1. Asymmetric Upside via promotion or European qualification
  2. Room for commercial improvement
  3. Training profits (EG: Player Transfers)

On the first point, Kalt explains the uniqueness of promotion and relegation and continental competition created pockets of value in Europe that offered much lower costs of entry in Europe.

“Can you buy them when you’re up underlying your downsize risk, meaning you’re not paying full price for a club that is recently promoted or in the top league or coming off European competition and you’re paying full price,” he said.

“If you look at the clubs we bought, we’ve bought clubs like Nancy, historically a club that has been in Ligue 1 and bounced back and forth. It has the infrastructure of a Ligue 1 team. It should be a first division, mid-table club, so there’s headroom there and not a lot of downside risk.

“That’s the sort of situation we look for, where there is an asymmetric upside, either through promotion or European qualification in a smaller club where we think we can compete in the top four or five teams.

On what he termed, “Training Profits”, which most readers would refer to as player transfers, Kalt thinks it’s incredible that a club could generate a sizeable portion of its overall value simply by trading players.

“This is a massive mover in this,” he said.

“When you create that value in American sports, the only way to really monetize it on the player basis is to make like exchanges. To say, I have a player that has demonstrated his worth and the market will pay way more for him. He’s got three or four years left of club control … your only path to monetization is to keep that player and hope the club plays better and people show up and you generate more revenue in the stadium.

“Or you go and try and trade the player for younger, more controllable talent and hope that that talent does the same thing.

“In Europe, you create value, and the market comes to you and says ‘okay, today we’re willing to pay ‘x’ for that player, and, by the way, that ‘x’ might be some significant portion of what you played for the club!’

“That system, combined with analytics to create that value, which is how we started looking at this … is why it’s so intriguing.

“You reinvest some of that back into the club and you can reduce your downside.”

Europe’s football culture and ecosystem are, obviously, significantly more developed than that of Australia or the United States.

But what is interesting to take from the conversation is the factors that make for a worthwhile investment for Kalt and his ilk.

They want to invest in clubs that have room to grow.

None of this is to suggest that the incorporation of promotion and relegation in Australia is going to send a flood of overseas investors ready to throw their money at ‘B-League’ or National Premier Leagues clubs.

But it does inherently create potential upside in investing in the secondary tiers of Australian football, particularly for local investors.

We have already seen in the most recent round of A-League expansions that there was potentially a lot of money left on the table by unsuccessful bidders looking for a way into Australia’s top flight.

The implementation of promotion and relegation could unlock similar pockets of value in Australia.

The addition of a domestic transfer market will also go a long way to increasing the upside of clubs in the A-League and potentially below.

Franchises Limit Upside

When discussing MLS specifically, Kalt believes one of the major obstacles facing the growth of MLS was to be the American attitude of, generally, not being as interested in watching sports that are not “the best”.

But perhaps the most interesting thing Kalt had to say about the investment value of MLS franchises is that their value was largely being grown by the expansion of the competition and the prices being paid for new licenses, dragging the value of the existing licenses up by association.

“Valuations five, six, seven years ago you had a 50 or 60 million cost of entry, which – candidly – still seems a little high given the economics of these clubs,” he said.

“But when you see these club trading at 200, 300, 400-million-dollar valuations, it’s hard for me to get my head around and I know it’s hard for a lot of people in the business to get their head around.

“I think a lot of it, historically, was justified on, ‘well, you buy in now because the next expansion franchise is going to be worth ‘y’’.

“But you’re not going to have a league with 60 clubs, so you’re running out of the ability to do that.”

This sounds alarmingly similar to the A-League, where hopes for the growth of the sport are so consistently pinned on expansion.

They might equate to growth for the value of A-League licenses and the value for the investors who own them, but it’s not enough alone to drive true value in football.

MLS’ One Big Tick

It wasn’t all bad for the MLS. Kalt had to give credit to the MLS for at least one thing.

Infrastructure.

“The amazing thing that they’ve done is that they’ve created the infrastructure for soccer in the United States that never existed before.

“They’re not just sticking teams in and hiring a bunch of over the hill stars and having them play in football (NFL) stadiums and hoping they can sustain it.

“They’re doing the right thing and the league is sustainable, whether at half-billion-dollar franchise valuations is a more debatable proposition.”

This is a crucial lesson for the A-League.

Over 15 years into this journey and there remains embarrassingly little football-specific infrastructure.

There has been some good ground made in recent years by some clubs, but overall, after 15 years one gets the feeling there is very little to show for all the investment made in the A-League.

We’ve had some great seasons, some great matches and some great players grace the league…but if the league collapsed tomorrow, what proof would there be that the A-League and its clubs actually existed?

This has to be urgently addressed.

Gratification Bonus

Another reason cited as key for both Kalt and Johnson in their investment in European football was the sense of gratification of investment in clubs and their surrounding communities.

Now let’s not get carried away. No one is suggesting for a second that these investors aren’t backing in European football for humanitarian reasons.

They’re in it because they see value in their investment.

But can they make themselves feel good about making money in the process?

Well, that’s a bonus. The benefits for the community, however, can be very real and tangible.

Research from 2019 shows Manchester City’s involvement in the title chase with Liverpool was worth £220 million to Manchester’s economy.

According to the think tank Centre for Economics and Business Research (CEBR), spending on match-day tickets, merchandise, and hospitality can boost a city’s economic growth by 1.1 percentage points.

At the lower level, Ipswich Town co-owner Johnson felt there was a great sense of satisfaction to be taken from investing in the surrounding community.

“It’s critical to be engaged with the community,” he said.

“I view [these clubs] as beacons. In England, these communities live and die by the success of these clubs and it’s been painful for these fans have been watching this beautiful asset punch below its weight class.

“It’s not just enough to win, you have to try and make improvements broadly.”

A big part of Kalt’s model was being able to choose clubs with room for improvement because it would be easier to keep the fans onside as things improved.

“Coming into a club that is perfectly run as the next owner is not a situation I would ever want to be in,” he said.

“You want to come into a situation where there’s headroom … you want to have some goodwill built in.

“We’re going to stabilise this, and you know your club is going to be around in a year.”

The question for Australian football is, how do we create value and the feel-good factor around our clubs that encourage the investment they require?

Matthew Galea is a sports journalist with Soccerscene. He reports widely on football policy and industry matters, drawing on his knowledge and passion of the game.

Carlos Salvachúa: “Playing without promotion and relegation is a big problem”

Carlos Salvachúa was Victory assistant coach under Kevin Muscat, before taking over as caretaker manager. He has coached professionally in Spain and Belgium, including six years at the Real Madrid academy, overseeing the development of the club’s rising stars.

He spoke to Soccerscene from Spain about his impressions of the A-League, where it could be improved, and how Australian youth need to play more football to reach their potential.

What were your first impressions of the A-League?

Salvachúa: Sometimes the big issue is knowing if it’s a professional league or not – and definitely the A-League was professional. I’m talking about games, organisation, talking about flights or hotels, and training. I was lucky to arrive to Melbourne Victory – one of the biggest clubs there is – and everything in the club was like in Europe and in Spain. Good facilities, good organisation, and a lots of staff in the office. For me the first impression was really professional.

What was the level of professionalism like compared to other leagues you have coached in?

Salvachúa: Belgium is a hard competition. I’m talking about the games, not about organisation – it’s similar to the A-League or in Spain in the La Liga. The competition is tough in Belgium if we compare the level of the players, the games and the competition.

After leaving Melbourne Victory, Salvachúa was Muscat’s assistant coach at Sint-Truidense V.V. in Belgium.

What were the biggest challenges you faced while coaching in Australia?

Salvachúa: One of the biggest for me was the distance to play a game. It was funny because here with Atlético versus Real Madrid they travel 15 minutes to go to sleep at home, and for Victory we spend three days away to play a game, for me this was really hard. In the Champions League we spent five days away to play a game in China or in Japan. For me and and European players as well this was hard, because it was not easy. I remember the long pre-season because the schedule of FFA Cup was really hard for us. We trained two to three months before the first game in the A-League, just to play one round in the FFA Cup.

How do you think the league could be improved?

Salvachúa: For me, playing without promotion and relegation, is a problem, a big one in my opinion for the league. You need to improve the league from the basement – you cannot start the building of the house from the roof, you must start building the house from the ground up. I’m talking about the NPL. They are tough competitions, and you need to give promotion to the A-League, and I think that the competition will be better with this system like in Europe. I think a competition without promotion and relegation is only working with the MLS in USA. In Australia I think that it would be great to create another kind of competition to improve the league.

Another thing for me that is one of the biggest issues was that sometimes the players were receptive – they are professionals about training and have a good attitude to learn, but for me as a coach sometimes the players don’t know how important it is to win – compared to a draw or a loss. Without promotion and relegation, in some games as a coach, in the second half the players don’t understand how important it is to get a win over one point. I think that is probably one of the solutions to change the model of the competition.

How would you rate the level of young talent being developed in Australia?

Salvachúa: Like in other countries, you have good players with talent at 14, 15, and 16 years of age, but in my opinion they need more games. Some players arrive to A-League at 19 years old – playing 18 to 25 games – and it’s not easiest time for the coaches to start these young players in the first 11. If they are not playing every Sunday, they need another tough competition. You need competitive games with a second team like here in Spain or with the under 18s or under 19s – it depends. I think that they need more games here. A 14 or 15 year old kid normally finishes the competition in Spain with 45 official games. 45 games is more than the professionals in the A-League. I think one of the big issues is they do not have enough games and training sessions to develop the players. But the talent is there like in other countries.

National Futsal Championships to return in 2022

Football Australia has announced today the return of the National Futsal Championships (NFC) in 2022.

Football Queensland (FQ) will host the 2022 championship, followed by Football Victoria (FV) for the 2023 edition.

Football Australia CEO James Johnson looks forward to growing futsal’s footprint in Australia after outlining a vision for a national program.

“As part of our clear strategic agenda, we outlined a vision to create a national program for futsal and beach soccer by working closely with our Member Federations in a unified, inclusive and collaborative manner,” Johnson said.

“With the culmination of this process, we are delighted that Football Queensland and Football Victoria will be hosting the National Futsal Championships in 2022 and 2023 respectively.

“There is a clear appetite throughout Australia for football to increase its imprint through futsal and beach soccer. Queensland and Victoria now have the opportunity to showcase this and bring it to life over the next two years, in a way never seen before.”

By granting the hosting rights to different cities, Football Australia believes the NFC will be a national tournament.

The Gold Coast Sports and Leisure Centre will host the relaunched tournament on the 5th-9th of January 2022.

“The National Futsal Championships are a highlight of the Australian football calendar, and we are excited to stage next year’s event at the state-of-the-art Gold Coast Sports and Leisure Centre,” FQ CEO Robert Cavallucci said.

Anthony Grima, Football Victoria’s Head of Futsal, believes the announcement was a step towards achieving FV’s futsal strategy.

“This is a huge win for Futsal in Victoria and one for me that should be dedicated to the many amazing individuals who are at the heart of the Futsal community here in Victoria,” Grima said.

“Hosting the NFC will leave a lasting legacy for Futsal and football in Victoria and inspire and enable more people to take up this amazing sport.”

The recently announced Home of the Matildas features a international sized futsal pitch, and it could host the championship.

Kimon Taliadoros, CEO of FV, said this news ensures that Victoria remains the home of sport.

“The COVID-19 pandemic has been devastating for the people of Victoria. By hosting the National Futsal Championships, we will further enhance the state’s ability to host events and tournaments and support the Victorian economy by bringing interstate visitors back to Melbourne to experience the wide range of products, services and experiences that this great state has to offer,” Taliadoros said.

“Futsal has been on the national agenda for some time now, with Football Australia recently having released the ‘XI Principles – for the future of Australian football.’”

The return of the NFC will allow a pathway for players to compete against the best talent Australia has to offer.

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