Unofficial Partner Podcast
Unofficial Partner Podcast
UP453 The Product: What IS the link between investment, performance and value in football?
This is a continuation of a series of podcasts focused on the sporting product, formats and the link to financial success and fan engagement.
Guests:
Barney Schauble, co-owner of Venezia FC and Oakland Roots SC
Omar Chaudhuri, chief intelligence officer, Twenty First Group
AJ Swoboda, managing director Americas, Twenty First Group
US financier Barney Schauble is part of the ownership group at Serie A club Venezia FC, and is a co-owner of Oakland Roots SC in the USL, America's third tier league. 
Twenty First Group is a sports intelligence company providing predictive intelligence that drives sporting success and unlocks value for key stakeholders in the industry including team owners and investors, leagues and competitions, brands and broadcasters and betting and gaming companies.
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Hi there. Richard Gillis here. Welcome to another episode of Unofficial Partner. Today, we're talking about football and we're trying to penetrate some of the cliches around American investment in the sport. It's a conversation that tends to go into a sort of binary. Of. Certainty versus risk and close leads versus. Openly pigs. Franchises versus the traditional idea of a European football club rooted into its community. So we get into all of that stuff. And what that means for people who are paying the bills, who are investing in football clubs and what they want and how they see the future. And again, it's a conversation that goes against the usual. pool of this type of conversation. And the reason it's interesting is that we've got some interesting people around the table. We've got Barney Chablis. He is a senior advisor at at Nicola affirms specializing in re-insurance and climate risk solutions. And he joined Nephilim in 2004. Previously held various leadership roles. At Goldman Sachs. But beyond his work in finance, Chablis has a strong interest in football. And as invested in both Venet SIA. Here in the Italian league and Oakland roots. Who play in. The USL, which is the league below the MLS in the state. And he serves on the operating committee and chairs, the sporting committee for as you're here, he's a proper football person. He's got a background there. It's not your cliched. View on an American investor in European football. And. We talk about a whole load of things from. Celebrity investment. They've got Drake On the cap table at. Valencia. There's a question about. The link and the bridge Between performance on the field and. Enterprise value. And we spend quite a bit of time in terms of unpicking that and what that means and how that is going to evolve joining us are Omar Choudhry and AAJ Swoboda. Both from 21st group, 21st group is sports intelligence company, specialized in providing predictive analytics and strategic insights to stakeholders across the sports business. Helping clubs in optimizing performance, enhancing the sporting product and deepening fan engagement. Cue the music and welcome to Unofficial Partner.
Richard Gillis, Unofficial Partner:What I'd like to do just to kick us off. Omar, I know very well. He's an old friend of the podcast. He's been on several times. I want to just introduce both AJ and Barney. Barney, AJ, just kick us off for a moment. What's your, your role at 21st group?
AJ Swoboda:Uh, yeah, hi, I'm managing director of 21st Group. I lead our efforts in the Americas which spans a majority of the services of our business, 21st Group, but particularly the last decade. Helps build out our practice and advising wide range of investors and owners, particularly in football.
Richard Gillis, Unofficial Partner:And Barney, I'm going to bring you in here and go ask you a longer question because there's a question here about, we're going to talk about football investment and, There's no better person to talk to than yourself and I'm gonna just, let's start with a little bit of biography because I think that's useful just to place people, allow people to sort of get a sense of the backstory. Give us a bit of biography before we get into the, the, we'll talk about Venezia and Oakland Roots.
Barney Schauble:uh, football's been a part of my life since I was, uh, growing up in, in just south of Boston and Massachusetts, lived in London, New York, Bermuda, and then moved here to the Bay Area and was always, uh, a player and a coach and a coach. My children played as well. So it's always been something that I loved and enjoyed wherever I lived. spent 30 years, the past 30 years in financial services, working in largely the intersection between insurance and investment markets. So working on unusual financial instruments like catastrophe bonds and weather derivatives, all of which involve making decisions. about probability and thinking about potential outcomes and thinking a lot about the process that you use to make decisions and less about the outcome. So that actually turns out to be a good background for investing in sports. And I had the opportunity to get involved in a club in Italy when in Venice through a good friend of mine. and then also met the founders of what is now the Oakland Root Sports Club here in the Bay Area, both of which happened around 2017 2018, so pre pandemic. So a lot of that background and thinking about uncertainty and thinking about decision making has turned out to be useful in investing in football.
Richard Gillis, Unofficial Partner:So the cliche view would be there'll be more certainty on the Oakland Roots side than there would be in the Venezia side. let's just jump into that because again, we've, People listening will have views on the American sports marketplace versus the European football marketplace, but just give us a top end view of that.
Barney Schauble:Well, that really depends on how you define certainty. So, obviously, one of the two big differences between investing in a U. S. sports league today and a football team in a league overseas is promotion and relegation. So, from that standpoint, you know, that certainly introduces an element of uncertainty. It also introduces an element of excitement and a passion. You know, on the other hand, people have been watching teams play in Venice since 1907, right? So there's a long history of the culture and the city and the community being interested in and caring about that team. And, you know, there's been a team in Oakland since 2018. So from a certainty of, will people come to the game? Are they excited? Do they understand? You know, the complexity of what's going on on the pitch at any given point in time, obviously, there's a much deeper culture in Italy or Spain or Germany or England than there is here in the United States. So it really depends upon, you know, which of those axes are you evaluating certainty along. And I do think at some point, this is just my personal view, promotion and relegation in the United States may well make sense. And, you know, 21st group has obviously advised, uh, or spoken to people about that in the United States, including the USL. That's no secret. And so that may change in the future as well.
Richard Gillis, Unofficial Partner:So yeah, it's quite interesting question. So you're, you're Oakland are in the USL, which is sort of outside of the MLS. So there's no promotion relegation. So you're sort of locked out there. So you're, but then in Syria, obviously there is, uh, promotion, relegation, and Venezia have been going up and down over the years and in recently are in Syria now. So, how would it work, Omar? Let's just bring you in on this because What is the conversation with promotion relegation in the States? I thought it was a cultural thing. I thought Americans don't like it. The money doesn't like it. It's too risky, the push towards certainty. And that's why they are looking at European football and thinking this is a madhouse. I wasn't aware. Well, I was sort of heard of things about murmurings of what the what's the level below the MLS and how that's going to work. We've had the guy from Rhode Island on previously, and I remember talking to him about it, but bring it, just bring us up to speed. What's the sort of frame the debate for us?
Omar Chaudhuri:Yeah, I guess U. S. sports have always been set up to serve ownership and as such ownership, as you say, craves certainty and promotion relegation doesn't give you that level of certainty, as Barney said, whereas European sports were not founded on the basis of, you know, serving owners that were there to serve communities and provide a source of entertainment. And that's all. You've had promotion relegation for decades, if not longer in, in European sports. The question is whether introducing promotion relegation in the US and this couldn't, this isn't just in football or soccer. This could be in other sports as well, whether you're actually able to generate more value through the jeopardy that is created by having that kind of downside. Chance of, of things going wrong rather than just having the upside of, uh, of teams winning championships. So that's where some of the debate is. And yeah, there, there's a cultural element to it too where European fans would of course, uh, generally reject the idea and have rejected the idea of, of closed leagues, whereas in the US that they're just much more, much more comfortable with it. And that is a, it's an ongoing debate within US soccer because obviously. Soccer is much bigger in the rest of the world with a promotion relegation model and it's the one sport where they're coming into the environment as it were versus other, uh, other sports which have always been as long established in the US.
Richard Gillis, Unofficial Partner:Barney, is that a fair summation?
Barney Schauble:think that's true. I mean, I certainly agree with Omar about the history. However, as. You know, generations grow up in the United States, not only playing soccer, but also being much more familiar with the dynamics of other countries. And, you know, almost every other country in the world. I think there is an interest in the topic, you know, if you're Uh, you know, Venezia is a good example. They were in Syria D 10 years ago and have now are back in Syria, were in Syria a few years ago, went back to Syria B, these sort of excitement and engagement and opportunity that it offers, particularly in a country that has historically prided itself on being meritocratic, right? You know, the United States saying you can earn your way to, you know, a better outcome. I think there is an appeal to it. And I think there's an understanding that, you know, The championship promotion match is widely watched here in America now in a way that it certainly wasn't entered 20 years ago. So I do think there's an interest on behalf of the fans, certainly on behalf of the players, on behalf of some of the owners. Now again, if you're an owner in One of the top leagues, and we've seen this, you know, in Europe as well, and you can remove that risk. That's possibly of interest to you, but there are many more owners who are excited about that opportunity than who want to remove that risk. So we'll see, but it certainly is a topic for conversation. And I think it's important to note that in the United States, you have MLS, which is obviously a closed league and the ownership of that league typically also own other NFL or NBA or, or major American sports top division teams as well. But the USL, as 1 example, there's a 2nd division, a 3rd division, a 4th division of varying levels, and you could imagine even within that structure, some sort of promotion and relegation. And again, I don't think it's a secret that that's been discussed. It isn't in place today, but it's certainly something that you can imagine. happening. And to Omar's point, if that creates more games of consequence, that creates more interest, that creates more excitement, and that creates therefore more opportunity for players and fans and owners, you know, to participate in the game, you can see that happening at some point.
Richard Gillis, Unofficial Partner:Do you think it's quite often presented as a question for the whole group, but it's quite often presented as a binary thing. So you either have the European model or the American model. I'm wondering if there is a hybrid solution, you know, that sort of Gets some of the excitement or gets the excitement of promotion, renegation and, and the cultural bit, but also doesn't turn it into a financial madhouse where people are sort of betting the house literally on, on, you know, the last game of the season. Then we, you know, we're very familiar with those stories, exciting as they are, and that's part of it, but it's, it's also crackers. What do you think?
Omar Chaudhuri:Yeah, I mean I think
Barney Schauble:are many models, right, that exist, and I would say Omar and AJ are much more familiar than I am with all of the varying details of the models. But I think your point is correct. There isn't 1 promotion and relegation model and 1 closed model. There are many versions.
Omar Chaudhuri:yeah, I think it takes you into a world of, of how revenue is distributed because ultimately the, the thing around promotion relegation is that there is in a lot of leagues a cliff edge between the top division and the next division but it doesn't necessarily have to be that way. Is always a discussion around where value is generated and therefore should clubs be paid, you know, paid central distributions based on generating value, whether that's in developing players, developing fans, you know, adding, you know, having a sustainable club that adds value to the game as well. So it doesn't necessarily mean that if you're into a lower division, you should get less money. In fact, there could be models where you get more money, but I think the, the way it exists, certainly within European football is that it's gonna be very hard to move to a model like that. Just the way that the sport has been established and the value that's been grown at the top end. And as a result, every ownership, and you don't argue that some of the sustainability of, of European football is driven by the fact that there is this big prize at the top, whether it is in a top division of the big five leagues or qualifying for Europe, and therefore a lot of clubs actually stay in business, even though they're losing money year on year, because there is always someone who's willing to invest because they see the prize of the tops in a kind of perverse way. There is sustainability in European football, just because of. The kind of potential valuation that these clubs can realize if they go on a journey to, let's say, top division or European football.
Richard Gillis, Unofficial Partner:So that's, that's a sort of greater full theory.
Omar Chaudhuri:Yeah, and I mean, certainly in English football, that's been proved out to a greater or lesser degree. Yes, there have been clubs that have gone bust, but, you know, it's always, I'm sure a number of people have said before, and it was the famous kind of soccer on soccernomics argument around English football clubs are incredibly resilient businesses. If you compare them to any other business, any other industry,
Richard Gillis, Unofficial Partner:AJ.
AJ Swoboda:I think one thing that's not been discussed is really that cliff edge that he's describing as a function of how, uh, money has come into the game. There's always been the historical promotion relegation, but that cliff edge while I'm sure it existed in the fans felt that, and the players would have felt that, you know, it just became a steeper and steeper. Cliff, uh, in the last couple of decades as broadcast revenues have increased sponsorship dollars have gone up, uh, obviously transfer fees, uh, serving as a product of that. So, uh, I think you're right. I think there are models in between the existing European model and the existing. You know, North American model for what a league's operation could look like and the distributions of revenues within that league. Uh, and I think as we're seeing across the board as a firm, you know, all, all leagues you know, big and small I think over the last couple of decades have benefited from the rise and of capital and, uh, coming into the sport, whatever the sport may be. And I think now they're looking at a period of time where they think, Hey, maybe we need to reorganize. What our league might look like or what our sport might look like in order to capture value in today's economy, because it's, it's different and it will always be dynamic and it will always be changing. And I think that's in essence of some of the question that you're getting at.
Richard Gillis, Unofficial Partner:I guess there's a, there's a question, Barney, in terms of what a football club is when it's viewed through your eyes. And I've seen your CV, you've got Goldman Sachs in that CV. You've You can imagine the sort of projections I'm making on to how you are then looking at football and as an investment. And I hear you on, I know this is me building up A persona, but I know that you're a football guy, so don't take this personally, but we're using you as a proxy into this conversation. One of the issues is what is a football club today and what do you want it to be? And I've seen the sort of positioning and I really liked the way in which I'm talking here about the in the, uh, Italian league, how you're presenting and how you're, you know, talking about the club and its relationship to the community, but just take us through what your. View, basic view is, cause I'm going to get Omar in here in a minute and talk about what's the link between winning and performance and what a football club is and value and all of those things. But just to give us an idea about how you see that question about what is a football club.
Barney Schauble:Sure. You know, there's a great quote, there's a book called Game of Edges, which is all about sort of analytics and changes in sport. And there's a great quote in that book, which is. You know, it's called a club for a reason, right? It's a gathering of like minded people around something that they care about. And so fans of a club are different than customers of a business, right? You know, if you're just selling widgets and you think of people as customers, that's very different than if you are operating a club. If you're operating something that is based in a community and means a lot to that community beyond just, you know, the ticket sales and, you know, And the merchandise, it's the spirit of a community. And again, you see these teams that have been in a city, you know, for a hundred years. And even in Oakland, that's been critical to the formation of the club. You know, Oakland has a long history as a powerful sports town. baseball and American football in basketball and is happened to be going through a period where some of those teams have left the city, but you have a real hunger in the city for excellence and excitement and community gathering and purpose, you know, something that the community can rally around and be excited about. And so the way that I think of it and the way that the other investors, you know, certainly in the Oakland Roads, as well as in, in Venezia, think about it is. You need this to be sustainable. You need the business itself to last. You can't, going back to your point, depend upon some greater fool theory that no matter how poorly we run this, somebody else will come in and buy it later on. That's not, you know, in the best interest of either the investors or of the fans or the players or the community, you need to think about how can you make this sustainable and performance is an important part of that, but also prudence and thinking about a longer time period than any one game or one season is an important part of that. And so it depends a lot upon who your owners are, but, you know, going back to your question or your observation about MySTV, the other investors in Oakland and in Venice. are investors. They're people who have spent their lives making investment decisions. They don't only come out of football. They don't only come out of operating a clothing business or a restaurant. They are used to looking at some company or some security and making a decision about how is this going to prosper in the long term. And I think that's important. I think that's not necessarily how every ownership group looks at the club.
Richard Gillis, Unofficial Partner:So in terms of that the sustainability question, the community club positioning, that's available for a certain number of clubs. Isn't it? I'm just trying to think if you, you can't be Man United and take that position. You have to win. You have to, that's a different position. There is a corporate ego. There's a fan ego there that won't allow you to be a sort of, and this is a UK reference, a Brighton or a Brentford. I live in Brighton and I'm not a fan, but I'm, I can see they're doing brilliant work, but it's a different level of aspiration on the part of the fan and the club itself. If you're
Barney Schauble:I think you're right that it,
Richard Gillis, Unofficial Partner:difficult to do that.
Barney Schauble:I think you're right that it varies by club or by location, right? There are some cities and some communities where you can truly build a sustainable business over the long term. And there are other places where that's going to be more challenging. You know, if you're in a much smaller city in America or Italy or in England, it may be harder to build that than if you have, you You know, a bigger community base on which you can support the club. That being said, you know, it's very possible that your average Manchester United fan might happily switch with your average Brighton fan over the course of the next few years. So,
Richard Gillis, Unofficial Partner:They might be happier. They might. If it gets down to happiness, they might be happier.
Barney Schauble:they might be happier. And it gets to AJ's point around, you know, maybe that business model starts to change, right? You know, the, the Premier League and its explosive growth over the course of the past 20 years, and to a lesser extent elsewhere in Europe, having led to Some wise strategies, like what you've seen Brighton and Brentford pursue and, uh, or Atalanta or your other examples that you can point to who have really built something, you know, pretty spectacular, but the other strategies of we just have to spend money regardless of whether it makes any sense or not, you know, if something cannot go on forever, then it will stop. Right? So at some point, that business model will run out of steam and that gets to Again, an investment proposition, you know, the, the price to enter your investment in the USL is very different than an MLS is very different than if whomever the next person is who will buy Chelsea or Manchester United or Manchester City, you know, you're talking about rarefied air where the billions of dollars at stake, it makes it much, much harder to make that an attractive investment than if you came into Brighton,
Richard Gillis, Unofficial Partner:Yeah. So price of entry and most clubs aren't man united. That's I
Barney Schauble:is for sure.
Richard Gillis, Unofficial Partner:Omar.
Omar Chaudhuri:let
AJ Swoboda:Yeah.
Richard Gillis, Unofficial Partner:Yeah. AJ. Sorry.
AJ Swoboda:Yeah. I was going to say I guess two points on the, you know, I know you're being provocative, but on the Man United part, you know, I think there's a, there's a way in which all of the supporters and probably the broader corporate ego you alluded to, you know, would, would be happy with, you know, Finding ways to spend the money that they generate every year more efficiently, right? And, and turning that spend into performance on a more consistent basis that, that some of their competitors are, are able to do. So I think there's. You know, spectrum, it's not, it's not this binary switch of either you're unsustainable or you're entirely focused on only sustainability. And I think, the push towards sustainability that Barney's mentioning. It might not be that that looks the same for every ownership or every club, but by and large, you know, pushing towards that is ultimately good for. Club performance and for, for fan satisfaction. I think it was also worth we, as a firm, we have the luxury or pleasure of working with a lot of different investors and owners, and they all have different motivations for why they might have the position that they have in a football club, whether that's ranging from sporting merit or passion to asset appreciation, to diversifying their portfolio down to accessing new markets, you know, improving their, their reputation or their brand globally. Finding ways to invest in a community, building media or content strategies. There are a ton of different, we have it at about kind of a dozen, I think, varying approaches to why you would invest in a sports organization. And, And, they're not necessarily mutually exclusive. People could pick a couple of those reasons, but because of that, there's some that will push for more of the sustainability approach that Barney's mentioning, but there are others that are, that are happy with a different one because it fits in their investment model.
Richard Gillis, Unofficial Partner:It's quite a difficult message. I hear you. It's quite a difficult message to come in either a management level or an owner level and say, we are, we are the sustainability guys. You know, it's not, it's not making my heart race as a fan. I want to go on a ride. I want to, you know, so, and I hear you in terms of, of, okay, we're going to avoid the losses we're going to spend sensibly, we're going to build, but actually, you know, we all know that football fans aren't like that. And then the pressure starts to build over time. I'm a Spurs fan and people are talking about Gareth Southgate coming in. My heart isn't racing. I don't, you know, this is something that. I'm going to have to start to live with my, you know, our, we're, we're slipping down. We're like, we're a sort of metaphor for the British empire. We're just sort of getting smaller and smaller and less, less irrelevant. And, uh, you know, I don't, I don't think that's an overstatement but Omar, what'd you think about this? I want to get you on what the, the performance bit, because I'm really interested in the link and that bridge because we've talked in the past, but I, I mean, I remember going to the ECA, the European club association, their, their sort of format, and you've got all the European clubs in a room. And one guy said, if we all go the performance route, we can't all win. We can't all be. Brighton and Brentford. We need to find some, you know, because we, some of us are losers. We're not going to win here. And it's really, it's, it's quite an interesting point because I can sort of get it in isolation, but then if everyone is going the data route and if everyone is building a sort of uh, you know, a sort of a whole sort of, uh, positioning in the way Brighton and Brentford have done, then I don't know how that works because
Omar Chaudhuri:Yeah.
Richard Gillis, Unofficial Partner:aren't there.
Omar Chaudhuri:Yeah. There's an interesting provocation there. I would say that is, uh, that would be an issue if, if everyone was doing things efficiently and to the best of their abilities, then it would be a case
Richard Gillis, Unofficial Partner:I mean, I admit we're not there yet.
Omar Chaudhuri:yeah, but it, but it's not, it's, you know, it's, it's clearly, it's clearly a case at the moment that there is a massive, Disconnect, I think within football clubs around the way that they plan and strategize on the sporting side and how that materializes in sporting performance and ultimately if you're investing in a, in a football club, the long term valuation is driven by how well you do on the pitch because of the, in European football, because of these cliff edges in, in revenues and the way that these clubs are valued, which is multiples of revenue, because they can't be valued in traditional football. Of value because they don't generate any cash. So if you're if you're an owner of a club, you'll, you have an entry price. You then. Sustain some level of losses, probably in most cases for a period of years, and you're hoping those losses grow the value of the club because you've invested it in the team and the infrastructure and so on, such that when you exit in 5, 10, 20 years, whatever it is, that the value of the club has grown. That's particularly true now with with media rights. plateauing, uh, again, well, across the board, really, and maybe even in some markets, shrinking. And so as a football club, I think you have to have just a much better grip on the relationship between the finances and the sporting side, which I think in most cases is not really the case. You have your financial departments, your FDs, who are there to, to, you know, You know, try and limit losses or try and make sure that, you know, sporting side stays to a budget, but there's no understanding the interaction between these two things. And it's going to become more and more pertinent because UEFA are tightening cost controls. And I don't think people have fully appreciated this yet, but there's been permissible losses for a period of time now over the last few years. 10, 12 years under FFP, but now you have these squad cost ratios, which are going to be pretty tight in terms of how much you're able to, to spend relative to your revenue. And so it really is, you know, an opportunity for smart clubs to understand that relationship and look for a means to outperform it.
Richard Gillis, Unofficial Partner:Can you just explain what that is just for a moment?
Omar Chaudhuri:Yeah, absolutely. So UEFA have been introducing these regulations where You can spend a proportion of your revenue on players and player costs are essentially wages and transfer fees, plus, plus a few other inclusions. So clearly that gives an advantage to bigger clubs because if you've got bigger revenues, you're able to spend more on players. But I think what people don't appreciate, because there's such variance in how well Clubs spend their money. If you're, if you're a club that has revenues of, call it 200 million in, uh, one of the big five leagues, you've got maybe a mid table or top half club. If you spend that money well, you could have close to a 50 50 chance of being in the Champions League, qualifying for the top four. If you spend it poorly, you've got a reasonable chance of being relegated, which we've seen with, with some of the bigger clubs, particularly in England, but also in, uh, in Spain and, uh, in Germany, especially as well. So that just shows you the range of performance that can be generated for any given level of spend in the team and the ones that outperform it, so your Brightons and Brentfords, as you said, I think have a kind of real sense of where they can drive efficiencies and where their edge is. They also have a big appreciation role of luck in football and where sometimes you have good seasons. But you didn't really deserve it and sometimes you have bad seasons that you didn't really deserve it and you don't over under react to that. So this is, I guess, the framework under which clubs really need to be thinking. There are three things that ultimately influence my sporting performance, which influences my long term valuation. It's how much I spend, it's how well I spend it and it's the luck that comes into it and there's, there's very little, in most cases, present company accepted, very little kind of science around how this is done and it's sporting and the financial side of clubs are kept very, very separate.
Richard Gillis, Unofficial Partner:So Barney, is it a church and state thing between the performance side and the finance side? Is that, is that how football works? Is that how a football club works?
Barney Schauble:It really varies by club, right? So this goes back to AJ's point, you know, different ownership groups and different clubs and different communities behave entirely differently. And, you know, you can see that some of that is a function of history. As you say, there's a certain level of expectation, rightly or wrongly, if you're a Manchester United fan as to what you think you deserve, which may or may not be relevant, you know, in the back half of the 2020s, but it really depends. And that's where I think the team that you assemble on the pitch is obviously critically important, but the team that you have off the pitch is equally important, you know, and if you do have a church and state situation, that seems less likely to be successful. Over the long term, right? If you, and if you, you know, if you speak to people who have really promoted the analytical approach to football, thinking more carefully about how do you spend and what do you spend it on? And what are your tactics? And one of the observations Ryan O'Hanlon and others have made is it's not necessarily that there's a mystery as to things that you can do to be more efficient. But some clubs just don't want to do those for whatever reason. Or the personnel disagree, your new manager disagrees, your sporting director disagrees, the owner may be distracted by other things. But there are examples that you can point to. Brighton and Brentford are too, but there are others that you can point to to say, Everybody in the club agrees that what we want is to be here next year and the year after and the year after and competing at the top level and not have to sell to somebody else and be unable to operate because we violated financial constraints. I mean, what Omar mentioned made me think of two things, one of which is A little, uh, when people look at the U. S. model, one thing that they don't often appreciate is the NFL or the NBA, for example, have incredibly stringent rules about what you can spend as a function of your revenue and, and how you can behave and what you're allowed to do financially, all of which is to protect owners from themselves, basically. And so one of the reasons why those leagues are successful at generating the revenue they have and don't have financial problems is because they've. scripted very specifically exactly what you can do. And there are very, very punitive measures that get taken if you overspend or if you construct your roster in the wrong way. And in some ways, the fact that professional football around the world is moving in that direction might be healthy, right? You're sort of protecting owners against themselves and saying you can't go and spend four times whatever your revenue is. You know, when we talked, when AJ mentioned earlier, sort of the distance between the conventional American model and the conventional European model, they are starting to tend trend together. And that's one way. The other is, you know, one of the famous sporting stories obviously is, is here in Oakland, where they knew they couldn't spend like the New York Yankees. They knew they couldn't spend like the Boston Red Sox. They tried to take the approach that Brighton or others have taken and say, how do we spend more efficiently? You know, going back to Omar's point, you can spend more or you can be lucky, but if you can't control your luck and you know that you don't have the money, all you can do then to be, to keep your fans happy, to keep the community happy, to make sure that your club is going to be better next year than this year, is to think hard about how do you spend that money? And you can't do that in a church and state situation. If the performance side is entirely divorced from the financial side, inevitably that disconnect is going to end in tears. so much.
AJ Swoboda:Let's, I mean, let's be honest, right? The running a football club is, is incredibly difficult, right? We're kind of sitting here talking about it in an academic sense, but there are, Constant surprises that come up, constant challenges that come up that are, I think, until you're really in it day to day, it might seem too theoretical. I think the, your, your comment on should it be church or state, I think building on Barney, to us, it really has to come, the direction has to come from ownership and they really have to set the direction of travel and have to. Kind of abide by that direction of travel, uh, in the actions that they take for, for years and years. You know, when you see you referencing Brighton and Brentford, I mean, those are, are two sets of ownership that are leading the charge within their organization and then bringing along operators and people who believe or will believe in that process to follow. It's not the other way around. Uh, and I think where you run into challenges, if you look over the course of. Multiple seasons in a row is when there's either doubt at ownership about what that direction of travel is or if that direction seems to be changing because of some of the reactions that happen. And you know, operators within a club will change or evolve processes, hopefully can be put in place that build out real club IP so that as operators kind of move and move out, whether that's a head coach or a sporting director or CEO, what have you that the direction of travel of that club can still stay. Uh, in whatever that the direction is that the ownership believes in and I think that that really becomes the challenge if, if that isn't clear then, then it becomes really difficult to do it from the bottom up,
Richard Gillis, Unofficial Partner:Owners of the new managers, presumably that's, that's what we're saying. Isn't it? The, the, the, the level of scrutiny has gone up and actually the management has been devolved, managers have been devolved. This is the, you know, the old Alex Ferguson thing about he was the last manager, that role doesn't really exist anymore and you've got. Ownership who presumably, cause they want control. You've got the direct, the rise of the director of football. One of the questions Barney is what's the most important hire in the organization now, you know, cause you can sort of see we're all students of these organizational charts that suddenly appear now around, you know, what a football club is. Where, where do you spend, where do you sort of think, okay, well, we need to get that spot right.
Barney Schauble:There's a theory in football and in many other businesses, you know, I've lived out here in the Bay Area. Uh, this is how AJ and I met. We're both very interested in soccer and Live in California. There's a theory of this sort of great man theory. You have to find the Alex Ferguson, the Arsene Wenger. You have to find a person, and maybe that person is the charismatic owner. Maybe that's, you know, Silvio Berlusconi. Maybe that person is the, as you say, the general manager and the coach, the Alex Ferguson or the Bill Belichick, but the one genius who oversees everything in the organization. Or maybe it's a coach. You know, this coach is Bill Belichick. Visitor Visionary, you know, like Gasparini out at Atlanta. I'm not sure I agree with that approach, that it's one person. You know, I was part of a investment partnership for 20 years where I had two other partners and running something as a partnership, running with multiple people who have multiple strengths and multiple views is just much more resilient. The sporting director is obviously critically important. You have to have somebody who has a vision about on the field. How do you grow players in your academy? How do you develop players that you bring in? How do you move players on in the right way? The coach is also critically important. I think there's obviously a very high correlation between soccer clubs who go through coaches rapidly and lack of strategic direction, as Ajay described, you know, if you are constantly chopping and changing the person who's in the dressing room, and they know that the next person that comes in, that they may only have a few games or they're, they're the next person to be fired. That doesn't lead to good decision making or longevity. That leads to a lot of gambling in the short term. But you also need financial expertise. You need somebody who's thinking about revenue last year, revenue next year. What is your infrastructure like? What is your stadium like? What is your training facility like? And I wouldn't say, at least in my experience, you know, in the U. S. and in Italy, that you say, this is the one position that matters and we'll let that person drive and go on. We really need this. A capability to get those people around the table and say, this is what we would like to do to keep this club developing and moving. How do each of us help to contribute to that? And everybody's going to have a different view. Everybody's going to have their own perspective, but that multiplicity of perspectives is going to get you to a better place than just handing the keys over to any 1 person who decides that they're going to drive.
AJ Swoboda:and maybe building on that point you know, we alluded to earlier, the kind of why would an owner invest in a, in a club? How do they think about the value of a club? I think, you know, from 21st groups perspective They're long term drivers of enterprise value. Things like Club brand or the location of where that club is, the market that they may play in the, you know, the, the assets of that entity might own, and then their short term drivers, so things like sporting performance and commercial performance, really. So to what Barney's really highlighting is, you know, they're the most important people in a club are the ones that are impacting, uh, and kind of driving the ship. And in those two regards, the sporting performance in our view is the most important because ultimately that's the product on. You know, on the pitch is what you're selling, uh, is what's growing the brand. It's what's unlocking new revenues. It's what's making the commercial performance possible. And you know, as we all know, we alluded to with United that sporting performance can be cyclical and there could be these waves of sustained performance, and there could be waves of sustained on performance or, or kind of yo yo effect and. In our view, the sustaining performance on the pitch allows an organization to then build its, its commercial performance up higher, right? Whether that's being able to generate more revenues from. Broadcast, uh, rights of a, of a first division instead of a second division or attracting more fans to a stadium or, uh, bringing in new commercial sponsors because you're starting to play in European competition. And then that raises the floor, what your revenues might be in times when things don't go well, and you're able to kind of have a higher base to build on And then you kind of go again. And I think that. that kind of aperture that an owner would look at.
Barney Schauble:the information that I hope will
AJ Swoboda:It's really the owner's view of the time horizon of how they invest in that club, but I would really care about that. I think it, as a result, is the owner's responsibility to find people who can help deliver that sporting performance and the commercial performance at the right times to eke up that enterprise value.
Richard Gillis, Unofficial Partner:I've got a question, which just is a sort of, it's slightly broader, but I'll just, and Omar, you mentioned there, well, the reason I was interested in that sort of squad ratio thing, and we've had FFP obviously, and then Barney, you're talking there about control of NBA in terms of budgets and things, there is this, the counter to that, or the argument that you hear is that. So FFP will, it sticks the sort of present group in a, you know, it's hard to break in. And traditionally it was money, Lazio, Chelsea, they all came in with a enormous amount of money and changed the dynamic of a particular league. And one of the fears is that More market interference from a football regulator or from, you know, a league trying for good reasons. One of the unfortunate outcomes might be actually it's a more boring product. You've got less dynamism. You've got, you haven't got the ability, you know, we all quote Leicester, which is just, you know, but that story is important in the, again, back to the product, because the product a lot of the time is about hope, isn't it? You know, It's, it's on a fan level, you're seeing, okay, of course we're, we're interested and we've got the allegiance, et cetera, but you want some ray of, of hope, some sort of, uh, sunny uplands. What do you think, Omar, in terms of just that, cause I, I go around in circles on this. And I always think, and I don't know much about American football. I don't, I'm not a fan of the NFL. I always think it might be a bit boring, you know, a few months into the season. I sort of know, well, okay, they're going to be there now for the rest of the season. It's that's, that's it. There's no relegation. There's no jeopardy. I can just, you know, it's just a spectacle. Whereas as Spurs plummet. I'm still interested. So there is that classic sort of, you know, that bit, but what do you think about that? Is there a danger that the broader product, the league product becomes less interesting if you don't let this crazy investment in?
Omar Chaudhuri:Well, I think leagues are looking to mitigate against that to a degree. So obviously the clubs competing in Europe are going to be. Limited by the UEFA rules, but, uh, certainly in, in English football, they're looking at clubs not competing in Europe, being able to invest in, in order to compete. And that's a fine balance to strike because you don't want to almost give the clubs in, that aren't in Europe, an over advantage over those in Europe who are perhaps able to spend less. So there's a lot of as you can imagine, a lot of very difficult, challenging discussions between ownership groups and to get this right. So I think. The kind of regulatory framework needs to recognize the environment and ambitions of the various owners and also the environment in which they're looking to get into, if that makes sense. So if you're in the championship, you've got to think about, well, I'm looking to get to the Premier League in most cases. where for what is a situation in the championship that best kind of enables that transition between the leagues when going up or down and similarly Premier League to European competition. So that's where I think the flex, like really good modeling around the flex is, is really important because as you say, I think it then does become a stagnant product. And if we're honest, you know, European football is much more, there's less mobility in European football than there was 30, 40 years ago. Uh, and that's just a natural function of. Globalization of the sport and bands globally will be drawn to the bigger teams and they're able to kind of get those captures revenues and reinvestment in the team.
Richard Gillis, Unofficial Partner:So Barney, do you think my. My framing of that is wrong. As Omar was saying that I'm thinking, actually, I'm romanticizing the European league as a sort of free market, when actually it isn't at all. There are, you know, there, there are definite sort of, uh, blocks to, uh, progress over time, but they are just less obvious.
Barney Schauble:I think it's a good question. You know, what is the tradeoff? Because all of these things you're evaluating tradeoffs, right? If you look at the new Champions League format this year, which was originally designed to sort of give a little bit more tailwind to You know, some of the more established clubs, it's actually turned out to be much more interesting and exciting than people had expected, you know, you've seen some real interesting outperformance and underperformance. And I think everybody actually likes that. Maybe not the owners of the big clubs that wanted sort of a more relaxed qualification atmosphere, but for most neutrals, and certainly for fans, as you say, who are excited that their smaller team is in the Champions League, I think. all of a sudden, you know, they have a greater chance of progressing than they might have otherwise. I think that's good for everybody. It depends a little bit upon what you're optimizing for because truly unfettered ability to spend money, as you say, has led to a lot of excitement, but it's also led to a lot of drama and a lot of upset. If you look at like the trajectory of Leeds in its sort of heyday when I was living in England, you know, and then the fall that or if you look at Some clubs, I won't name, but in Italy where they've changed hands three times in the past 10 years because they've gotten so far financially out of control that they defaulted on their debts and have been taken over by somebody else. And I'm not sure the fans of those clubs are delighted with the fact that somebody came in, spent more money than they had. It changed hands. It changed hands again. The sporting director change, the ownership change, the players change, like they probably in retrospect would have preferred some stability and some guardrails to say I'd actually rather have some consistent ownership and some consistent team to root for rather than not know, you know, who's in charge here and from what country are they and what are they doing? So it's a trade off between excitement, as you say, but too much excitement can be
Richard Gillis, Unofficial Partner:It's not good for us.
Barney Schauble:Exactly.
Richard Gillis, Unofficial Partner:There's a, I mean, it's a sort of question about I, if a Berry goes out of business, then that's a problem. It says, you know, the local community question. I'm wondering if we've overreacted to the Berry example, you know, it's really sad, but actually do you need to restructure the whole thing? Because you don't want, you know, that there's a few examples of complete market failure. And if you can mitigate against that, you don't need to Be quite as, as heavy handed throughout the, throughout the league.
Barney Schauble:I mean, I think across most industries, some regulation, right? Some view as to if you bring in a dollar, you really shouldn't spend 100 is usually pretty healthy, right? Just societally, or just, you know, like, and maybe people won't do that on their own. So it's good to say, you know, don't dump things in the rivers that are poisonous. Don't spend 10 times what you bring in and revenue. There are certain things that are better for the stability of the system. There should obviously be competition, but that gets back to the Oakland days example, or the, you know, the Golden State Warriors or Houston Rockets examples in basketball, where you say, well, maybe I can play differently. Or you look at Atalanta or Barcelona. I mean, maybe I can grow my own players and use that as a way to change the economics and or benefit from selling players on Southampton. This model, there are other ways to approach the competition. And even if you go to a league like the NFL, and as you said, I'm not a gigantic NFL fan myself, but when you have a system that keeps some variables in check, you have to turn to other variables in which to compete. How do you generate, you know, what do you do on the field? Can you get a better coach? Can you have a different approach? Can you, you know, build out from the back rather than just, if you look at English football today, it's unrecognizable to English football of 25 years ago. Buy how people play and part of that was rule changes, but part of that was adaptation to how can you affect what's going on on the pitch? If everybody had exactly the same budget, you'd probably see more creative examples of what they do differently on the field rather than just say, I want to buy whatever player happened to have been good last year. And hopefully that will help me this year. I mean, that approach over time has led to a lot of money being vaporized that probably could have been used more productively.
AJ Swoboda:Yeah, I was gonna say on that, ultimately sport in some essence, because of the performance is a zero sum game, right? Uh, and so people are playing different time horizons. Is it this season or is it. You know, the next few seasons, or is it the next decade? But I think the reality that we see is that, you know, at any given level of spend, there's a huge disparity in what the performance outcomes for that level of spend might generate. And that's both within an individual market or within an individual league, but you know, across the global sport, across European football, across the global football. So I think the, I think through that lens, we tend to look at that, I guess proactively saying Okay, if. There's such a thing as efficiency of spending money well or not spending money well to generate performance. How can we build strategies and business plans that allow people to always outperform their budget? But I think through the context of, of how we think looking at something that's, you know, cost controls or financial regulations. I guess we don't ever expect it would get so extreme as to what maybe exists in the NFL but, you know, there's a lot of wiggle room to play, right? And if you can, to Barney's point, if you can limit the most unsustainable of actions that can create real turmoil over a handful of seasons or over a decade for an organization. There's still plenty of ways to find a competitive advantage, and the game maybe changes a little bit, but there's, there's a lot of room in there. I think that's, that's not being, uh, I think in your, in your, rightly, the way you're provoking us, I don't think that's being accounted for, just how much variation there really is in that.
Richard Gillis, Unofficial Partner:There's a, I guess Barney, there's a, there's another question I've got, which is, which is another area of value. And there's a Ryan Reynolds question. Inevitably can't have a football podcast without having a Ryan Reynolds question. Again, it's interesting seeing how. You've got the Drake investment, is my point, and there is a celebrity, there's a football branding culture sort of thing going on there, which I can see echoes of, and one of the, one of the routes to You know, creating more value is to look at a football club differently and saying, actually, yes, there are other, other ways of doing it and making it valuable in different markets, et cetera. Is that a part of your thinking in terms of how you're viewing what the, what the brand is?
Barney Schauble:Absolutely, but to me, that's sort of, that's an additional feature or an additional, uh, pathway to sustainability. It's not the core focus, right? So, you know, uh, whatever Ryan Reynolds and, uh, and their groups try to do. Original motivation for investing in Rectum. And obviously he was able to get that in front of a much bigger audience than they ever would have been able to enjoy otherwise. If you look at Drake's involvement with Venezia, and we have, we've taken a similar path in Oakland, you know, where Marshawn Lynch and, and other well known local professional athletes, basketball players, football players, musicians male and female have been involved in investing in that group. The goal is really just how do you spread awareness? How do you make sure that fans can see what you're building and have some access to that? And even though Oakland and Venice are well known global cities with real histories of art and culture and music and, and, and, you know, people can find them on a map and would like to visit them. Anything that you can do to create more awareness of what you're doing through people who have very big platforms, uh, is good, you know, so in the same way that if Ryan Reynolds had come in and just told people to go to Wrexham games, but hadn't actually shown up there and tried to help the coach and injected some capital and been involved and gone to the games, it's not clear how helpful it would have been. You know, the way that we've thought about it in the clubs that I've been involved in is to say, you still need that core product. You still need a sporting performance. You still need a real team that the community can believe in. But if you then can make people elsewhere in the world, who may be far away from Oakland or Venice aware of the fact that this is what you're doing and this is why it's entertaining to watch on the field and you can generate merchandise that people will choose to wear and spend money and bring in revenue to the club. It's a way to augment the core operation, but it's not a substitute for the core operation.
Omar Chaudhuri:Yeah, I think the way that we think about is that the sporting side generates the value and then everything else you do around it is trying to essentially capture that value and monetize it. And unless you create the value in the first place. You know, those other activities are kind of not worth it now, but well run clubs will recognize the relationship between those two things and invest in both because if they get this sporting bit right in the first place, then when they do have the success in 2, 3, 4 years time, they're in an unbelievable position to capture it. And you do see clubs that do well on the sporting side and actually they get promoted, they do well and actually. When you get to another level, it can be quite hard to sustain sometimes if you haven't got the infrastructure around it. So you have to, you have to consider the investment in both. But if you, if you lead with the, the kind of commercial side, then, then clearly, you know, it's worthless unless you're, you're actually winning matches on, on the pitch.
Richard Gillis, Unofficial Partner:I think it's interesting the, how that value is realized is also an interesting question. Cause I think we're, I know that, you know, when to go back to the Rexon example. So. I guess it's realized via sponsorship deals at the moment in terms of, you know, the media rights is locked up. There's collective bargaining for the leagues rights. What else is available? And I'm assuming this is the same in Italy. Barney, just in terms of, I could, you know, the creating of a brand, the creating of a marketing asset, and then how you then monetize that and commercialize that actually the league has got most of that anyway, haven't they? In terms of what they've got a lot of it anyway.
Barney Schauble:From a media of playing the game standpoint, that's correct, you know, You have the gate, which is what it is. You have the media rights for the league itself, which are what they are. But, you know, as you say, if you're filming a documentary, and obviously many people have gone down that road after Rexim successfully did so, you know, that is a different revenue stream, right? That can come into the club, you know, outside of, of the collective media rights. If you are, if you have a kit that resonates with people as a fashion brand, and not just as. You know, something that people are wearing on a Sunday or, or wearing in the city, you know, that can lead to revenue, right? Or if you can, there are in today's world, in particular, given the monetization of social media and people's focus on how do you capture attention and live sports being one of the last sort of proven ways to capture people's attention in any scale, there are lots of ways you can then augment the core classical revenue, transfer fees, gate, you know, the broadcast rights. And, you know, we see it. If you have a, we had a player for the Roots who is from El Salvador and well known and played for the national team. And then he became, that's a whole new avenue of people who now are interested in, you know, what's going on at Oakland. You know, we have the only Indonesian player in Syria, who's, you know, one of our best central defenders. And the amount of attention all of a sudden, and we didn't sign him because of that. He's an excellent player. It is, you know, also a new audience that is really paying attention to what is going on in Italian football in a way they might not have otherwise. You know, any way that you can reach a broader audience, if you have a core product of some substance, you know, then that audience will appreciate that and be excited about that. And then hopefully that will lead to, you know, more revenue over time.
Richard Gillis, Unofficial Partner:How does the, how does it work from a, if I'm a very rich rapper now, this is a bit of a thought experiment for you, Barney, you're going to have to you know, sort of go some to imagine this, but.
Barney Schauble:I thought you were a very rich rapper, actually. I didn't know.
Richard Gillis, Unofficial Partner:It's just always I'm being told I'm that, but how does I'm asking for specifics on the deal, but do I come in and say, right, okay, look, I'm Drake, or I am, you know, a famous person, quite often, Lewis Hamilton is quite often quoted as a sort of, you know, around. Are you buying stuff and you've got this liquidity into the market with these enormously valuable entertainment, sports and entertainment individuals, that money's got to go somewhere. And some of it's going towards clubs. It's some of it's going towards sports tech. How does it work from your, you know, from your finance, your finance head on, how much value is in the celebrity? Do they, is it a sort of value in kind relationship where they think, okay, you're bringing Drake to the table or you're bringing someone else famous. And there's a, there's a halo there. And they get a good deal because of that. Is that, is that how it works or is that, or is it just, no, you're just another person around the cap
Barney Schauble:I mean, it's, it really varies, right? It depends. You know, there may be some local sports figure in any city who says, Oh, I'd like to invest and they put By 1 percent or 5 percent wherever they might have a club and they are an owner like other owners, but they also try to magnify the what's going on at the club to their followership. And they're at the other end of the spectrum. There's, you know, messy coming to MLS and striking a deal where he reportedly gets a share of the revenue to the league and revenue from a manufacturer. And, and somebody made the calculation somewhere that the overall. Tide that was lifting all boats was going to be worth sharing those economics with him. But I think in every example, that's the calculation, right? What is the benefit to the club in attention or revenue? And how much of that benefit should accrue to the club and how much of that benefit should accrue to the individual? And. You know, there's, uh, I'm sure as many versions of that as there are individuals investing in clubs across different sports, you know, the Lewis Hamilton's of the world or the you see more and more athletes, even while they're continue to be active, deciding that they want to be an investor, be an owner, bring their. ability to magnify and amplify the impact of the club, but also bring their judgment and network and relationships and expertise. So I, you know, again, I'm sure AJ and Omar have seen many more of those deals than I have. I've only seen them within these two clubs, but ultimately the calculus is what's the total benefit and then how much benefit, how does that benefit get shared over time between the person who's bringing it and the club itself? Cause you want to find some split that makes sense for everybody.
AJ Swoboda:Yeah, I would go even further to say that, you know, as it relates to investments in clubs, period, regardless of whether or not they're a, you know, a celebrity in some fashion, it really just comes down to the terms that you can strike for that deal and what that requires is, you know, a sharper understanding, a tighter understanding of that probabilistic space that you referenced when you were giving your, your bio at the start, right? If you're, if you have an ability to. Look at something that's a binary outcome with more certainty, be able to model against that, build business plans around that. Think about investing requirements. You know, you can structure deals that, that are more beneficial to the parties that are at the table as opposed to it just being a kind of a gambling and a crapshoot.
Richard Gillis, Unofficial Partner:Gambling in a cap shoot, crap shoot. That could be a sports business podcast. Listen, thank you so much for your time. Really enjoyed it and good luck. And we'll be following, uh, Venezia and Oakland Roots. My new, it's my new USL team now. I don't know. That's it. Thanks very much Barnu for your time.
Omar Chaudhuri:Translations.
Richard Gillis, Unofficial Partner:thanks AJ.