Nutmeg Radio » Finance

Qatar Foundation’s £125m Sponsorship of Barcelona: Maybe It Does Make Cents

Miriti Murungi — Fri, 10 Dec 2010 17:37:12 +0000

You would think that if a non-profit organization focused on transforming a nation of roughly 1.5 million people “by educating the rising generation to the highest world standards” had £25 million a year for the next five years, it might be well-served to invest that money in its mission.

Today we found out that Barcelona and the Qatar Foundation have agreed a £125 million shirt sponsorship deal that will provide Barcelona with £25 million a year for the next five years. In return, Barcelona will find a space for a tribute to the Qatar Foundation on its iconic uniforms in a way that doesn’t infringe on UNICEF’s space.

It’s a curious deal on its face. To give you a sense of the money on the table, super NGO Oxfam America, spent approximately £41 million pounds in fiscal year 2009 on program and support services. That includes development and humanitarian relief programs, public education, policy and advocacy, management and general support, and fund-raising. £25 million is a lot of money, over half of Oxfam America’s annual expenses. One wonders what the Qatar Foundation could achieve simply by investing that money into its work.

So what’s the return on investment for the Qatar Foundation? Only they know. It would take scores of candid interviews, access to tons of data, and lots of hours on Excel to answer this question. But let’s take a swing here, shall we?

Affiliation with Barcelona provides a level of global exposure that few other brands can offer. That exposure over the course of five years will provide publicity, which in turn may lead to more investment dollars for the Foundation. But the size of the sponsorship deal itself suggests that the Qatar Foundation doesn’t really need investment dollars. So scratch that.

Perhaps Qatar wants to use its new relationship with Barcelona to educate the world about Qatar. It’s easy to imagine Barcelona players spending time at Foundation events in Doha in the near future. It’s also easy to envision millions of soccer fans around the world doing the Google searches that I ran this morning to learn a bit about the work the Foundation is doing. But is that worth £25 million a year for the next five years? Maybe it is to the Qatar Foundation. But I imagine this story goes beyond the Foundation.

We will be learning a lot more about Qatar in the next twelve years. In my opinion, that’s a good thing. For Qatar, jumping out into the global spotlight will bring all the things, both good and bad, that come with increased global exposure. In effect, Qatar is now the equivalent to Wayne Rooney heading out for a night on the town. Everyone is watching. And now, thanks to the internets, everyone has an opinion. So welcome, Qatar, to the 24/7/365 scrutiny game.

But Qatar is way smarter than that. Judging from their ability to win the right to host the 2022 World Cup, you have to assume that they know exactly what they are doing. In fact, if I were a betting man (and I’m not), I would guess that this deal has nothing to do with the Qatar Foundation’s mission, but rather is an attempt to generally push Qatar further into the public domain to enhance its general image, which over the long-run will attract business generally to the region. Ultimately, it’s better to take the PR hit for a foundation sponsorship than deal with the ridiculous backlash if a full-fledged Qatari business decided to make babies with Barcelona at this point in time. What we may be seeing is Qatar moving forward on the imaging front, but being very careful with every step.

The abundance of brain power in Qatar suggests that there is probably more than what we see on the surface here. So just when you think that their behavior doesn’t make sense, take a step back, because you are probably looking in the wrong place.

So, as much as the Qatar Foundation’s sponsorship of Barcelona may seem like a ridiculous move from a non-profit perspective, as a business strategy, Qatar, once again, might be right on point.

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Rapper Takeover: Be Careful Crystal Palace, You’re A Diddy Away from Reality Television

Clive Longbottom-Fellow, Esq. — Tue, 23 Mar 2010 05:28:26 +0000

The Diversification of Sexy

I’m sure many of you have seen the reports of P. Diddy’s interest in purchasing Crystal Palace. No, not the one in Baltimore. Brendan Guilfoyle, one of Crystal Palace’s bankruptcy administrators, stated that he’s a big hip-hop fan and would love to discuss the purchase with Mr. Combs. Slow down, Brendan. Palace is in this situation because of poor financial decisions. I sincerely hope that your interest in negotiating with Diddy isn’t because you’re a big hip-hop fan. To scratch that itch, it’s much cheaper for you to just download a few songs. If cost is an issue, you can download them illegally. I won’t tell.

I’m still trying to wrap my head around this one. I’m not saying that Diddy can’t be successful at Palace. I am saying that Palace fans might not want Farnsworth Bentley (of no relation to David Bentley) as your second in command when your manager falls ill.

On the other hand, Palace is in a position where it will need fiscally responsible owners. This is where Diddy has some value. Diddy’s ability to diversify his sexy will minimize the risk of Palace going off the deep end again. But Palace fans need to consider whether they would rather go into debt again or see a reality show on MTV Europe where 15 young men live in a house and sing songs, facing elimination each week, to determine who will play left back next season. Some people are in to that sort of thing. But I’m just saying you might want to think about these things before you jump in head first with Diddy.

Jay-Z Gunning For … Well, Nothing. He Just Said a Few Words on Arsenal.

In an interview with Arsenal Magazine, my favorite hyphenated rapper Jay-Z stated, “I am a businessman, and I will always look at an opportunity… I don’t know a lot about the business of soccer, but in the future if the right opportunity presented itself, then who knows?”

I love businessmen. But Jigga needn’t worry about being a soccer novice. There are a lot of Premier League owners these days who don’t know about the business or the game of soccer. So don’t count yourself out, Mr. Carter. (I refuse to use a “99 Problems” reference.)

You may want to think about my earlier suggestion though.

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Nightmare at Fratton Park: Searching for “Owner #5″”

The Chairman — Thu, 25 Feb 2010 05:24:12 +0000

The unending saga of Portsmouth Football Club’s ownership merry-go-round has taken on a life of its own. The club has had a staggering four owners since the start of the 2009-10 Premiership season. Some clubs haven’t had that many owners in the past decade, let alone a year. Talk about poor financial management. The club’s finances are in such a poor state that it recently requested permission from the Premier League to sell players outside the January transfer window.

Portsmouth made this audacious request in an effort to raise funds to pay player wages and to pay Her Majesty’s Revenue & Customs (HMRC). It has been reported that the club has over $100 million in debt and part of that debt includes the $12 million tax bill owed to HMRC. This unmanageable debt level has put heavy pressure on the club to find another owner by this Friday or risk being wound-up (dissolved).

Such a scenario would have dire consequences for the fans, the players, some local businesses, and the league. I’m no historian, but I’m pretty sure that a club ceasing to exist all together, let alone in mid-season, would rank up there as one of the worst things to happen to the league. Predictably, the fans are up in arms, and rightfully so. It’s hard to cheer your team on when you are unsure of the club’s viability going forward. The club has not been able to perform basic services such as paying player wages on time and has twice had to raise funds mid-season in order to do so. Aside from the embarrassment and heartache that the possible winding-up of the club would cause, it would also create a situation where all of the results from past fixtures would have to be wiped from the record books, something that has never happened in the history of the Premier League. Not only would Portsmouth suffer, but the point reshuffling would adversely impact several Premiership clubs.

In a league saddled with debt-laden teams, the Fratton Park saga shouldn’t come as a complete surprise. Their inability to plug the proverbial hole in their boat is a shocking indictment of their financial ineptitude. Then again, this is the same club that in the 2007-08 season had a 78% wages (salaries) to turnover (income) ratio, which conceivably only got worse in the following seasons. But to be fair, Portsmouth isn’t the only Premiership club to to be on shaky financial footing. A majority of clubs, including members of the “Big Four”, are clearly not living within their means.

The club is now hoping for a fifth opportunity to stave off registration (bankruptcy) by finding a willing buyer before the end of the business week. From the looks of things, no one in their right mind would want to be the known as the infamous “Owner #5″. Can you blame them?

All paths at this point seem to lead to registration, something quite familiar to Portsmouth fans as they have gone down this road once before in 1998. To add insult to injury, registration is accompanied with a hefty dose of football purgatory, which comes in the form of an automatic nine point deduction in the league table. As if the faithful at Fratton Park haven’t suffered enough, all hope of staying up has to be buried alive. The Premier League and the English FA need to take the travails at Fratton Park to heart. It is time for sensible leadership because English football’s position as one of football’s shining examples of good business management is in peril — as a soon to be released UEFA study, which was first reported in the Guardian, will attest to. We are often told that sports is big business. Well, it is time club executives at Portsmouth and elsewhere start acting like it.

A Sustainable Way Forward

The Chairman — Tue, 16 Feb 2010 07:02:04 +0000

It is no secret that Arsenal Football Club (AFC) is run under a self-sustainable business model. The club takes great pride in touting this fact, sometimes to the detriment of some of its own fans who want greater on field success in the form of silverware (AFC has gone five long, arduous years without a major trophy – cue the violin). According to Arsenal manager, Arsene Wenger, it is imperative that football teams live within their means, by which he means that clubs should only spend what they make. That is why a few years ago, after the club decided to build Emirates Stadium, Arsene embarked on an odyssey of sorts to revolutionize how the squad was constructed.

Arsene and the AFC board put in place a plan that focused more on player development at a young age as opposed to high-priced acquisitions of older, established players. The thought was that in order to finance a new stadium, the club would have to reign in its spending. Thus, it made more sense to acquire young, talented players early in their development cycle. After all, there stood a good chance that these new recruits would end up blossoming into world-class players under the structured tutelage of the Arsene Wenger and the Arsenal coaching staff. This brazen choice lead to the departure of some of Arsenal’s older heroes such as Patrick Vieira and Thierry Henry and ushered in the era of younger players like Cesc Fabregas and Robin Van Persie.

Over the subsequent years of transition, Arsenal has been enormously successful by many standards with the exception of one. They have finished in the top four of the English Premier League with regularity, been regular participants in the UEFA Champions League group stages and beyond, and have progressed to the late stages of several domestic cup competitions, albeit with young, inexperienced teams. One would think that most, if not all AFC fans would be pleased with such substantive results, but alas, that isn’t quite the case. In today’s world of instant gratification and exorbitant spending, it appears that there is a growing faction of Arsenal fans who no longer subscribe to the “Arsene Knows” mantra and are increasingly frustrated by the five-year run without silverware.

Prior to the win last week against Liverpool, the squad suffered devastating back-to-back defeats at the hands of Manchester United and Chelsea, the two leading contenders for the Premiership crown. Due to the lopsided nature of these loses, the detractors have once again been clamoring for the need for squad reinforcements if Arsenal is to truly challenge for honors this term. To the casual observer, it may appear that these fans perhaps don’t understand or want to understand what the club is trying to do. In fairness to these fans, the club has been pulling a bit of double speak by advocating its fiscally responsible approach, while at the same time suggesting that funds to acquire world-class players is available. Well, which one is it? What gives? As if on cue, the Arsenal manager, after speaking from both sides of his mouth on this issue in the past (understandably due to negotiation constraints) came out and said that he “cannot afford to bring in big-name players” and that “football lives in an artificial world.” Considering that the world is in the midst of a financial crisis that many compare to the Great Depression, truer words may not have been spoken. Looking at the finances of the top four clubs in the Premiership in the 2007-08 season, an interesting picture begins to emerge.

The first thing that may strike you is the enormous amounts of debt that these clubs have amounted, particularly Chelsea and Manchester United. The stories of massive spending binges for both clubs are well documented. Chelsea’s billionaire Russian oligarch, I mean owner, Roman Abromovich, has hit the footballing world by storm. Upon buying the club, he has invested over £700 M, all reportedly in the form of interest-free loans to the club. Manchester United on the other hand, has been the victim (I use the word loosely) of an American-style corporate leveraged buy-out. Malcolm Glazer & Co. borrowed immense sums of money to finance the purchase of the club, saddling United with an enormous £699 M debt burden. Luckily for both clubs, they are able to finance the debt, at least for the time being. Questions have been raised as to how long they can afford to do so (especially in the case of Manchester United, since they have actual interest payments to service), but as the saying goes, “only time will tell”. As long as United keep making the dosh, they can pay off the interest and keep the banks at bay. As a matter of fact, United’s spending appears to have abated this year. Their only major move of the summer was the record sale of Cristiano Ronaldo for £80 M to Real Madrid, which resulted in a modest reinvestment of approximately £20 M. Chelsea, on the other hand, don’t have a care in the world due to the vast wealth of Uncle Roman. As long as he is in the mood to foot the bill, he can single handedly keep the party going.

AFC and Liverpool on the other hand, live a couple of stratospheres below their neighbors to the north in the Premiership table. With the new stadium, Arsenal is able to play with the big boys a bit, however Arsenal’s situation is in stark contrast to the state of affairs at Anfield. Think about this, Arsenal have a new stadium and a total debt load of £416 M (which is much lower than Chelsea’s and United’s debt), while Liverpool have an old stadium that needs replacing, a reduced revenue stream of £159 M to Arsenal’s £223 M, and a debt burden of £280 M. With such a low revenue stream, Liverpool is unable to self-finance a stadium, and with such a high debt burden prior to building a stadium, it is virtually impossible for them to find financing to build one. The recent purchase of Liverpool, much like the purchase of United, was debt-financed. However Liverpool, unlike United, do not have the financial wherewithal to comfortably compete at the highest level. After all, United has a much larger revenue stream, has a 70,000 plus capacity stadium, and is in better financial footing to obtain help from the finance markets, as their £500 M bond offering proves.

How then does one compete?

Luckily for Arsenal, the brain-trust was fiscally prudent and struck when the iron was hot a few year ago by figuring out the financing for Emirates Stadium. Had they not made the decision to forgo the immediate return of instant gratification like many clubs that are saddled with massive amounts of debt with nothing to show for it, AFC would be faced with Liverpool’s problems, too much debt and not enough revenue to grow the club.

Although AFC’s plan has not born the fruits of a trophy yet, it has clearly put AFC on better financial footing for the future. Remember Arsenal fans, Rome wasn’t built in a day. Admire him or not, one cannot deny Arsene Wenger his due. Since his time in London, the man has transformed the game of football and has had enormous success doing so. Only time will tell if he has lost his touch.