Spurs Going Beyond Yankee 2000′s Blueprint

I’m finishing this piece as Portsmouth has taken the field against D.C. United Saturday wearing long-sleeve borrowed kits from their MLS competitors in searing East Coast summer heat. Going to make my point a tad easier.

Not likely...

Our first “The Business of Soccer” column in a while and sadly, for some, it’s been overrun by the Yankees-bid-for-Spurs rumor.

The Daily Mail–a newspaper in much the same way that the National Enquirer is aspiring to be CNN or a moped is considered a motorcyle–speculated earlier that the New York Yankees are interested in buying into the Premiership through club Tottenham Hotspur. Gotham tabloid, the New York Post, refuted the claim the next day.

The rumor was refreshed to conscience with a question in the Sports Guy’s mailbag on Friday. Thankfully, TSG offers more coherent analysis here on the topic.

Quite simply, the Steinbrenners buying into any Premiership team would be a boon as Steinbrenner management typically translates into using all means necessary to great a competitive and popular–financially-speaking–team.

Modric: One of the early names in Tottenham's assault on Top Four talent...

However, a look at Spurs shows a recent history where the club has departed a mid-table malaise and invested heavily in taking the team to the next level.

First, let’s take a look at the supposed offer and history.

The rumor is the Yankees have leveled a $653M USD bid for Spurs. That’s a value that represents a major premium to the current value of Tottenham but probably accurately reflects the potential upside of the next half decade.

Forbes recently valued Spurs at $372M that down from $450M USD (we’ll do all comparison in dollars in this column) in 2009. Revenue as well dipped from $228M in ’08-’09 to $186M in 2010 The bid is about 3 times revenue.

The one-year drop for Tottenham however was systemic as the global economy stripped anywhere from 10% to 20% off the value of EPL clubs over the past year. For comparison, clubs like Arsenal, Manchester United and Chelsea hover around $300M in revenue annually.

With Champion’s League revenue forthcoming this season, it’s safe to say that the Spurs value will return to $450M or trump that figure with more in the offing. The Yankees rumored bid would be fair value for an owner that wanted to hedge against the Spurs current trajectory.

Ironically, the Yankees actually were given the opportunity to purchase part of Spurs back in the mid-1990′s–rumors had the stake at about 30% for what would have been about $10-15M USD.

The Yankees, of course, declined and signed a rather amorphous co-marketing deal with Manchester United in 2001 that never really blossomed.

When Malcolm Glazer started buying up shares and earned controlling interest of the Red Devils in 2003, the deal was then left for dead. (For those that don’t know Glazer and Steinbrenner, both Tampa natives, had a competitive relationship going with Glazer outbidding Steinbrenner for the NFL Bucs in 1995.)

The Yankees ownership, through the recently deceased George Steinbrenner took a New York Yankee franchise that was purchased in 1973 from CBS for just $10M and have turned it into a franchise that is the envy of most others in MLB valued at over $1.2B. Oh, and they have their own TV network to boot.

That model would be the envy of any Premiership team.

More impressive in my opinion for Steinbrenner’s impact on club value has been the willingness of the Yankees to incur large league penalties just to build a winner.

Perhaps to put it in perspective, Steinbrenner ownership contributes regularly over $10M a year for Major League Baseball to dole out to other teams as the Bombers’ player payroll trumped the luxury tax and continually had to pay the fine.

So in essence, the Yankees increased  the revenue of other teams merely to insure a winner on the field–this is not to even mention the increased gate proceeds when the Yankees go road tripping.

Is all the Yankee player spending reckless? Just about. The Yankees with average revenues close to $320M spend about 60% of their budget on player salaries–which makes them tops in the league in that category with many others (the Tigers, the Mets) all within a single percentage point with a similar rate of player investment.

The Yankees also toe the profit margin line, falling below it in 2008 during the construction of the New Yankee Stadium and above it reaping the awards of their player investment and New Stadium in winning the World Series in 2009. (Um, up yours, Mr. Cliff Lee.)

For Tottenham, they are nearly set up in the same mode at the 2000′s Yankees and they are starting to make their move up to top echelon of Premiership teams in terms of operations. Here are the similarities.

• Owners with money who care; smart executives.

While club chairman Daniel Levy is regarded as one of the shrewdest football heads in the EPL, club owner Joe Lewis–much like George Steinbrenner was until his recent passing–is rarely on the premises.

For those unfamiliar with Lewis, he’s a businessman who made money through the food & beverage industry and then by horse-trading various assets. Lewis has been in the news recently because the Bahama-based businessman is separating from his wife.

Yet he has the coffers to provide financial aid to the club if necessary.

Lewis, however, doesn’t let the inmates run roughshod over the team’s assets presiding over steady is unspectacular growth since his purchase in 2003.

Levy: Making strong moves

Chief inmate, and part owner, Daniel Levy is one of the smartest operators in the Premiership.

Want a recent example? Levy just made a–in my opinion–brilliant move by signing two kit sponsors (one for EPL games, one for all other) for 2010–not only do you get more revenue, but you get fans who may purchase both jerseys depending on a Cup win or the Spurs’ performance in the table. Brilliant.

Similarly the Yankees’ had an owner, through illness, who wasn’t on the scene. After decades of meddling and a ban from baseball, Yankee management decisions were migrated for some time to Gene Michael and currently to Brian Cashman.

While these ownership teams differ in some ways–the Yankees survived decades of Steinbrenner cutthroat management, the Spurs have a majority owner rarely on the premises and were quite thrifty until recently–both are committed to winning and have the bankroll to do it, without allowing that bankroll to trump at least some fiscal responsibility.

Compare this to say, Portsmouth, whose Pompey faithful would be clamoring for either ownership group after having to endure four ownership transfers last campaign, a stunning lack of funds, and books rife with losses….and who today are playing in a match without their own kits. Astounding.

Or compares Spurs and Yanks hierarchy to say Hull City–without a vault of cash–and leveraged to remain in the Premiership with no out. Hull City, who enjoyed a two-year promotion stint to the Premiership, are facing extremely challenging payroll issues as they look to pare away Premiership level (talent and salary) players with less media and sponsorship revenue in 2010-11.

• A stadium deal, managed properly, boosts cache and profits.

The building sit right next to the lot that contained the House That Ruth Built is pudding to prove the Yankees brass can manage stadium creation.

Perhaps what occurred before even approval is a testament to the Yankees. Camden Yards in Baltimore, completed in 1992, ushered in MLB’s era of new state-of-the-art playing facilities. Long before that the Yankees had requested from New York designs on a new stadium.

With few threats if at all, after much dialogue, and with a community in the South Bronx that the city had failed to take steps to revitalize, the Yankees broke ground on desperately needed stadium 14 years after the completion of Camden Yards….and with 85% of the financing coming from the Yankees themselves.

The stadium was completed on time and led to a 25% to 30% hike in revenue–a deep playoff run, of course, helped this–and flipping the Yankees profit from red to black in 2009.

Designs for the "new" White Hart Lane...

Tottenham are carefully managing their affairs and looking for the same impact.

When you look at Tottenham, after a number of “mediocre” seasons hovering around midtable, there was no reason why a team with their pedigree, fan base and city location (North London) couldn’t make a go for the top of the table and Champion’s League.

Tottenham thought they had the answer with Juande Ramos two years back, only to have Harry Rednapp arrive on the scene and tell them aggressive player acquisition was a necessity.

With a multiple of teams in London and the Premiership gaining stature globally, Tottenham had to decide whether to increase its presence in London, win casual and borderline fans and improve its brand equity to extract premium players or be a sort of Fulham and max out just short of Champion’s League play with a less-risky strategy. Spurs choose the former.

The stadium corollary to the Yankees  is such that Tottenham has to compete directly with Arsenal (another North London side) and indirectly with five other London sides for fans (Chelsea, West Ham, Fulham).

Similarly, with the N.Y. Mets planning for a new stadium since the early 1990s, the Yankees realized they needed to get on board and offer a similar facility to their fans.

The new White Hart Lane, going through a bumpy approval process right now that Yankee management could certainly help out with–is expected to be completed in 2012 or ’13 and add 75% more capacity, taking the seat count from 36,000 to 60,000.

That number is spot on with Arsenal’s new home pitch, where seating stand at 60,000 as well after the Highbury held 38,000.

In short, Tottenham should be prepared to reap the benefits of Champion’s League caliber player and notoriety and can harness more revenues from competing at the highest level.

• Player investment

As we mentioned above, the New York Yankees stand at or near the top of the focus on player investment in MLB. They take a revenue base of somewhere between $375M to $400M and spend $200-$225 of that in payroll. That’s slightly greater than 50%.

Sure the Yankees spend more than any other MLB club, but the ratio is not out of whack with the league.

Want reckless?

How about Spurs? Toeing the borderline there.

What about a $148M on revenues of $180M for a whopping 80%. Only Manchester City, owned and managed by zealots who have over $50B in assets, spent more.

The Spurs have an operating income of a rather pedestrian $35M on that $180M in revenue. To put that in perspective that’s a rate of 19%–not healthy by traditional business standards. Manchester United? 32%. Arsenal? 27%.

The Spurs are running a very risky, but not irresponsible line, at making their club competitive. Similar to their Yankee brethren.

The bet here across the board is that a sharp manager, a shrewd front office, an owner with enough in the bank, a city with a population base to support it, will make Tottenham Hotspur–and perhaps not Manchester City–the perennial breakthrough challenger to the long-clichéd moniker of top four Premiership sides–though Liverpool already channeled that notion with their underwhelming performance last year.

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9 responses to this post.

  1. Posted by pckilgore on 2010/07/26 at 9:59 AM

    Nice verb choice up there.

    Reply

  2. Posted by Ryan R. on 2010/07/26 at 10:53 AM

    What’s going to be interesting for Spurs is how they handle player wages going forward. They’re conservative at the moment, not letting anyone on the team make more than £70,000 per week. A large number than you and I would take in a heartbeat, but it’s not enough to compete with the other top clubs for players because they’re looking for £90-100,000 per week. If Spurs qualify for the CL again or get their stadium approved, do they take it forward a step and start raising their wages when they go player hunting next summer?

    Reply

    • Posted by matthewsf on 2010/07/26 at 10:57 AM

      I think they have to either way. The bigger question right now is Spurs have to increase their talent level to be competitive in the CL and remain in the top four of the EPL.

      Do they run in the red a la Man City to get to that talent level.

      Joe Lewis has deep pockets, but not $50B deep like City’s owners.

      Reply

      • Posted by Ryan R. on 2010/07/26 at 11:44 AM

        I’m not sure if they would be willing to raise wages if they don’t qualify for the Champions League this year or get their stadium approved. They’ve held firm on their wage limits for a while now and even lost a couple players as a result. Even if they do raise it, do they raise it all the way to ~£100,000 necessary to sign top players? They’re ambitious, but ambition is second to financial stability to them, IMO.

        I think their unwillingness to spend on wages is partly why they’ve been slow starting in the transfer market. They’ve had the chance to pounce on a few different guys, but knew that their wage demands would be too much. If they were willing to pay his wages, I think they’d be in a position to make a move for Ozil, making us all drool because they could put him and Modric on the same field together.

        Reply

  3. Posted by GeorgeCross on 2010/07/26 at 3:12 PM

    This is a fantastic topic and a great article Matt. Brilliant.

    You touched upon the fact (today and in prior articles) that London is a saturated marketplace. With 13 professional clubs in London alone the chance for market penetration is slim – I think they missed the boat on that one to Arsenal and Chelsea – market development is the key to their future economic success, it will be interesting to see Spurs competing with the other European clubs making inroads in the unsaturated football market that is the USA.

    Reply

  4. Posted by Kevin on 2010/07/26 at 8:52 PM

    Great write up. I’m not normally one to say something just like great write up and not comment on the material, but… that’s all I got. However, I would to see one of these finance posts on some MLS Clubs. Maybe a certain one called the New York Red Bulls who seem to be going on a spending spree. New (big) stadium, great city for possible fan base, 2 DP’s and supposedly trying to get Marquez…

    Reply

  5. Posted by gs on 2010/07/27 at 2:34 AM

    I think a few of points need to be clarified.

    While Joe Lewis is a billionaire he does not put money into the club, the company ENIC own the club of which Levy and Lewis jointly own. ENIC have never loaned money to Spurs but have injected money into the club via share issues which they underwrote themselves so acquired more shares of the club, although no official figures have been printed it is believed ENIC now own between 85-90% of the club.

    The last financial figures seen (the latest ones are due very soon) had Spurs operating on a turnover of £114m of which £56m was spent on wages which is very healthy for a premiership club and Spurs are one of the few clubs in the premiership to operate on a profit having only recently acquired some debt due to buying property around the ground for the new stadium plans and the building of a brand new state of the art training centre at Bulls Cross.

    Lastly, Spurs have made the CL by buying potential and keeping tabs on their wages, the largest transfer fee spent so far was £16.5m on Luka Modric and he was 22 when he arrived and has gone on to show that he has what it takes. Spurs have rarely bought ‘star players’ and have taken risks on young players or players who have shown potential. Sometimes it comes off (Lennon, Huddlestone, Bale), sometimes it does not (Etherington, Dave McEwan, Gary Doherty) and due to the way they have carried out their business the potential players who have shone have been snapped up by other clubs for a massive profit (Carrick £2m in, £18m to Man U, Berbatov £11m in, £30m to Man U).

    Spurs are well run and they are in no way living on the edge and Spurs should be used as an example to alot of other teams in the premiership to show that you can compete and not bankrupt the club.

    Reply

  6. [...] An update on our Spurs finances piece, Tottenham Hotspur is one of only five teams in the EPL to sell out their season. (Arsenal, [...]

    Reply

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