The Four Year Cycle, Is It Holding Sports Back?

Everyone knows that today sport is big business. The money tied up in sport is phenomenal, some would say obscene when you look at areas in our everyday lives that are desperate for money, education and health being two.

To back up the fact that sport is big business in 2019 the NFL generated USD16billion! The English Premier League recorded UKL4.8Billion in season 2017/18.

What has been interesting to watch as the sports business has grown to these ridiculous levels is how some sports and clubs have been very successful by applying sound business principles. While many others have failed because they have not used the principles that apply in business in sport. Often, if we look at the owners of sporting franchises these people have been hugely successful in business to be in a position to buy and own a club, yet inexplicably many lose all reason once they become involved in sport.

There is no doubt that today the entire sports business industry is fueled by money. It is money that controls everyone and everything in the modern sports world, and it is one of the main contributors to almost every single decision that is made.

Sport is in an enviable position. Unlike many other businesses sport has the ability bring vast numbers of people together through the emotional connection and their ability to become really involved in the game or the team on so many levels. Experts in this field have declared that “fan-based revenue is probably the greatest source of income in all of sports.” (TV is regarded as Fan-based). They believe that it is the fans who will be the ones that will drive the economy of sport now and into the future. So any club or organisation that fails to recognise the importance of the fans is likely to suffer the consequences.

It should not come as any surprise that the second most important area when it comes to revenue in sport is Merchandising. Enabling fans to purchase team shirts and apparel that the team would wear, helps them feel more connected to the club or sport. Which re-enforces the importance of listening and working with fan groups.

How many times do you see sport used in commercials? Even advertisements trying to sell televisions will often feature sport on the screen. Why? The answer is simple, most advertisers understand that sport is one of the most lucrative industries on the planet and this is their way to tap into that market. This is why top athletes are signed up to promote various products.

The sports and clubs that have worked out the value of their assets, the sport, the team, the individual players are the ones that are in a better position to make money than those who fail to realise the worth of what they have. Those who fail to bring their business skills to the table and see sport as something else usually end up under-valuing their assets and under-selling what they have.

One of the principles of any business is that you should re-invest a minimum of 2.5 to 3% of your profits back into marketing. Yet how many clubs, competitions and sports fail to spend a cent on marketing? They believe that a presence on social media is enough? The sporting world is incredibly competitive and if you do not have a marketing plan and strategy your club, team or sport is always going to be an also-ran. As discussed in Podcast 65 marketing now has to be built into the promotion of your sport and if you do not have the manpower then you may be better off seeking outside help.

One of the most contentious issues in modern day sport is how the money generated by the athletes – including government funding for development – is then spent. Each organisation is different. Unfortunately a modern trend is for the money to be spent on administration rather than re-invested into those who generate the income, the players. Fans do not come to watch administrators. A very important thing to remember!

Most big businesses work with a seven year plan. They also work out complex budgets each year, with goals set in various areas of the business. The good companies will also at that planning stage work out what they will spend money on as revenue comes in. In sport the well run organisations predetermine what money they will leave aside for the players and employees of the organization if and when those milestones are reached. These organisations like big corporations stick to their budget and spend what they feel will be most effective for the organization in the areas that will benefit all

The successful sporting organisations never lose sight of the fact that most of the money in the sporting world comes from the fans. Whether it is ticket sales or merchandise sales, the emotion and passion created, experienced and felt by the fans is what drives the industry. Disgruntled fans remain fans, but they stay away, they don’t buy tickets or merchandise.

Considering these key issues which have been put forward by people who are experts in this field one has to ask if some of the reasons that some of the Olympic sports have not managed to go to the next level is because the model under which they operate is heavily flawed, due to the focus being on a four-year cycle.

Many Olympic sports across the globe are funded over a four year period. Even the IOC gives out funding to its Olympic sports to see them promote and enhance the sport over a four year period. That money is believed to be handed out each Olympic cycle, without any business plan being submitted or any explanation as to how the money is to be spent.

Taking the business principles mentioned already into account, should not these sports have to show how they are going to grow their sport by way of promotion and participation? Should they not be tabling how they intend to improve the levels of professionalism before they receive those monies?

In many countries the Olympic Sports are government funded, and once again the funding is handed out on a four year cycle. Often the money received is based on results at the Olympic Games, a World Cup or even in a team’s case their World Ranking. Is this is a good business model? Is this really going to drive long term success? It appears incredibly short-sighted, and from a business perspective very poor management.

To exacerbate the situation coaches are usually employed on a similar four-year cycle. So the chances are, as there can only be three medallists that if you fail to medal you could be looking for a new job after four years. Those organisations that wait to see if the team achieves Olympic success before renewing a coach’s contract will often miss out as a more forward-thinking organisation will have already made an offer to the individual.

This model has also now affected many of the players thought processes. They too set goals based on an Olympic cycle. How many opt to retire after an Olympics rather than a World Cup? How many who maybe should have retired earlier push on hoping for the next Olympic Games? Which begs the question do you always have the right players in the squad, has the emphasis shifted from ‘we’ to ‘me?’

Of course it is not just the coaches, players and funding that is impacted by the four year cycle, but administrators too. As we covered four years ago in Administrators On The Move in the ‘Olympic City’ of Lausanne where many of the World’s International Sporting Federations are based 40% of staff will move from one sport to another after the Olympic Games. What would that figure be domestically?

This makes sport the ideal job for the poor manager. Those who know the business world will tell you to be wary of employees with leadership roles who move on every three to four years. As it will take them a year to learn the role, the second year year is one of consolidation, then they implement changes and in the third or fourth year they start looking for a new role so that they have left before the impact of those changes are felt. This may sound harsh, but in the business world it is a very true phenomenon. Is it true in sport? It may not be, but the four year cycle surely cannot be good for the long term future of many of these sports.

When you consider that the Harvard Business School believes that the ideal length of time for a CEO “is seven years plus or minus two” the above makes sense. If things are going wrong in year five, you can move the person on. If they are going well after seven years you can keep them on and start grooming their successor; or finding them. How many sporting CEOs last until seven years, and how many stay on well after that time?

This is where the issue of the Board comes into play. A warning from Harvard is to be careful creating a Board that has strong affiliations with the CEO as they “do not really take their review function very seriously.” This leads to decisions not being made until a major problem arises and the damage has by then been done.

This is why Board members must remain at arms length from staff at all times. It is not beneficial to have Board members becoming involved in the day to day running of the organisation; yet in sport, maybe because of the perceived glamour many like to do just that, and some even have been known to have players around to dinner.

The President of Richmond Football Club Peggy O’Neal summed it up perfectly in an interview with the ABC when she said “One of the basic things is knowing your role, being accountable for what you do, and there’s plenty for everybody to do. But I think to understand that management is here to manage, and a Board is here to oversee and to provide guidance.” She went on to say “We’re a Board and things that we say even in casual conversation, we don’t want anyone thinking that’s an official position of the Board. So, I like to say we’re friendly with everybody but that doesn’t mean you’re going to be friends.”

Her approach has clearly reaped rewards. Having long term goals is a key, and those goals need not always be based around on-field results, as they can often be deceiving. As anyone involved in sport will tell you winning can hide a great deal of problems. Sport is littered with examples of teams who were riding the crest of the wave and came crashing down to earth. Leeds United in the early 2000’s is a prime example.

Some would say that theirs was also an example of a successful business man losing his head and departing from the principles that had made him successful. Why does sport do that?

If sport is truly a business, surely more business principles need to be applied and those on the various Boards need to have the knowledge to keep the organisation on the right path. If it is a business then for that business to be successful is it not time to get rid of this four year recycling caused by a funding model built around the quadrennial Olympic Games? If this doesn’t change surely those sports locked into this cycle are condemned to continually struggle.