THE PERFECT BUSINESS MODEL

This blog brings together two of my passions in life … Finance and Tottenham Hotspur (“Spurs”). As many are aware, Spurs are arguably one of the best run football clubs in England.

When the financial statements for the period ended 30 June 2018 were released, I like many avid Spurs fans, printed out a set of the accounts and placed them in my drawer for reading during my lunch break. Titillating reading, I must say 🙂

Let’s take a detailed look at the business model:

Organic Growth

They have developed their young talents (assets) from their youth system which they invested quite a lot of resources into via Hotspur Way many years ago. This in turn has brought talents through their academy such as England internationals Harry Kane and Harry Winks, resulting in book values in excess of £100m for the duo. Even when the players that come through the ranks and move on to other clubs, Spurs are able to generate revenues on player disposals like they did so for Ryan Mason (£13m), Nabil Bentaleb (£17.1m), Alex Pritchard (£8.5m), Tom Carroll (£5m), Andros Townsend (£12m), Jake Livermore (£6.5m), Steven Caulker (£8.5m), Gareth Bale (£75m profit*).

Salary/Wage structure

Spurs are synonymous with their frugal Chairman of the ENIC Group, Daniel Levy. A key factor behind Spurs being able to make profits year on year, is due to their rigid pay structure. Yes, this apparent lack of investment has seen many a star’s passion for the club dwindle and dissipate as they sought broader financial horizons at other clubs in Europe, however this has enabled Tottenham to stay in the black year on year.

An example of this is Spurs star midfielder (Christian Eriksen) earning a salary of £80,000 per week, whilst his peer for e.g. Kevin De Bruyne, who is a higher valued asset, earning £200,000 per week more at Manchester City (£280,0000). This is not slave labour by any stretch of the imagination, as I am pretty sure that we all would not mind earning this much a week. However, in this context it is perceived as a low minimum wage, and this is something that the management team surrounding Daniel Levy has been “astute” at getting away with for a period.

Furthermore, instead of topping up the basic salary, Spurs negotiated performance-based incentives in contracts. This helped to motivate and get the best out of the players (work force/assets) to improve performance.

Transfer policy

Spurs did not sign a player for 17 months until they acquired Tanguy Ndombele for a club record transfer fee of £56m in July 2019. This is what a lot of rival fans, who previously had stadiums built in the last 20 years, claimed that Spurs fans were to expect for the next few years. However, unlike their rivals, Spurs not buying a diminishing asset for a cheaper fee in this period (frivolously spending due to surrounding pressures), has enabled the club to spend more to strengthen areas of the squad even in times of financial constraint.

The frugality behind deals and the policy of not issuing contracts in excess of 2 to 3 years for ‘ageing’ players has ensured that the club does not have any diminishing assets from which they are not likely to receive any future economic benefits. In footballing terms, the future economic benefits can be deemed as follows: Players being able to deliver high quality performances on the football pitch throughout the duration of the contract and a potential resale value in excess of the deemed value of the player at any point during the contact. This is one of Daniel Levy’s specialities, and the thought process behind the selling of the odd star.

An example of this was their former star midfielder, Moussa Dembele, who was sold to the Chinese Club, Guangzhou R&F in January 2019 for an estimated £11m with less than 6 months left on contract. Unfortunately, Dembele became a diminishing asset at the age of 31, due to a string of ankle and foot injuries. Therefore, Daniel Levy sold the midfielder to the dismay of many fans without acquiring a replacement (until Ndombele in January 2019 – see above). However, this made perfect business sense!

The beauty of ‘The New White Hart Lane Stadium’                                       

As most football fans are aware, Spurs opened one of the best stadiums in Europe in April 2019. The total cost of construction was in excess of £1bn. Most will agree that the stadium is aesthetically pleasing. However, the USP behind the stadium is the multiple revenue streams, that it will generate for the club in the future.

This has been driven by the agreed partnership with the National Football League (“NFL”) in America to stage games in the UK as popularity of the sport continues to rise. This led to the architecture of the stadium having a retractable pitch for the NFL games to not compromise the quality of The New White Hart Lane Stadium primary playing quality.

The NFL teams also have a separate set of changing rooms from that of the football team in the UK.  The creativity, ingenuity, innovative thinking will go on to further diversify the revenue streams and basis of the club, also allowing for further potential foreign investment and ‘free’ advertisement in the American market, as the NFL is the biggest sport in the United States.

Conclusion

I could write and talk about the business structure of Spurs all day long. However, this may lead to a bore of a read so will save for my future blogs. However, I lead to the future, what will Spurs now do with their increased revenues. Will they splash the cash more to keep up with the spending super powers (we all know who these super powers are), will they sell the naming rights to their stadium, will they win anything 🙁 ….  One thing I do know for sure, the club will inevitably be in the black as they continue to strive for the perfect business model.

Short term pain will result in long term gain and the long game is proving a worthwhile wait … watch this space!

Blog written by Lamarr McGrowder

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