Buying an A-League franchise takes some heart

 
The Crowd Roar Pro

By jimbo, 6 Oct 2008 The Crowd is a Roar Pro

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A few months ago the A-League franchise hotline was ringing off the wall with investors looking to buy a share of a sporting business with annual growth running at nearly 20 per cent.

Following several highly enthusiastic and well-credentialed bids for additional A-League licenses in the past year or so, Ben Buckley CEO of the FFA said, “We continue to be very encouraged with the level of interest in the Hyundai A-League. The attractiveness of the competition is clearly reflected in the level of interest in the additional licenses and the quality of the bids we are receiving.”

Buckley reiterated the FFA’s earlier view that, ultimately, the Hyundai A-League has the capacity to expand from the current eight teams to be at least a twelve team competition and possibly fourteen teams.

He added: “When and where we expand the competition is measured simply by whether it is right for football, right for the existing Hyundai A-League clubs, right for the new clubs and right for the local community.”

It takes a lot of heart to buy an A-League franchise these days.

The starting point for any A-League bid is five million dollars or more in financial guarantees and a sound technical, football and business plan to take the club forward. Not withstanding are also the requirements for access to the playing and training facilities and a large enough population base to attract the fans to pay their money at the turnstiles.

Frank Lowy also specified that a club would need an average of about ten thousand spectators per game to just about break even. The FFA would also provide clubs with a share of television and media deals, gate receipts, sponsorship and other revenues.

Clubs can also raise money from trading football players to other clubs and selling club merchandising and their own local sponsorship deals.

Melbourne Victory is the best supported and most profitable club in the A-League.

The FFA recently announced they have begun exclusive talks with a consortium to create a second Melbourne A-League side for the 2010/2011 season, which will compete directly with Victory in the Melbourne football market. Melbourne businessman and thoroughbred racehorse owner, Peter Sidwell leads the consortium and the bid has been provisionally named the Melbourne Heart.

The FFA has given the Melbourne Heart syndicate the exclusive bidding rights for the next Melbourne football team franchise ahead of another consortium known as Southern Cross FC, which was linked with former NSL side, South Melbourne FC.

How will a second Melbourne team fare? Is this a good time to buy into a football team in Australia?

Understandably, Melbourne Victory chairman Geoff Lord doesn’t think it’s the right time for a second Melbourne A-League team. With Gold Coast and Townsville entering the A-League next season, Lord has no issue with new teams in new markets, providing they are viable, sustainable and progress the competition and the game.

But with the new team in Melbourne, Lord is not certain of the sustainability of the current market and for the sake of both franchises, Lord believes a second team might be about five years too soon. “As a businessman, I was prepared to start Melbourne Victory,” Lord said. “Today, as a businessman, I wouldn’t be prepared to start up a second team in Melbourne. But that’s only my personal judgment. They’ll have love of the game and passion, but whether their business model will work, I’m a bit skeptical.”

“I don’t think Melbourne is ready or big enough for a second side. I would say they need 10 years. It’s going to be hard work (but) we’ve got our own issues and that’s to keep building the club and making sure it represents the whole of Melbourne.”

Lord has reluctantly come to accept that a second Melbourne team is now inevitable. “If there is a second side coming in from Melbourne, then the best thing for Victory to do is continue to build on our progress as much as we can and drive to a new level of support. We’ll have to work harder.”

The financial performance of the A-League teams to date has been mixed and a good return on the large outlay is far from guaranteed.

On the plus side, two A-League clubs; Melbourne Victory and Central Coast Mariners have already turned a profit in only their third year of operation and are looking to make a handy surplus in the coming financial year.

Recouping a five million dollar plus outlay and making a profit within three years is a very good return on investment for any type of business.

At the other end of the scale, the owners of the defunct New Zealand Knights football team from Auckland have had their fingers badly burned and their financial backers will see very little of the millions they invested for their failed license.

This season, the poor crowds and diminishing support at Perth Glory and Wellington Phoenix put them below Frank Lowy’s break even benchmarks.

If the FFA are consistent in their rulings, Perth and Wellington will have their A-League licenses revoked if they fail financially. There are a number of consortiums willing to take their place.

With the A-League’s slow start this season and falling attendances – from a high of over fourteen thousand per game last season to below twelve thousand per match so far this year and the major financial collapses and market meltdowns across the globe, its going to take a lot of heart to hand over millions of dollars for an A-League franchise license in the next couple of years and get a decent return on your investment.

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