Buy-buy old A-League and welcome NewAL

The FFA recently announced plans to develop new ownership and operating models for both the A-League and the W-League.

After 12 years of owning and operating the A-League, it seems the FFA has reached a stage in the evolution of the business that every private owner faces: the demand for new capital to expand.

The FFA also apparently realised that the operation of the A-League requires specialist skills and 100 per cent focus, neither of which the FFA can provide from internal resources.

As such, they have hired corporate advisors to evaluate the possible ownership and operating models to take the A-League successfully into the next stage of expansion.

In this article I will outline one possible model that could form the new A-League. I will attempt to address a new model for the W-League at a later date.

The core principles I have used to create my new A-League model are:

1) Independent structure (in particular, ring-fenced finances)
2) Fair distribution of funds to clubs
3) Access to new capital
4) Specialists who focus 100 per cent of their efforts on promoting and managing the A-League.

Step 1: Separate the A-League operations
The FFA will create a new corporate entity, ‘NewAL’.

NewAL will own all the assets and liabilities associated with the A-League competition (TV rights contracts, sponsorship deals, intellectual property, service contracts and obligations) and all intellectual property for each club.

NewAL will issue eight shares and, at this point, the FFA will own all eight shares.

Step 2: Clubs to form a union
The ten clubs who hold licences to play in the A-League will form a corporate entity, ‘Clubs United’, which will manage the clubs’ interests.

Each existing A-League club will be issued one share in Clubs United and, when the A-League expands (or when clubs are promoted from the second division), new clubs will each be issued one new share in Clubs United. If an A-League club is relegated, or liquidated, that club’s share will be cancelled.

Step 3: New capital for NewAL
The FFA needs significant fresh capital to take the A-League to the next level.

The competition needs more clubs, better marketing and promotion, better media relationships, and wider corporate relationships (local and abroad). But the FFA does not have the cash reserves to provide this.

Debt capital (bank loans, or corporate paper) is not recommended for this venture, nor do I recommend a public equity offer.

Instead, FFA should look to private equity, with potential targets being organisations with deep skills and networks across marketing and multimedia (e.g. Lagardere Sports, SportFive, Octagon, IMG, YouTube, Facebook, Twitter).

Step 4: Partial sale of NewAL to private equity partner/s (PEP)
The FFA will sell 40 per cent of NewAL (four shares) to PEP.

This will be done by FFA selling two of its existing eight shares and NewAL issuing two new shares.

The value of this 40 per cent can only be determined after a forensic examination of NewAL’s financial records, relationships and market conditions. Obviously, such information is well beyond the scope of this discussion, so I’ll have to make a rough guess about the likely value of NewAL.

At the time of the sale, NewAL should generate revenue of approximately $80 million per annum. Given the likely surge in revenue upon expansion through new sponsors, additional broadcast money and the like, it’s reasonable to value NewAL at $250 million.

Therefore, FFA will sell a 40 per cent stake in NewAL to PEP for $100 million.

The FFA will receive $50 million from the sale of its two shares to PEP and NewAL will receive $50 million capital injection from issuing fresh capital to PEP.

After the 40 per cent sale of NewAL, the ownership will be:

FFA: 60 per cent (six shares)
PEP: 40 per cent (four shares)

Step 5: Giving A-League Clubs Ownership of NewAL
The FFA will then transfer five of the NewAL shares to Clubs United.

Each A-League club has already paid a licence fee to the FFA to compete in the A-League, so the FFA will issue Clubs United with 50 per cent of NewAL shares in consideration for cancelling the existing licences (which will still have significant time value).

Along with the transfer of 50 per cent of NewAL shares to Clubs United, each club in the A-League will also take full ownership of all the intellectual property linked to it.

The final ownership of NewAL will be:
Clubs United: five shares (50%)
PEP: four shares (40%)
FFA: one share (10%)

Step 6: Sharing NewAL revenue
All revenue generated by NewAL each year will be expensed as follows:

• 50 per cent to Clubs United, for services provided by competing in the A-League
• 10 per cent to FFA for services provided as the governing body
• 40 per cent to PEP to operate and promote the A-League competition

Referring back to the $250 million valuation, if NewAL generates $100 million revenue in the first year of the new operating model, PEP will receive a $40 million return on a $100 million investment (40% ROI).

So there you have it.

This blueprint satisfies the core principles of independence, fresh capital, skilled managers to administer a football competition, and fair financial returns for participating clubs thus eliminating the imbalances of the past 12 years.

FFA board, there’s no time to waste – let’s do it!