Читать книгу The Real Madrid Way - Steven G. Mandis - Страница 12
ОглавлениеAT THE CENTER of the Real Madrid way for success on and off the field are the values of their community and the resulting culture. Simply put, the shared ethos, expectations, and values of the Real Madrid community dictate the operations, behavior, and mission of every aspect of the entire club. The values and expectations of the community drive the decision-making throughout the organization, from on the field (in player selection, player behavior expectations, style of play, and priorities) to off the field (in business and management characteristics, strategy, marketing, investments, financial reporting, human resources, and technology). The Real Madrid management team spends their time reinforcing and solidifying increased personal connections, relationships, and communication directly with their community members. Management also pushes the community’s values throughout the organization and to their players. Management’s goal is to help the community connect to their intense passion of living Real Madrid.
Real Madrid’s management team believes that the community does not exist to serve the business or management; rather, the club exists to serve the Real Madrid community. While the community has a shared identity as Real Madrid fans, the club recognizes that members and fans are individuals with a wide variety of needs, interests, and responsibilities.
Professor Susan Fournier from Boston University and Lara Lee, former executive at Harley-Davidson, wrote an article titled “Getting Brand Communities Right” in the April 2009 issue of Harvard Business Review. According to them, “A community-based brand builds loyalty not by driving sales transactions but by helping people meet their needs.”21 Essentially, that is what Real Madrid is doing. The club is constantly trying to better understand their community members’ values, give them what they want, and improve and inspire their lives. They learned that those needs are not just about gaining status or identity through brand affiliation. Fournier and Lee wrote, “People participate in communities for a wide variety of reasons—to find emotional support and encouragement, to explore ways to contribute to the greater good, and to cultivate interests and skills, to name a few. For members, brand communities are a means to an end, not an end in themselves.” To this idea, Real Madrid would most likely add that their members participate in their community to be empowered, inspired, escape, enjoy, celebrate, connect, share, and socialize. Real Madrid seeks to help raise the self-esteem, self-confidence, joy, and happiness of hundreds of millions of people around the world. The community—the people—is the foundation. The reasons why Real Madrid’s community members participate are different, but the jubilation—and sometimes tears—unites them all. For Real Madrid’s fans and members, the community is a “means to an end, not the end itself.”22
Therefore, the management team put at the center of their strategy the members’ and fans’ values and expectations. For example, if the community wants content to share, Real Madrid seeks to provide the best and most relevant exclusive content in the best and most convenient ways through Realmadrid.com and their social media accounts. Technology enables the content for experiences and engagement to be scalable around the world. The access fuels the connection and passion, while the club’s traditions and rituals reinforce the identity association. Thus, Real Madrid’s community’s values, expectations, and desires became the touchstone for developing and aligning strategy, culture, and identity to win on the field and in business.23
With this approach, Real Madrid was able to bring together a passionate global community by creating a sense of belonging and shared values felt so deeply by fans around the world that they are synonymous with one’s identity and much more. It is impossible to tell where the fan’s identity and life as a Madridista and the club’s identity and purpose start and stop. There is no question that the identity of a Madridista and the club is one and the same. The history, feelings, and emotions are intertwined. The closest corporate examples would be Harley-Davidson, Ferrari, and IRONMAN, where in each case the brand and the identity, life, and lifestyle are absolutely intertwined. Owning a Harley-Davidson motorcycle allows you to be a member of the “HOG” (Harley Owners Group); buying a Ferrari allows you to be called a “Ferrarista”; finishing a 140.6-mile IRONMAN race allows you to call yourself an “Ironman.”24 The commercial power of the identity, life, and lifestyle is demonstrated by the fact that all three brands have thriving global apparel sales, sold both online and in specialized stores, yet none of them are apparel companies. A HOG, Ferrarista, Ironman, or Madridista benefits from the community with new friendships, a sense of belonging, shared experiences, recognition, and increased self-esteem. In addition, the internet and digital technology have allowed sophisticated, active community engagement.
At the center of everything Real Madrid is and does is their relationship with the community. The Real Madrid management team cares as much about bringing joy to the community and spreading and sharing the community’s positive values (far beyond the ninety minutes of a game) as they do about winning championships, in their unique way. In addition, they make efforts to reach well beyond their brick-and-mortar stadium venue via digital technology, social media, and a partnership with Microsoft; international and friendly exhibition games around the world; and Real Madrid supporters clubs to reinforce and intensify interaction and engagement.
The secret of the Real Madrid way is creating enterprise value from community values and expectations. Florentino and his Real Madrid leadership team figured out a sustainable, circular model to win both on and off the field (this is my interpretation and representation, not Real Madrid’s). The word “sustainable” is important because Real Madrid is owned by approximately 92,000 club members, not a billionaire or corporation that can support losses. Many sports teams, including several Spanish soccer teams,25 have strong sporting values or expectations on the field; the genius of the executives at Real Madrid is that they have harnessed the values for both on- and off-field success.
As demonstrated in the figure on page 20, Real Madrid gets the world’s best players that match the community’s values to play an attacking, beautiful style of soccer with class to win championships and capture the imagination and inspire a current and potential global audience and community. Take Cristiano Ronaldo as an example. He is the most followed person on social media in the world. In 2015, Ronaldo had 167.9 million followers on all social media.26 According to jersey sales, he’s also the most popular player—and for good reason. Ronaldo is a champion and has been voted, multiple times, the best soccer player in the world. He is talented, stylish, exciting, multilingual, and multicultural. The Real Madrid community expects the management team to sign players like Ronaldo to be inspirational to them.
Winning is not enough to the Real Madrid community. This is in direct contrast to the idea of “win at all costs” or “the end justifies the means,” or selecting players based on data analytics first, or “taking a calculated risk” in signing a troubled talented player that can “help the team win now.” The Real Madrid community has a different standard and demands more. They want the team on the field to reflect the values and expectations of the community, which is winning with a team philosophy, class, style, and elegance. The Real Madrid community wants the club to be “champions and gentlemen.” If the team loses, the community wants at least to see effort until the end, courage, and dignity. This is what makes them happy, and Real Madrid always tries to satisfy their needs.
Florentino believes that when Real Madrid represents the ideals of the community members, the community responds with more engagement, passion, and loyalty. Since Real Madrid’s community values are inclusive and universal, the community itself grows globally, which leads to worldwide sponsors spending big money for association with and access to the Real Madrid community, as well as television broadcasters paying lots of money to distribute the game to the large, passionate global audience. The passion leads to an increase in stadium receipts, the value of broadcasting rights, and marketing and sponsorship opportunities, which contribute to higher revenues. Since Florentino and his executives implemented their sustainable economic-sport model, revenues have soared as fans more closely identified with the club and their players and became more passionate and loyal. Coming full circle, the high revenues allow the club to sign the world’s best players who share their community values.27 Real Madrid wants their community to see a player on the team and think, “I want to play like, and be like, that player; I want my son or daughter to play like, and be like, that player; I want to win playing that style and with those values.”
The resulting increase in revenues from the community values-centric approach funds not only signing the world’s best players but a bigger, more modern venue that makes the stadium experience itself a way to connect with the team. It also provides the best training facilities and a youth academy that develop talented homegrown players who learn, from the age of seven, the history, traditions, values, and expectations of Real Madrid to complement and indoctrinate the imported stars. To the community and to Florentino and his executives, Real Madrid is much more than any one current or past player, coach, or president.
Figure 2.1: The Real Madrid Way: Sustainable Economic-Sport Model
SOURCE: Steven G. Mandis
Real Madrid isn’t just providing a soccer game; they are providing a larger experience or entertainment that draws in a community member to actively participate, for a memorable sensation. It is the experience from before and after the game as well as the satisfaction of the work of the club’s charitable foundation. Off the field, the Real Madrid community wants the club to adhere to accountability, transparency, trust, and good corporate governance. Interestingly, if Real Madrid’s community feels the club has not followed their values, the club’s unique ownership structure enables those members to express their frustration by—along with not buying tickets or merchandise—voting a president out of office.
Although the team is often referred to as Real Madrid, or simply Real, its official name is Real Madrid Club de Fútbol. The reason Real Madrid is referred to as a club is that it actually is a club.28 Unlike most professional sports teams that are owned by billionaires or corporations, Real Madrid, since its founding in 1902, has been owned by club members called “socios.” Today, Real Madrid has 91,846 members, of whom 66,671 are between fourteen and sixty-five years old, 19,797 are under fourteen years old, and 5,378 are over sixty-five years old or have been a member for more than fifty years. Real Madrid has 73,680 male and 18,166 female members. Adult members pay €123.30 per year as a membership fee. Any person who has been a member for over fifty years is exempt from paying membership fees. Any prospective new members must also be recommended by two existing socios to finalize their application for membership, although membership has been closed to new members since June 2009. A few people have been named “honorary members,” including Placido Domingo (2011), Rafael Nadal (2012), Sergio Garcia (2012), and Julio Iglesias (2012).29
A new policy of only admitting descendants of present socios as new socios was established in June 2011 because the demand for season tickets is far greater than the seats in the stadium. Today, if someone is not a descendant of a present socio but wants to be an “official” part of the Real Madrid family, he or she can join the Official Madridistas Supporters and receive an official supporter card (“Carnet Madridista”) and other benefits. The approximately 610,000 card-holding Official Madridistas Supporters are very much a part of the Real Madrid community but have no season ticket or voting privileges.30 Non-socios can also join a local Official Real Madrid Fan Club and receive other benefits.
On the other hand, socio membership privileges include the right to vote for president and board of directors and to be a candidate for General Assembly (though the socio must have been a member for at least one year and has to be eighteen years or older in these cases). Socios also have easier access to tickets. As noted, Santiago Bernabéu Stadium has a capacity of 81,044. There are 61,287 socio season ticket holders for the 2014–15 season (76 percent of capacity).31 The remaining seats are for the general public. Socios are subject to disciplinary action for failing to pay any due fees or failing to adhere to a proper code of conduct on Real Madrid property or away games.
A September 2015 General Assembly Meeting of club members representatives. They vote by a mano alzada (holding up their hands), a normal practice of Spanish-listed companies. An independent company counts the votes.
As expected, any operating decisions that require the voting of approximately 92,000 people would be a cumbersome process. Thus, the socios hold an election to form the General Assembly (“Socios Compromisarios”), which comprises around 2,000 members elected by the socios for four-year terms. The General Assembly’s main responsibilities revolve around the financial aspects of the club, such as approving the club’s budget for the season. The General Assembly also has certain other powers such as the ability to discipline the club president, as well as authorizing the club to borrow money.
Ownership structure of soccer clubs has evolved over time and across geographies, creating both advantages and disadvantages. Before 1990, Spanish soccer clubs were structured as mutual organizations owned by, and run for, the benefit of their members. By the 1980s, poor financial management, such as spending too much money on players and having too much debt, threatened the financial viability of almost every club. With uncertainty about who was accountable in the event of default of debt by a club (many members thought a local government entity would bail out their club), in 1990, the Spanish government intervened and created Sports Law 10/1990 to regulate the legal structures of the clubs. The regulation required all clubs that could not prove they were financially viable, with a positive balance in their accounts during the 1985–86 season, to convert into a what is called a Sociedad Anónima Deportiva (SAD), which is like a limited liability company (LLC), to increase financial accountability. The SAD structure still did not prevent the clubs from being financially irresponsible and borrowing too much money, but now most people recognize that it is the SAD entity that is accountable. Initially, the ownership of the SADs was very diverse, but over time ownership became concentrated, so that today most SADs are controlled by high-net-worth individuals. Of the forty-two professional clubs in Spain, only Real Madrid, Barcelona, Athletic Bilbao, and Osasuna were able to prove they were financially viable and stay member-owned clubs.32, 33 Member-owned clubs are not-for-profit organizations and do not provide financial distributions to members. The profits, if any, are reinvested for the benefit of the members and provide for internal financing to sustain and grow the organization.34
This divergence of structure among clubs has created financial advantage for some and challenges for others. For example, billionaires buying Chelsea and Manchester City made them contenders overnight and significantly increased the competition and cost for talent, which affects teams like Real Madrid. Recently, Wanda Group, a large conglomerate owned by Chinese billionaire Wang Jianlin, acquired a 20 percent stake in Atlético Madrid for €45 million, giving Wanda a seat on the board of directors. Now Atlético has access to more resources to buy talent.
Member-owned clubs such as Real Madrid and Barcelona do not have a billionaire owner or corporation or a wealthy investment owner to absorb losses or provide increases of capital, etc. Therefore, the clubs owned by members are at a competitive financial disadvantage, which forces them to seek a sustainable economic-sport model. In addition, with elections by club members for the president and board, it’s more difficult for the club to seek long-term financing as the lenders don’t know who will be running the club in the future and what their strategies may be. The election is also similar to a political election in that candidates may make promises that are good in the short term but disastrous in the long term. Or an incumbent may take actions to make the finances look better than they are, hiding problems, or sacrifice the financial future to win in the present.
On the other hand, having community membership invokes the opportunity for clubs to have a closer relationship with local residents and fans. It really is their team. They have a say and vote. The structure of Real Madrid ensures a high level of fan involvement and engagement. This could lead to an ability to generate greater passion and loyalty. It may be difficult for a billionaire owner to turn over how the team is run to their community. Another advantage worth noting is that member-owned clubs have consistency in ownership. Many sports teams are bought and sold over the years, and the owners can have different priorities and values. Real Madrid has had its socios ownership from the beginning, so it may be easier to draw values from them. When the elected presidents of Real Madrid have drifted from the values, the socios have taken action, including voting out an incumbent president.
Too much debt can also impact strategic decisions and ownership structure. Manchester United was purchased in a leveraged buyout. To help pay down debt, Manchester United went public on the New York Stock Exchange in 2012 by selling shares to investors. Now Manchester United also has to answer to financial investors who may have different values and priorities than the fan community. Before going public to raise equity to pay down debt, Manchester United sold Cristiano Ronaldo to Real Madrid in 2009 and gained financial flexibility. In contrast, since Real Madrid cannot sell shares and strives to be economically responsible, it has to find innovative ways to fund operations and develop a sustainable economic-sport model.
Billionaire owners and investment groups are starting to buy or invest in sports properties in other cities or sports to generate synergies. For example, Manchester City and the New York Yankees purchased a majority of a Major League Soccer franchise in New York for an estimated $100 million.35 This may be more difficult for nonprofit, member-owned clubs to replicate and place them at a competitive disadvantage.
The NFL’s Green Bay Packers is the only nonprofit, community-owned major league professional sports team based in the United States.36 While the Packers are the smallest market team in the NFL, they—like Real Madrid—sell the most jerseys in their league. In addition, while differences exist between the Packers and Real Madrid,37 their league-leading jersey sales may suggest that community-owned teams share characteristics that are more appealing even beyond their local communities, which can lead to more commercial success.
Table 2.1: Ownership of Selected European Professional Soccer Teams
After Florentino and his executives allowed community values to drive decisions, operating revenues have grown on average by 12 percent annually. Today, marketing, which includes sponsorship deals with twenty-five global firms such as Emirates Airlines, Adidas, Audi, and Microsoft, plus the sales of jerseys, is the largest contributor to revenues (in 2000, the largest contributors to revenues were from membership fees and stadium tickets).
Figure 2.2: Real Madrid’s Operating Revenues 1999–2000 to 2014–15
This growth highlights the effectiveness of the Real Madrid community’s values-centric approach in generating extraordinary loyalty and passion—with community members buying merchandise and global sponsors paying to get access to and association with the community members. As an example of how much the passion, loyalty, and community has increased exponentially, in 1997 Real Madrid had a contract with Adidas for ten years, which paid out in total €100 million ($111 million), of which €95 million ($105 million) was paid out in the last three years. The average number of jerseys sold per year was around 150,000, most of which were sold in Spain. The current Adidas contract with Real Madrid, which lasts until 2020, was estimated to produce income of around €70 million ($92 million) per year, with 3.7 million garments sold per year (1.3 million in Spain and 2.4 million in the rest of the world), of which the number of jerseys sold between 2007–12 was estimated at 1.4 million per year, according to Sports Intelligence Report. By contrast, Real Madrid reported that in 2015 the number of Real Madrid Adidas garments sold increased to over 5.1 million, of which 2.6 million were jerseys.
The community values driving decisions at Real Madrid, as seen through growth in broadcasting revenue, are global. As the community expands, broadcasters are eager to deliver the games to this loyal, passionate, and very large community. International and friendly game revenues have grown as the community grows around the world and loyally supports the team when Real Madrid physically appears in their area. The awareness of brand and community values increases with the international exposure.
In 2000, membership dues and ticketing represented 32 percent and broadcasting represented 33 percent, and were the two largest components of revenues with combined 65 percent. In the 2000–01 season, income due to ticket sales to the general public was €14 million ($13 million), which represented 10 percent of the total income (€138 million, $126 million). Total income generated by the stadium (general public tickets, club members’ season tickets, VIP seats and boxes, conferences, museum, and tours) was €42 million ($38 million, 30 percent of total income). By the 2013–14 season, income due to ticket sales to the general public represented only 5 percent of total income. As can be seen in the figure on the next page, in 2015, members and ticketing represented 26 percent of revenues. The largest revenue generator was marketing, which includes sponsorships, at 37 percent, which grew from 26 percent in 2000 as membership dues and ticketing combined with broadcasting now totaled 54 percent. In addition, international and friendly games now make up 9 percent of revenues.
Figure 2.3: Operating Revenue Percentage Breakdown 1999–2000 and 2014–15
The trend shows two very important and fast-growing segments: broadcasting and marketing rights. The growth of these areas illustrates that professional European soccer is a global entertainment business, in which Real Madrid has been a leader. Real Madrid executives—realizing that the club’s games and best players captivated live, global audiences—sold broadcasts from which they generated marketing activities, sponsorships, and licenses.
Another key metric captures Real Madrid’s success: wages-to-turnover ratio—the salaries and wages paid for all employees divided by total business revenues. The lower the ratio (the lower the percentage of revenues going to pay salaries), the more financial flexibility a team has to make other investments. The maximum threshold recommended by the UEFA’s European Club Association is 70 percent.38 After a transition period from 2000–01 to 2002–03, Real Madrid’s wages-to-turnover ratio has been below 50 percent, one of, if not the, lowest in European professional soccer.39
Figure 2.4: Real Madrid Wages-to-Turnover Ratio
Because of Real Madrid’s community values-centric approach in its sustainable economic-sport model, the club generates so much revenue that despite paying among the highest players’ salaries in European soccer, those salaries are actually among the lowest when expressed as a percentage of revenues.
Lastly, the financial results demonstrate a sustainable economic model. “Sustainable” means that the model funds itself and doesn’t constantly need equity injections or excessive borrowings to continue. In fiscal year 2015, which ended in June 2015, Real Madrid’s revenues were €578 million ($641 million). Their EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), a simple proxy for cash flow, was €203 million ($221 million). Real Madrid has €96 million ($106 million) in net debt (total debt minus total cash). Net debt to EBITDA ratio is usually a very reliable indicator of the financial strength of a company. The net debt of €96 million divided by €203 million EBITDA equals 0.47. This is more favorable than the average balance sheets of the large companies in the S&P 500 (excluding financial institutions), which have an average ratio of 1.36.40 Loan covenants for a typical corporate loan from a bank (“protections for the bank”) usually stipulate that the debt-to-EBITDA ratio can’t go above 4 or 5.
Table 2.2: Fiscal Year-End 2015 Real Madrid Financial Information
Moneyball vs. Organizational Culture
Moneyball. Sabermetrics. Big Data. These new ideas have revolutionized and modernized strategic thinking and decision-making—not just in sports management but more generally in organizational management. Managers have now been trained that success depends on “new school” thinking that involves sophisticated statistical analysis. Organizations and sports teams now have entire departments staffed with data scientists and analysts. The MIT Sloan Sports Analytics Conference, held in March every year in Boston, is the largest student-run conference in the world, attracting students from over 170 different schools and representatives from over 80 sports teams. Data analysts and data analytics providers have come up with increasingly sophisticated ways of monitoring and capturing ever-growing volumes of data in the search for better performance. It has become conventional wisdom that computer-generated analysis helps those charged with evaluating and selecting talent or making other important decisions to avoid succumbing to the tricky, subtle biases or instincts that clutter human perception in order to lead the organization to extraordinary success.
The 2011 film Moneyball (and the Michael Lewis book it was based on) did such a good job of highlighting the concept of data analytics that the word “moneyball” has become a catchall term for data analytics. In reality, moneyball strategies are only a subset of analytics, but regardless, the concept is so well established in public consciousness that no one would dare question the importance of data analytics in winning. Well, almost no one.
In February 2015, eleven-time NBA All-Star Charles Barkley took issue with the conventional wisdom in an episode of TNT’s Inside the NBA. Barkley ranted about analytics, “Just because you got good stats doesn’t mean you got a good team . . . analytics is crap . . . all these guys who run these organizations who talk about analytics, they have one thing in common: they’re a bunch of guys who ain’t never played the game [and] they never got the girls in high school.” Known for speaking his mind, Barkley also authoritatively declared his opinion that winning in the NBA is about talent and coaching staffs: “What analytics did the Chicago Bulls have? [Referring to the six-time NBA champions Chicago Bulls with star players Michael Jordan and Scottie Pippen and coach Phil Jackson.] What analytics do the Spurs have? [Referring to the five-time NBA champions San Antonio Spurs with star players David Robinson and Tim Duncan and coach Gregg Popovich.] They have the best players, coaching staffs who make players better . . . The NBA is about talent.”
Money or talent or data analytics. Which is the most important ingredient for winning a championship? There is a long list of rich teams with big payrolls and numerous superstars that don’t win championships and an equally long list of teams that now rely primarily on data analytics to make decisions, and even have several superstars, but don’t win either.42
Why has Real Madrid been able to win? Money, certainly. Talented players, of course. Data analytics, without a doubt. But these are only elements of the Real Madrid way. Real Madrid’s executives believe that, in the end, it is a team’s culture that has the greatest impact on performance on and off the field. To them, culture means everyone working around a common mission in a selfless way and everyone knowing the goals and how to achieve them in a collaborative way. What makes Real Madrid such a fascinating case of organizational management is that their entire strategy both on and off the field is based in the adherence to the values and expectations of their community members—the community dictates the culture.
Real Madrid embraces data analytics. In fact, they utilize very sophisticated data collection and analysis tools both on the field and in business. It is hard to imagine what is not tracked. The club even has unique twists on the use of data that fit its culture. For example, more than evaluating players, Real Madrid employs data analytics to help examine and explain relevant and compelling questions, from in-game performance to front-office management. In contrast to most teams’ data analysts and executives protecting their data and analysis like it was the Holy Grail of competitive advantages, Real Madrid seeks to make their data and data analytics available to their community. The club exposes and disperses information—possibly providing others a competitive informational advantage—to the community because the community passionately demands and consumes it and expects transparency. Real Madrid believes their community desires data and analysis for active and frequent updates, sharing, learning, understanding, clarifying, collaborating, storytelling, and infotainment. Serving the community’s needs is Real Madrid’s primary strategy. The club’s management sees themselves as “community’s values first.” The club’s leadership believes culture is the glue that holds a complex organization together, and when culture is drawn from shared values of their community it can forge extraordinary loyalty, inspiration, strength, passion, and identity.
Management consulting firm McKinsey & Company has highlighted the importance and value of culture.43 The firm, through a survey of hundreds of companies in North America, Europe, and Asia, found 66.7 percent of business leaders felt culture provided their greatest source of competitive advantage. In addition, McKinsey & Company found that companies with effective organizational culture outperformed peers significantly. In fact, those companies with high-performing cultures delivered significant performance improvement, 300 percent higher annual returns to shareholders than companies with undefined cultures.
Suggesting culture as the most important ingredient to winning on and off the field poses some challenges. Culture is hard to define, let alone analyze, measure, and compare, and it is difficult for the media to report on culture. It is much easier to reference and compare performance data and statistics for insights. However, Real Madrid is not the only successful sports franchise to emphasize culture. In the February 22, 2015, issue of the Wall Street Journal, Brian Costa wrote an article titled “Baseball Champions’ CEO on Creating a Culture of Success: San Francisco Giant’s Larry Baer Emphasizes Cooperation and Character” about the San Francisco Giants franchise that won the MLB World Series in 2010, 2012, and 2014. Similarly, in a July 24, 2015 interview with KNBR sports talk radio in San Francisco, five-time NBA champion San Antonio Spurs coach Gregg Popovich said about winning championships:
Good fortune has something to do with it . . . It didn’t take a whole lot of genius to draft Tim Duncan . . . Like any successful franchise whether sports or business . . . whatever it might be . . . it’s about the people and the people you bring in . . . the character you build . . . the principles you live by . . . stick by in good times and in bad times . . . I think that camaraderie . . . that corporate knowledge is something that sustains us year after year . . . new people that come in . . . they get indoctrinated in the way we do things . . . The leaders [names some players] . . . they keep it going . . . [mentions players before them].44
The Spurs have at least three players earning less money than they could make playing for other teams, demonstrating that the players are willing to personally sacrifice financially for the team to accumulate more money to get other good players with similar values. The actions of these players suggest the incredible impact of organizational culture, and challenge the idea that the only way to attract and retain talent is pay higher compensation than the competition.45
It is more straightforward to try to hire data analysts to assemble a theoretically competitive team by selecting undervalued players based on analytics. Maybe our fascination with fantasy league sports has made us lose sight of the fact that, at the end of the day, a real team has to be able to afford these theoretically winning players, which requires loyal and supportive fans and sponsors. It’s also easy to forget that even the most talented superstars are real people from different backgrounds, at different stages in their lives and careers, who have to rely on one another and perform as expected, even when tired and injured after a long season, in actual high-pressure games, to win championships. What is the glue for this? Real Madrid believes it is culture.
Every winning culture has its own authentic personality and soul that can’t be invented or imposed. In organizations, culture is an invisible but powerful force that influences the behavior of the members of that group. Most often the values of the founder or owner or a legendary top executive are instilled in the organization and shape its culture.
Even the skeptics that I spoke with about culture as the major factor for long-term success admitted that maybe the pendulum swung too far toward data analytics or, possibly, now that everyone essentially has the same data analytics, its competitive advantage has diminished. In February 2016, John Henry, the primary owner of MLB’s Boston Red Sox, told reporters that a review of the organization, after a few years of disappointments on the field, led him to conclude, among other things, the Red Sox “perhaps overly relied on numbers” when it came to baseball decision making. He believes that there needed to be a change in philosophy defined by a shift in balance of attention from analytics to other areas, which he did not completely elaborate.46 The skeptics believe it is time to think about something else as the new frontier, such as culture or team chemistry or human judgment and behavior. Some teams’ data analysts are actually trying to identify and measure talents, attributes, and connective skills that make a team play much better than a group of talented individuals.47, 48
Culture is impossible to replicate. However, this book reveals ideas on the source of an organization’s culture, how to codify it, and how to support and reinforce the culture and align it with a business strategy and identity. McKinsey & Company found that less than 10 percent of organizations have a very clear and consistently applied culture. At the very least, this book aims to stimulate ideas and provide inspiration for any sports team or organization seeking to maximize performance. Data analytics is more commonplace than when it provided early adopters a competitive advantage. The next frontier in competitive advantage, culture and values, should be more sustainable because it is more complex, and much more difficult to copy and commoditize.
The day after Barkley’s rant, the often thought-provoking Keith Olbermann, then-host of ESPN’s late night show Olbermann, said, “Analytics not only won in the NBA, MLB, NFL, and NHL, analytics won so fast that most of the dinosaurs like Chuck [Barkley] don’t even realize the war is over, the asteroid has darkened their sky, and their understanding of the games they cover has been dismissed as superstition.”
Yet Barkley deserves credit for challenging what is now widely considered conventional wisdom. And there are reasons to challenge data analytics as the be-all and end-all. In soccer, for example, why are moneyball or soccernomics-fueled teams that rely largely on performance stats (for example, pass-completion percentage and scoring efficiency) to identify skilled but relatively cheap talent nowhere near as profitable or successful as Real Madrid? In a 2014 interview with Sean Ingle of The Guardian, Billy Beane conceded it is harder to implement moneyball in soccer because the game is more fluid and interdependent, which makes it more complicated to track and analyze.
A “moneyball disciple” was hired by the sabermetrics-loving Boston Red Sox owners after they bought the prestigious, but essentially bankrupt, Liverpool soccer team in the English Premier League in 2010 to find players with undervalued but useful—and, most important, measurable—skills. Liverpool thought the moneyball approach would maximize performance while minimizing the financial investment, but the team wound up losing tens of millions of dollars in 2011 and finished in eighth place. Since then, Liverpool has generally underperformed both on and off the field.
Tottenham in the English Premier League has also tried a moneyball-like strategy. In 2013–14, Tottenham used the £91 million ($120 million) from Gareth Bale’s transfer to Real Madrid to acquire seven new players. A year later Liverpool used the £65 million ($99 million) from Luis Suárez’s transfer to Barcelona to sign eight players, and loaned one of them to another team. Despite acquiring these fifteen new players, all selected for specific attributes revealed through statistical analysis—attributes that each team believed would collectively compensate for the loss of the star player and lead their respective teams to success—the teams have generally disappointed on the field. The “good” but not “great” players never seemed to blend together, and many have now been sold off.
Whether the negative experiences of Tottenham and Liverpool occurred because the application of data analytics to soccer is fundamentally flawed or because it was implemented poorly by people who were not as good at translating statistical data into predictions of future performance as they thought they were, or because of subsequent mismanagement of the newcomers, the results provide a warning that more may be required than data analytics, especially in sports like soccer that require players to be interdependent.
What is clear is that whether a moneyball-like strategy is used or not, most professional European soccer teams lose money, and a lot of it. Costs were so out of control, with teams spending vast sums for talent, that in 2010 UEFA imposed financial fair play (FFP) provisions prohibiting teams from repeatedly spending more than the revenues they generate. In May 2015, ten teams (including Inter Milan, Roma, and Monaco) had to sign “settlement agreements” to work toward achieving breakeven for the 2018–19 season.
In 2014, Manchester City and Paris Saint-Germain (PSG) were heavily sanctioned by UEFA for breaching FFP rules. Sheikh Mansour had bought Manchester City in 2008 for £210 million ($323 million) and has since accumulated annual losses of £535 million ($823 million), excluding approximately £200 million ($308 million) on facility upgrades, all of which was covered by its billionaire owner. Similarly, PSG was bought by Qatar’s sovereign wealth fund, Qatar Investment Authority (QIA). In 2011–12, it spent massive sums for players. Although this spending at both clubs led to massive losses—especially excluding a related party sponsorship of up to €200 million ($264 million) a year by the Qatar Tourism Authority to PSG—it has led to success on the field: Manchester City has won two of the last three Premier League titles and PSG won consecutive French titles. Neither team, however, has reached the Champions League semifinals.
In 2015, UEFA found that Liverpool, despite losses of £49.8 million ($78 million) in 2012–13 and £41 million ($65 million) in 2011–12, did not breach FFP regulations, having signed a series of lucrative commercial deals over the previous eighteen months and being able to exclude some expenses.
What is little known is that only a handful of soccer teams, such as Real Madrid, Barcelona, Manchester United, and Bayern Munich, make money. As discussed, club members own Real Madrid, Barcelona, and Bayern Munich, and there is no billionaire to fund the losses. Public shareholders own Manchester United (it is traded on the NYSE) and probably expect profits.
Although there is a correlation of having the money to pay the best players to winning, it doesn’t guarantee success, especially in the Champions League. Manchester United, for example, won their first European title in 1968 but would not win that title again until 1999. And although Manchester United had the highest revenues in soccer from 1997 (when Deloitte started their soccer team revenues rankings) to 2004 (when Real Madrid took over the top spot), and has been consistently one of the top five teams in terms of revenues, the team only won one Champions League title in the 2000s, in 2008, even with one of the greatest managers in history, Sir Alex Ferguson.
In the same 2014 interview with Sean Ingle of The Guardian, Billy Beane said, “When I first came into baseball, people didn’t want to hear that a team was a business, but it is. And the better the business is run, the healthier the team on the field is going to be . . . If I’m buying stock in a [soccer] team . . . they’ve got revenues . . . they pay down their debt. And ultimately in today’s world that’s the best way for a long-term success.” Although he is referring to another soccer team, Real Madrid personifies what he is describing, which is essentially the link between on-field and off-field success.
I aim to demonstrate that there is much more to success on and off the field than data analytics and talent, and even money, and that those who do not include culture in building a winning organization are the real dinosaurs.
Interdependence (Ronaldo and Sixty Seconds)
Baseball is very different from basketball and soccer because baseball requires less team collaboration—for example, the too-much-talent effect (page 148) doesn’t negatively impact baseball teams. There are other differences and nuances that add context to any lessons learned from comparing a baseball team (or applying moneyball concepts) to not only a basketball or soccer team but also generally to organizations. Most organizations require interdependence among team members. The key takeaway: the complexity and interdependence of soccer and organizations, in contrast to baseball, puts more responsibility on the management team to create an environment or culture that is conducive to teamwork. The analysis demonstrates how strong the connection is in soccer between teamwork and scoring goals, more than basketball and much more than baseball. Combine that connection with the limited scoring opportunities in soccer, and it is self-evident that teamwork becomes vital to winning in soccer, similar to most businesses.
Baseball is a team sport that is really an accumulation of individual activities. Throwing a strike or hitting a home run is primarily an individual achievement. Each play has a start and endpoint, with a focus on a battle between pitcher and hitter. Although the events in baseball are more discrete, some interdependence still exists (e.g., the quality of the infield defense behind a groundball-oriented pitcher, player chemistry), which can have a big impact on a player’s statistics. There are nine players on the field on a baseball team. Regardless of what the other team does or a teammate does, each baseball player will come to the plate to bat around three to five times in a nine-inning game. A baseball team has at least twenty-seven different scoring opportunities. There are nine players, so each player has at least around 11 percent of the offensive opportunities to impact the game.
Contrast baseball with basketball. Basketball is a team-oriented sport requiring teammates to pass to each other and work together on the court. The five players on the court on a basketball team are interdependent and need to interact effectively under time pressure. A NBA game consists of four twelve-minute quarters, for a total of forty-eight minutes. In the NBA, there is a twenty-four-second shot clock. Instead baseball depends upon outs and innings, however long it takes.
Although interdependent, star players in the NBA can significantly impact a game. Stars LeBron James and Kobe Bryant each take, on average, 30 to 33 percent of their team’s shots. If one includes assists, each is responsible for 52 to 57 percent of his team’s shots. An NBA team, because of the shot clock, takes around 77 to 90 shots per game, so there are plenty of scoring opportunities. James and Bryant typically play 36 to 39 minutes (about 75 percent) of a 48-minute game. Each can be substituted for any reason as many times as he or the coach would like. They both touch the ball around 80 times and possess the ball for about 5 minutes per game, or around 10 percent of total playing time and around 13 to 14 percent of the time they play. James exemplified a star player’s impact during the 2014–15 NBA finals. In the finals, the Cleveland Cavaliers’ offensive rating was 93.8 points per 100 possessions. With James in the game the offensive rating was 97.3 points, and with James not in the game, it was 50.9. James only rested on the bench a total of 23 minutes over the six games, during which time the Cavaliers made only six field goals (shots). With athleticism and skill, star players can impact the game defensively as well, by shutting down one of the opposing team’s top scorers, who probably possesses the ball a greater percentage of time than his teammates. In fact, Bryant and James have been elected to the NBA All-Defensive Teams twelve and six times, respectively. As a basketball team’s performance emerges from a chain reaction of individual actions, one star player alone cannot dominate and beat the opposing NBA team. For example, Michael Jordan needed Scottie Pippen, and even the outside sharp shooting of players such as John Paxson or Steve Kerr to spread the floor and the unselfish rebounding of players such as Horace Grant or Dennis Rodman.49
This brings us back to soccer. Soccer is—like basketball, unlike baseball—a highly improvised and team-oriented sport, but even more so than basketball. Eleven soccer players form one of two teams on the field, interacting in a fluid, rapidly unfolding manner, similar to the way most nonsporting organizations work today. In soccer, a team’s probability of scoring goes up as it strings together more and more successful passes. There is no shot clock, so a team can possess the ball as long as it would like and limit scoring opportunities. However, the teams face the pressure of a timed game, which consists of two forty-five-minute halves for a total of ninety minutes. Star players like Cristiano Ronaldo and Lionel Messi can significantly impact a game, as can NBA stars, but a soccer star’s scoring is much more dependent on the player receiving passes from teammates at exactly the right time and place. Keep in mind that during the 2014 Champions League final, Ronaldo barely touched the ball in the entire first half. On average, Ronaldo and Messi possess the ball twenty times a game, three seconds each time, for a total of merely one minute per ninety-minute game. You read that right! Ronaldo and Messi touch the ball for around sixty seconds per game, around 1 percent of the game time.50 Both stars have to work for their shots, as they are often fouled three to four times per game, reducing their twenty possessions to sixteen or seventeen. Goals mean a lot more in soccer than points do in most sports. Quality shot opportunities in soccer are very scarce, so making the most of them is critical. Within those sixteen to seventeen non-fouled possessions, Ronaldo and Messi typically attempt four to six shots per game.
Of Ronaldo’s and Messi’s four to six shots, 40 to 50 percent will be on goal and 40 to 50 percent of shots on goal (about 25 percent of all shots) will actually result in a goal, which is ridiculously high compared to other star soccer players. Ronaldo and Messi are responsible for around 50 to 60 percent of their team’s total shot attempts when including assists, similar to the contributions of Bryant and James in basketball. Playing defense, however, Ronaldo and Messi have a more limited impact in stopping the opposing team’s scorers. Thus, even with soccer stars like the duo, soccer teams are more interdependent than are baseball teams or even basketball teams. Moreover, unlike with basketball greats James and Bryant, soccer greats Ronaldo and Messi have no near equivalents. They are outliers in most relevant scoring categories. Whether one is better than the other, the data analysis demonstrates that those two players are significantly better than all other soccer players. Either Ronaldo or Messi has won the best player award, the FIFA Ballon d’Or (“the Golden Ball”), every year since 2008. In NBA basketball, unlike in soccer, no two players have won the player of the year award or have been statistically dominant scoring outliers year in and year out, over a seven-year period.51 After discounting the individual effect of Ronaldo and Messi as outliers, soccer becomes much more interdependent than even basketball.
Because of the interdependence required in soccer, Ronaldo has to work on different goal scoring scenarios every day with his teammates. They know he has “one second, two seconds—and bang.” They work on creating an image of different situations and the desired outcome, asking themselves and each other, “Where am I positioned? Where’s the ball coming from? Where is my teammate coming from? Where is he going? What is his speed? What is his preferred foot and angle? What opportunity do I have to get the ball there? Is the pass best in the air or on the ground? Where is the defense? Where’s the goalkeeper likely to be? Where and what is the highest percentage for a finish?” Both the passer and Ronaldo have to almost instinctively know what the other is likely to do and when. Within seconds, they both have to analyze the situation and take action or the scarce opportunity is missed.
Soccer stars get no guarantee of possessions or shots, unlike baseball stars who get a minimum number of at bats, and opportunities in soccer are significantly fewer than in basketball. In addition, while in basketball it is very possible for a player to get an inbound pass underneath his basket from a teammate, dribble the length of the court without passing to another teammate, shoot, and score, the equivalent in soccer would be extremely difficult.
Table 2.3: Comparison of Baseball, Basketball, and Soccer
Table 2.4: Comparison of Star NBA and Soccer Players
21 Susan Fournier and Lara Lee, “Getting Brand Communities Right.” Harvard Business Review. https://hbr.org/2009/04/getting-brand-communities-right.
22 Ibid.
23 Albert M Muniz, Jr. and Thomas C. O’Guinn wrote a paper published by the Journal of Consumer Research in 2001 titled “Brand Community.” They state that “a brand community is a specialized, non-geographically bound community, based on a structured set of social relations among admirers of a brand . . . brand communities exhibit three traditional markers of community: shared consciousness, rituals and traditions, and a sense of moral responsibility . . . Brand communities are participants in the brand’s larger social construction and play a vital role in the brand’s ultimate legacy.”
24 Alexander Chernev, Professor of Marketing at Northwestern University’s Kellogg School of Management, classifies Real Madrid as a “personality brand,” just like Harley-Davidson, Ferrari, and IRONMAN. According to Chernev, “Personality brands express consumers’ individual values and preferences. Personality brands are less about asserting an individual’s status, wealth, and power; instead, they reflect an individual’s idiosyncratic beliefs, preferences, and values. Unlike status brands, which have a price point that makes them unattainable by the majority of the population, personality brands are not differentiated on price, which makes them accessible to a larger segment of the population.”
25 For example, Athletic Bilbao has a policy of exclusively signing and fielding players meeting the criteria to be deemed as Basque.
26 Ronaldo sells the most jerseys in the world and has the largest social media following. Therefore, the data indicates that Ronaldo is the world’s most liked soccer player. Messi had 101.6 million total followers (66.3 million fewer than Ronaldo). The first non-soccer player on the list is basketball player LeBron James, who had 56 million total followers (111.9 million fewer than Ronaldo).
27 On the correlation of revenue and performance, Francisco wrote in his unpublished 2008 thesis: “The point we want to make with this argument is that other things being equal, making money and investing it on players is the best way clubs can make sure they enter in the virtuous circle of winning games, attracting more fans, having more TV audience, selling more merchandising, and making more revenue to reinvest in players.”
28 The club isn’t simply a soccer team. The club also owns a basketball team. The basketball team was added in 1931 and has won a record twenty-five Spanish Cup championships and an unprecedented nine Euroleague championships (a tournament of the best professional basketball teams from each European country’s premier league). The basketball team is discussed further in chapter seven in “Not All about the Numbers: Real Madrid Basketball.”
29 Julio Iglesias was a goalkeeper in the Real Madrid Academy until he was seriously injured in a car accident at age twenty. While recovering, he discovered his musical talent.
30 For more details, see http://www.realmadrid.com/en/fans/madridistas/international. Even though Official Madridistas Supporters may not have “voting privileges,” Real Madrid management views them, as well as Real Madrid Fan Club members, as critical active contributors to their global community and values.
31 How does a socio becomes a season ticket holder? There are a limited number of season tickets, and during the last ten years there have been no vacancies. In 2013, the club offered a package of 5,000 season tickets for all socios, with a series of priorities such as seniority, number of years as e-ticket holder (being a socio), number of matches attended during the last seasons, etc. This package was sold out in a few weeks and has not been offered again.
32 According to the Sports Law 10/1990, the elected president and board of directors of a member-owned club have to personally pledge 15 percent of total expenses and assume 100 percent of losses. This legal provision was added in order to increase the financial accountability and responsibility of the member-owned clubs.
33 In Germany, legislation mandates that members must own at least 51 percent of all clubs. Bayern Munich is 75.1 percent owned by club members. In 2014, Bayern Munich sold an 8.33 percent stake for €110 million ($150 million) to German insurance company Allianz as part of a deal to help the club pay down debts on its stadium and to sponsor a youth academy. Adidas and Audi already owned 8.33 percent stakes in Bayern Munich.
34 For more information about the taxation of Real Madrid as a member-owned club, see chapter eleven, “Comparison of Financial Performance.”
35 David Conn, “Manchester City and New York Yankees join forces to create new MLS team.” Guardian. http://www.theguardian.com/football/2013/may/21/manchester-city-new-york-yankees-major-league-soccer.
36 There is intransigent opposition of the major sports leagues to community ownership. The NFL passed a rule in 1960 that outlawed not-for-profit franchises, effectively eliminating not only any copycat Packers but even such notions as giving the public a share of ownership in exchange for taxpayer stadium subsidies. And baseball has been equally antagonistic toward public ownership. When Ray Kroc, the founder of McDonald’s and owner of the San Diego Padres, died and his widow, Joan, tried to give the team to the city of San Diego as a public trust, MLB stepped in and stopped the deal. There have been a few US sports teams that have sold stock for brief periods—the Cleveland Indians and Boston Celtics—but these have always been minority shares with no actual voting control. Generally, team owners dislike the idea of their finances becoming publicly available (although the players’ unions get some information; and if one knows how to access evidence in “discovery” in league and team litigation, some information is available). Besides, ruling out public ownership is a great way to stop fans and politicians from claiming that they should be allowed a stake in their local team. With community ownership it also would be impossible for a team to move cities, which could benefit not only the team owner but also the revenue-sharing league.
37 Unlike Real Madrid members, Packers shareholders are not given special priority for season tickets. They do have a vote in electing members of the forty-five person board of directors, who in turn select a seven-person executive committee that is the brain trust that makes the actual franchise decisions with the president, who does not need to be from the pool of shareholders.
38 The European Club Association (ECA), the only association officially recognized by UEFA, promotes the health of European soccer teams through democratic representation.
39 The wages-to-turnover ratio in the North American leagues is around 50 percent, but it varies by team. Collective bargaining agreements with player unions for the various leagues typically address this topic.
40 Alan Gula, “Playing the Ratings Game.” Wall Street Daily. http://www.wallstreetdaily.com/2015/11/23/credit-ratings-investing/.
41 The calculation of ratio Net Debt/EBITDA is done with EBITDA as per the official accounting principles of soccer.
42 Nick Cafardo, “John Henry says Red Sox will rely less on analytics.” Boston Globe. https://www.bostonglobe.com/sports/2016/02/24/john-henry-says-red-sox-will-rely-less-analytics/95uy1OmoQw0ojxr7SRcOWO/story.html.
43 In full disclosure, I have worked with McKinsey & Company as a senior advisor and as a client.
44 Eric Goldschein, “Whoa: Here’s a Great 25-Minute Interview with Gregg Popovich on Becky Hammon, Gay NBA Players, Spurs Culture and More.” SportsGrid. http://www.sportsgrid.com/nba/whoa-heres-a-great-25-minute-interview-with-gregg-popovich-on-becky-hammon-gay-nba-players-spurs-culture/.
45 Sean Deveney, “NBA Finals: Sacrifices of San Antonio’s Big 3 help sustain Spurs dynasty.” Sporting News. http://www.sportingnews.com/nba-news/4588746-nba-finals-spurs-heat-contract-salary-tim-duncan-tony-parker-manu-ginobili-lebron-james-dwyane-wade-chris-bosh.
Sam Amick, “Why David West left so much money on the table to join the Spurs.” USA Today. http://www.usatoday.com/story/sports/nba/spurs/2015/10/13/david-west-spurs/73865012/.
Other players such as Tom Brady of the New England Patriots have made similar sacrifices.
46 Lee Igel, “What’s On Deck After Boston Red Sox Send Sabermetrics, Analytics, and Moneyball To The Showers?” Forbes. http://www.forbes.com/sites/leeigel/2016/02/26/whats-on-deck-after-boston-red-sox-send-sabermetrics-analytics-and-moneyball-to-the-showers/?utm_source=#1e509d202ec5.
47 Michael Schrage, “Team Chemistry Is the New Holy Grail of Performance Analytics.” Harvard Business Review. https://hbr.org/2014/03/team-chemistry-is-the-new-holy-grail-of-performance-analytics/.
Eric Freeman, “Can team chemistry be quantified? Researchers are giving it an honest attempt.” http://sports.yahoo.com/blogs/nba-ball-dont-lie/team-chemistry-quantified-researchers-giving-honest-attempt-031147093--nba.html.
48 The idea of team chemistry existed at McKinsey & Company. When I was advising the firm, I was asked to take a Myers-Briggs Type Indicator (MBTI) test as shorthand for understanding my own individual preferences and team dynamic preferences. Whenever I met with my newly assigned McKinsey team internally for the first time to discuss a new client project, each team member introduced him/herself and disclosed his/her own MBTI results to the team to start discussing working styles and preferences. Then the team members assessed who might enjoy and excel at the various parts of the client project and how frequently and in what ways to interact to work better together. Since team members were unfamiliar with each other and then would have to work intensely together for months, the communication was ingeniously invaluable.
49 In today’s NBA, man-to-man defense can sometimes get overstated. The NBA has become a league in which the ability to switch defenders has become very important, as has being able to help teammates. Since the NBA has become so pick-and-roll dominated, help defense has become even more important. Any teams without teamwork on defense have suffered. At times, defense in the NBA is more interrelated than offense. It depends on the team; for example, the Cleveland Cavaliers are heavily reliant on isolations and LeBron James’ play, while in contrast, the Golden State Warriors and San Antonio Spurs rely more on team play, such as passing, movement, etc.
50 A very interesting 2006 movie titled Zidane: A 21st Century Portrait, by video artists Douglas Gordon and Philippe Pareno, uses seventeen cameras to follow Zidane in a soccer game. They follow the player only, not anything else in the game. You will see how extraordinarily little he touches the ball; how lonely he is; how focused and intense he is in following the ball; and how much he darts around without the ball.
51 Michael Jordan won the NBA Points Per Game title for seven seasons (1986–93), but there wasn’t a player who was second during all seven seasons.
