All the pieces matter; Reframing football club valuations; A week in CVC-land; Ears front - the rise of audio; Gen Z viewing habits shocker; Mocking The Masters is easy, so let's do that

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The next Unofficial Partner podcast is out tomorrow, with guest Lucas von Cranach, founder of OneFootball.

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Reframing football valuations

Football clubs feel undervalued by the financial markets, and are trying to reposition themselves as an asset class.

Cue reframing gif.

Riddle me this:

(HT to The Fat Gladiator Investment Club for this comparison)

Pinterest has 458m users - Market Cap $52.8bn approx

TikTok has 689m users - Market Cap $100bn+

Man Utd has 1.1billion followers/fans - Market Cap $2.8bn

Five possible conclusions:

  1. The market doesn't believe Utd’s fan numbers.

  2. And/or they don’t believe Utd will be able to turn those fans in to users, in the Silicon Valley sense of that term, measured by ARPU (Average Revenue Per User).

  3. The market’s wrong, and Pinterest/TikTok are massively overvalued

  4. The market’s wrong, and Man Utd is massively undervalued.

  5. Both 3. and 4. are true.

It’s not just football. We’re using Man Utd as a proxy for all sports teams.

According to Sportico, the average price of an #NBA franchise is $2billion, with the spread running from $1.35bn for the New Orleans Pelicans to the New York Knicks at $5.42bn. The LA Lakers are third in the list at $4.4bn. The valuation data for NFL and MLB teams tells a similar story.

All the pieces matter

If 4) above is the answer, it explains all the other parts of the sports business conversation: the rush to buy elite sports teams; the SPAC boom; the private equity interest; the obsession with first party fan data; and more broadly, the shift in the world view of team investors away from traditional football club ownership and toward defining clubs as digital content publishers and e-commerce vehicles.

Low ceilings and rusty frames

The financial markets still largely frame football clubs as a media and advertising product.

So the basis of valuations are metrics such as media rights income predictions, stadium capacities, merchandise sales, sponsorship income.

And each of these has a natural ceiling.

Whereas, to extend the comparison made above, the market’s valuation of Pinterest and TikTok have no such ceiling.

They are limited only by what they can extract from each user over the course of their relationship - ARPU.

Lucas von Cranach gives a brilliant analysis:

There are two ways to look at it. One is to have a user base of engaged customers. And that's how you value companies like Spotify, Twitter, YouTube, TikTok, Instagram, et cetera. And the value of the company in the first period doesn't lay in the typical financial model, with discounted cashflow, revenue multiple or EBITDAR multiple. The value lays in the number of engaged customers. And then you put a user multiple behind it.

That is a platform business. That’s what we’re doing at OneFootball. And that's why, our investors are for example Union Square Ventures, who were the first investors in Twitter, Foursquare and Tumblr, and in other companies which have a user-multiple focus.

The value of the company is the user base times monthly active user value.

Then, later.

TikTok has 500 million users, owned and operated, direct access, and is now valued at a hundred billion.

Manchester United claims to have between 400 and 600 million fans - but disclaimer, they don’t know who they are - and is valued at less than 3 billion.

Institutional investors understand the value of direct access to customers is higher than revenue, because if you have a customer and there's a natural fit to do business with that customer who comes back every day, then that is massively valuable in digital.

The ones who will win from what Apple and Google do are the ones who have first party data.

This leads to another question.

What are football clubs becoming? Buzzfeed or Amazon?

What’s the model being followed here? And has that changed?

For the last few years, it’s become common for sports team owners and execs to refer to their clubs as media companies.

The can often imply a publishing business model, which assumes the role of content is to sell advertising and sponsorship, either directly or via broadcast rights. See the ceiling caveats above.

Again, the steer from the money markets has not helped.

Go back a few years and the market valuations of the big dogs of digital publishing were stratospheric. That was then however, and the last few years haven’t been kind to Vice, Buzzfeed, HuffPo et al.

Meanwhile, football clubs have spent fortunes tooling up to be media businesses.

Lucas von Cranach says Buzzfeed is the wrong model.

Cranach: There were loads of businesses like Buzzfeed, Huffington Post, Vice, Copa 90, who from my perspective, were more content production and creation companies with social media reach than they were platforms, because they didn't have access to customers.

They had channels on social media and then they went out and said, ‘We reached 500 million people, but actually with this disclaimer, we don't know them. And we don't know if we reached them’.

Some timely CVC perspective

Last week: CVC Capital Partners buys 14% of the Six Nations for £365 million.

This week: CVC Capital Partners has made a $20bn offer for Toshiba, joining KKR and other private equity funds in a potential bidding battle that could generate Japan’s biggest buyout deal in history.

Ear Ear

We would say this wouldn’t we, but good to see Charles Vallance, founder of VCCP going big on audio strategy in Campaign.

Of course, visual narrative remains crucial. But, in the Era of the Ear, we must increasingly beware the tyranny of the eye. We are pre-programmed to think of image and imagery, the appearance of a brand. Moving forward, we should think beyond just how it looks, to how it's heard; of sonic as well as visual properties.

Twenty-first century brands, unlike Victorian children, should be heard as much as they're seen. The first task of advertising is to make your brand visible, but it can be what people hear that makes it meaningful.

Gen Z watch

Breaking: Twenty-somethings are not watching telly like their parents.

There’s only an 8% similarity between 16-34-year-olds and 55+ in how they spent their commercial media time during lockdown 2020. This was down from a 21% similarity between the generations in pre-lockdown 2020 and a significant fall from 58% in 2015, highlighting the pace of change in just five years and the impact that lockdown has had in accelerating trends, namely the diversification of media habits between the generations.

Marketing lessons from The Masters

I repost this every spring. From SportBusiness.

The story of The Masters follows a timeless narrative structure: rich southern Republicans build a golf course and don’t allow black people or women to play it for most of the Twentieth century, then when colour television makes it really popular they milk it for all its worth, until in 1997 the man anointed as the future of golf turns out to be black, rendering the whole ‘racist backstory’ a bit of a downer from a marketing point of view. So the people who run the tournament reinvent the banning of black people and women as part of golf’s traditional values and are even given credit when they deem to allow women members with the proviso they are either unfathomably rich or politically useful.

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