Professional sports teams have become a must-have on any billionaire’s wish list in recent decades. The purchases of English Premier League teams like Chelsea, Manchester United, and Manchester City are just some of the many examples of wealthy investors snapping up high-profile clubs in recent years.
Formula 1 teams have also been popular purchases for high net worth individuals. In 2007, the Spyker F1 Team was purchased by Indian businessman Vijay Mallya, who then renamed it Force India. Shortly afterward, Richard Branson’s Virgin entered the sport with Virgin Racing at the same time as Malaysian entrepreneur Tony Fernandes set up the new Lotus Racing team.
Over in the United States, professional sports leagues generate around $80 billion a year, around eight times more than Hollywood makes.
On top of that, sports betting is also a huge market. In the UK, around £6 billion is wagered remotely every year through online bookmakers. With so many brands vying for the same business, the vast majority run promotions like no-deposit free bets that are designed to encourage new customers to use them over a competitor.
With so many different areas to the sports industry, and with so many wealthy people acquiring major teams, you might assume that investing in sport is a no-brainer – but is that true?
Sporting Success and Financial Performance Are a Difficult Balance
When now-Lord Alan Sugar bought Tottenham Hotspur in June of 1991, he vowed to run the club like a business, taking a fiscally prudent approach.
To the successful businessman, this made perfect sense. He would be protecting the club from financial ruin so that it could continue to operate for years to come. In the current climate of football clubs collapsing due to lack of funds, it’s hard to argue with Sugar’s strategy.
However, he failed to understand the importance of sporting success. In European sports, particularly those like football where clubs can be promoted and relegated, teams need to consistently achieve sporting success or they risk falling out of their current league.
Dropping from the Premier League to the EFL comes with huge losses of revenue that can force clubs to begin a fire-sale of their top talent, leading to a further decline in sporting success.
To achieve title success, the owners of clubs like Manchester City have had to invest large sums so that they can buy the best players. Of course, sustained trophy-winning can be a boon for business, but it’s a big risk.
Therefore, from a pure business perspective, investing in a sports club may not make a lot of sense.
Investing as a Marketing Activity
If you buy a sports team just to make a profit from it, you’re probably not going to succeed. But if you buy a sports team to promote a product you already sell, you may have more luck.
Brands, like the recently-IPOed Zomato, spend billions each year paying to sponsor teams and leagues, so purchasing a team outright and slapping your own logo on your shirts, cars, and stadiums is a good way to cut out the middle man.
Red Bull is one of the best examples of this. The Austrian drinks brand has positioned itself as a product for people who do exciting things so its marketing is designed to reflect this. It has funded crazy stunts like Felix Baumgartner’s freefall from space and Dario Costa’s successful world record attempt of flying a plane through two tunnels.
Over the years, it has owned and/or sponsored more than 30 different teams and clubs. This includes its two Formula 1 team, several football teams, and an esports team. Many of them have been hugely successful, including Red Bull Racing which won a string of back-to-back titles in F1 in the 2010s, and RB Leipzig which earned promotion into the Bundesliga and has even finished as runners up several times.