Sunday, August 5, 2012

The Brand's the Thing

My previous entry described the rational risk calculations that have flowed from The Arsenal board's strategy, and it touched on the strong relative and absolute financial results that the club has delivered. Sound business and all that. Somehow, to many supporters, this performance has become evidence of the board's or Kroenke's greed, shortsightedness, or worse, apathy.

That's the thrust of much of the Twitter chatter coming, for example, from Arsenal Supporters Trust PR man Tim Payton. Arsenal, Payton and others protest, is more than a business.

We love you ... Chevrolet, oh, yes we do


They're right--in a sense. Arsenal and other high-profile clubs aren't like companies in other sectors; they aren't Unilever or Procter & Gamble. The loyalties and passion they inspire go far beyond what other businesses, even entertainment businesses, can hope for even from their most ardent adherents.

Take the auto industry, which probably has deeper emotional resonance than most. Can you imagine tens of thousands of people all across the world tied up in knots over the outcome of a company initiative? Start with New Coke, and count them on one hand.

Yet we know well the passion that connects to sports franchises. It creates great entertainment for all of us, emotionally invested or not. As examples, let's revisit the scenes in the waning moments of the last campaign. If I distance myself from the proceedings and set aside my utter distaste for both Man United and Man City, I'm captivated by the reactions of their respective supporters, assembled in this video. (We'll leave the matter of who'd be filming themselves or others during such moments for another discussion of irrational behavior.)

Closer to home, this diatribe against Robin Van Persie, launched after the striker's inartful appeal for a transfer, shows how much developments off the field can stir the masses.

The emotions are deeper, wider, and more raw with sports franchises; in other words, the appeal of their brands is much stronger.

Brandiloquence


Brands--the stories, promises, and passionate reactions that organizations call forth--are difficult to measure. This much is certain: They render inadequate the cold mathematics of the income statement and the black-and-white evidence of the balance sheet, especially when we're trying to determine the value of a sports franchise.

Owners and stewards of the sports organization need to acknowledge and account for the disproportionate influence of brands on their charges. After all, the potential capital gain from the ownership and eventual sale of a club such as The Arsenal is based on what the buyer is willing to pay for all its assets, tangible and intangible, as well as for its future cash flows.

To many buyers, the intangible assets are most important. Those are the sentiment buyers, who I'd say are more prevalent in the sports business than in others. Whether because of outsized egos, a desire to relive youth, connections to the community, or some other reason, these owners tend to look at their sports franchises as more than a calculation of financial measures.

Should Kroenke get crazy?


No one would accuse Stan Kroenke of falling into that category, but the arbiters of his investment's value may well be in that group. That means that in assessing how much his stake in the club is worth, he has to think like a sentimental buyer--that is, someone not like himself.

This exercise requires imagination and empathy. Those qualities aren't on obvious display in The Arsenal's leadership. Kroenke and Gazidis could nod to potential sentimental buyers and to many fans by:

  • Making a bigger splash about their vision for the club
  • Showing a little more passion about match or even season results
  • Emphasizing that the self-sustaining model doesn't necessarily mean a surplus each year
  • Appearing tougher in negotiations with agents, other parties, and players
 
I think Kroenke and Gazidis can rightly be criticized for not deploying these methods and others that would make sentimental buyers value the club more highly. Kroenke and Gazidis appear to be extremely rational businessmen in an obviously irrational marketplace.

In my interpretation, they aren't greedy, shortsighted, or apathetic. They might just be too damned sensible. But, really, could the brand of The Arsenal tolerate leadership that wasn't that way?