You might have noticed I've had a couple of weeks away from the site having enjoyed a big week of 40th birthday celebrations and a nice week-long family holiday. However, before that there were a couple of discussions I was in the middle of, surrounding the business of Rugby League that I didn't get a chance to respond to, or dive into deeper. So as I'm want to do when I've had a break and had a chance to think through my thoughts, I've ended up writing an epic on the topic. If you're up for a leisurely read, what follows in my manifesto on the forthcoming digital revolution of the business of Rugby League.
There are very few industries in existence that have not yet undergone significant upheaval due to the transition to digital operating environments. Some have been obliterated - just ask Kodak. Some have been forced to endure years of painful disruption. I look back at my early days as a journalist and compare it to the media world today and it’s barely recognisable. But rest assured over time, digital will touch and change almost every industry.
Rugby League’s time for such disruption is coming quickly. Certainly more quickly than the game is presently moving.
When you look at the revenue of Rugby League clubs, you can lump it into two categories. The first is direct revenue. It’s when you buy a product from the club itself. That might be a jersey from the club’s store, a season ticket or a corporate sponsorship.
The second is the indirect revenue that the clubs receive. For example, media companies buy rights from the NRL, aggregate an audience and then sell marketing opportunities at a profit. Most merchandise sales come from sporting goods or clothing retailers. And of course, clubs have been the beneficiaries of profits made by Leagues clubs via gambling and hospitality.
Rugby League clubs have survived mostly on these indirect revenues. Whether it be the Leagues clubs grants, NRL grants derived from media rights sales or the merchandise sales derived from those channels, clubs have not had to be skillful in generating direct revenue. Which is a polite way of saying they have gotten away with being pretty awful businesses.
However, what we’ve seen recently is that the indirect revenue derived from Leagues Club have been harder to come by. Leagues Clubs are dealing with all manner of challenges from anti-poker machine legislation and taxes, anti-smoking legislation, casinos, as well as their own digital threat of online gambling. This latter factor will only grow as the number of older, pokie-playing gamblers are replaced by younger gamblers who are more likely to throw their hard-earned on online poker and the like or place bets on their mobile phones.
At Parramatta, the Leagues Club has very publicly faced financial difficulties which prompted the current board to embark on wide-ranging cost-cutting, including the grant to the football operation. The pokie tax may not have killed the Parramatta Eels, as Emperor Fitzgerald so infamously foretold, but it almost certainly helped deliver a wooden spoon.
Meanwhile, clubs have been praying for more indirect revenue from the media organisations and would have breathed a massive collective sigh of relief when the NRL landed a fairly handsome increase in its rights deal. However, it appears that clubs will not be that much better off with early indications being that the increase in their grants will not do much more than cover off increases in the salary cap.
Direct revenue is always better than indirect revenue. Indirect revenue is only sought when you don’t the ability/scale/resources to generate direct revenue. Indirect revenue always involves a profit margin for the partner responsible for the generation of revenue and indirect revenue is more difficult to manage and far more challenging to have assuredness about, because you are at the mercy of the success or failure of your channel.
Which is where digital disruption comes into it. In most industries, digital transition most dramatically impact intermediaries. Digital generally lets the producer of a product connect directly with the end-consumer of the product. E-commerce is the obvious example whereby instead of being forced to sell through a network of distributors and retailers, goods manufacturers can use online stores to sell direct. Media companies are struggling because they are marketing intermediaries and companies can now use other online mechanisms to message prospective buyers directly.
As an end-point in the business process that is Rugby League, football clubs will increasingly have the opportunity to sell direct. To use just the above referenced example, Rugby League clubs can now use online to sell more merchandise directly at higher margins, or to use their online platforms as marketing vehicles for sponsors/advertisers in the same manner that media companies do. That’s just the start of the revenue-generating possibilities that will open up to digitally-aware, business-savvy Rugby League clubs in an increasingly digital operating environment. I can guarantee you that we are at the cusp of a never-before-seen change in the way that Rugby League operates from a business perspective. When the next rights deal comes up, the big discussion will not be which station comes up trumps, it will be about whether the NRL needs a media intermediary or will it offer a direct, IPTV experience.
The challenge for Rugby League clubs is that they’re ridiculously off-the-pace in this regard right now. Sheltered by their Leagues Clubs and beholden to a handful of large media companies, they’ve barely begun a transition process that should have started years ago. I see club administrators with almost no understanding of the forthcoming upheaval they’re going to be facing, patting themselves on their backs because they’ve managed to amass large increases in Facebook fans, Twitter followers or website traffic. But for most clubs their digital activities have doing little if anything to enhance their bottom-lines because that requires fundamental reinvention and upheaval. And Rugby League is dominated by old-time administrators who are change and risk-averse and have never truly been under pressure to make money, run efficiently or turn a profit. One only has to see the monumental gap in business nouse between a club like Brisbane which is answerable to shareholders and the way most every Sydney-located, Leagues Club-funded football club operates. And don’t even get me started on our club.
For all of the so-called equalisation powers of the salary-cap, what you’re going to see over the next decade is a gap open up between the clubs that are well-run, progressive and subsequently richer than those that aren’t. And don’t be foolish enough to think that won’t show up on the field. You only have to look at the results of the Bulldogs, who invested massively this year in their coaching, facilities and programs as opposed to our club which has been relentlessly paring back its cost-structure while simultaneously frittering away money on redundancies, legal costs and the like. It’s decades later, but the old Jack Gibson mantra of on-field success starting with a well-run front-office has never rung truer.
Replies
Nice forward thinking Phil, this is why the club needs a guy like you on the board.
Our club needs to be really planning for the future and have guys on the board with clear vision and real experience so we can capitalise on the future instead of being behind the 8 ball..
we said snake ,why dont you join him ,you seem a good guy for the eels when you are not just a joker,my toss on this is simple there's been to many fools running the eels.
the time has come to support ricky stuart and hes new staff, good results should come sooner then later.
great blog again phil...where all 100% behind you. great to see you relaxed.
I have said before I can't justify paying for foxtel just to watch the league but I would gladly pay 10 to 15 dollars a month to watch the eels online. This could also be a chance to monetise the lower grades. If you had club exclusive content and Toyota cup and nsw cup content people would want to pay for.
this is the thing, with the NBN coming i think a lot of people would drop Foxtel in a heartbeat if they could pay $15 a mth to watch the games online instead.
Foxtel is way overpriced because of the small market they have, but if it was cheaper and the options were better they would have more customers. So do they drop the prices and hope the customers come and lose a bit in the short term or do they try to get the customers first?
You only have to look at overseas pay tv providers and see that we aren't getting vaule for money with foxtel.
Even now they have taken over Austar nothing seems to be changing.
Really merchidise is where most clubs let themselves down, how hard would it be to stock, market and sell when you only have one stock one team. Hell i reckon i do a better job and i stock about 12 teams.
The online store for our club is the worst i have seen. For a investment of less than $20k they could have a fully automated site with e-comerce. All they have to do then is make sure they keep the stock levels right and have a dedicated person to pack and send the orders. At the moment they are losing a lot of sales to other websites because the systems and site is much better.
They need a bit of help in the merchidise sales dept, maybe they should get a advisor in to look over things and see where they can improve, the benefits will well and truely out weight the cost.
The Foxtel component will be particularly interesting. In the end, I think the League is worth more to Foxtel than the NRL could probably make alone, because Foxtel has so much ability to upsell on top of what someone would likely pay for the League content alone. If you look at Foxtel they have about 1.7 million subscribers and their turning over $2.2 billion for a $600m earnings. If you consider how many people would drop Foxtel if they lost NRL it would put a huge dent in their figures.
What the NRL/clubs need to do is use the five-year window they have to get another tier of content going via IPTV because then when the next deal comes up they'll have a pretty decent set of figures to know exactly how much they can make going it alone versus partnering and they'll be able to get a figure much closer to what it is actually worth. IPTV is potentially going to be the holy grail as an advertising medium because you combine the richness of broadcast advertising with the personalisations/targeting capabilities of online.
And this is where the re-invention of clubs come into it - they will essentially become media companies because they're biggest revenue opportunities over the next decade will be selling themselves as marketing platforms.
Muttman, before you can move in this direction, Crow is absolutely spot-on, in regard to getting your brand and positioning right.
The club as a transmedia marketing platform is the biggest immediate opportunity. The big challenge for all marketers in today's digital environment is cut-through. It's not hard to make a noise, it's far more difficult to get people to listen. There is so much noise bombarding people, that it is very difficult for marketers to find a way to truly connect with prospective customers. So they're looking for pre-existing narratives they can attach their brand messaging too which gives enormous opportunity to any marketing platform that elicits emotional responses, like passion, loyalty, etc.
So the Eels as a brand has to mean something. And it needs to mean something that marketers want to attach to. This brand has to permeate every layer of the club.
And of course you can't sell direct unless you have the respect of your customer base as an organisation that is delightful to do business with. I hear so many people who when trying to get any answers out of the club come back with tales of frustration about not being followed up on and so forth. Customer service/care has to be a core capability.
And you need to have the deepest, most thorough knowledge of exactly who your customer/fan base is and IT systems that let you mine that knowledge. And finally the people who know how to bring all of this together as a sales/commercial proposition.
And then you have all manner of brand extensions/digital marketing opportunities open up to you.
Great post Crow!
The Eels have started through their Twitter and Facebook pages this season. Every week during the season they would promote a Friday Frenzy where certain items from the BGAHQ would be discounted. They allowed for these purchases to be made online. It's not what we need currently but it's a start.
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