The business of sports
Written by: John Letzing
While the business of sports struggles to find a proper footing, an invaluable natural resource hangs in the balance: the country’s future athletes.
|Pavel Paska||Photo: Vojta Vlk|
IF ONE DOUBTS the sporting world can mean big business, a glance at Pavel Paska’s car should be edifying. In fact, Paska, a top football agent, is more than happy to show visitors a photo himself. Recently gazing at a glossy shot of the gleaming silver machine flanked by two of his top superstar clients, he says almost by-the-by, “this is Tomáš Rosický and Jan Koller,” before beaming with pride and pointing at the key presence: “and this, this is my Mercedes. A nice one.” But while Paska’s aggressively expensive attire and German luxury automobiles mark him as a Czech high-stakes powerbroker, his wealth and status, and that of his clients, derives mainly from the football leagues of western Europe. While sports like football have surged in market viability there, resources here seem more limited than one might expect.
Considerable money is of course being made in the local sports world – but the manner in which it is made, as far as sustainability and growth are concerned, is debatable. Top Czech athletes such as Rosický and Koller rate top prices on the international market, regardless of conditions here at home, and the transfer fees they bring can provide a real revenue boost for clubs. Pavel Paska says of one of his clients: “our twenty-year-old star Rosický, from so-called ‘eastern Europe,’ we sold (to Germany’s Borussia Dortmund) for 30 million German marks (CZK 465 million).” The fee was a new record for Germany’s Bundesliga. Selling talent to the rich western market is nothing new for local clubs – so much so that there is something of a system in place. A young player comes up in Czech youth leagues, signs on with a local pro club, which then sells the player to a western club; the money from that then comes back into the system, making its way all the way back down to the youth leagues. While retaining players for a sustainable relationship would be far more tenable from a marketing standpoint, clubs seem satisfied with the current one-off solution of selling the ripest fruits at the most advantageous time.
As for ice hockey, money is also pulled in from the west for top talent, albeit in a slightly less stable fashion. According to Zbyněk Kusý, who in addition to sitting on the board of the Ice Hockey Federation is general manager of HC Pardubice, most international clubs from wealthier markets simply wait for a player’s local contract to expire (and thereby abide by IHF rules). Then, however, they swoop in like sharks to snap him up. “I can’t remember the last time someone from Europe bought a player from us,” says Kusý. Extraordinarily wealthy NHL teams and certain top Russian clubs are an exception to this rule, though what they do pay for top Czech players doesn’t properly compensate for the long term. general director of the Sparta Praha ice hockey club, Luboš Koželuh, says that “if a player signs with the NHL it’s income for us,” as a transfer fee of USD 100-200,000 (CZK 3.2 to CZK 6.4 million) is paid per player. But this amount is not much more than annual advertising revenue for certain portions of surface area on a jersey. It therefore doesn’t quite match what having a superstar on the roster could do to draw public interest over an extended period of time. As Kusý says, “the NHL can take players after a specific date, and they pay us a certain amount of money, but it’s not what we want. We want more.”
|Marketing olympic winners
Concentrating solely on the athletic aspect of an event is not enough in elite sports these days. One can say with slight exaggeration that a top athlete is largely a marketing product.
The closing of contracts with Japanese athletic footwear producer Asics and American eyewear producer Oakley are examples of successfully conducted marketing projects. For Dvořák, these contracts brought not only financial resources, but also advertising obligations, such as billboard campaigns in cities hosting global track and field meets. “In the Czech Republic, we have tried to polish our offer to the point where it is of truly maximal interest to someone,” Varhaník says. Linking up with several firms dramatically decreased the athlete’s credibility as well as the value of the advertising connection. The result was the signing of a long-term contract with Eurotel, which gave the company exclusive rights to Dvořák and gave the athlete a so-called lifetime contract, which will give him security after his career has ended.
Hurting at home
The big contracts signed by Czech stars on the world stage are in some ways detrimental, as they create a facade. Where one might expect to find the system that created these stars thriving with the aid of healthy public and corporate support, one finds instead a rather stunted business environment. This makes little sense when one takes into account the two incredible natural resources in abundance: enthusiasm and talent. A country that regularly turns out world-class athletes might be expected to also foster a business that can thrive in tandem.
The Czech Tennis Federation, says its general secretary Josef Nechutný, depends on sponsorships for roughly 70% of its income (the percentage at the two other major federations, football and ice hockey, is between 50 and 70). Even with big names such as ČEZ and Česká spořitelna behind tennis, Nechutný cites an ongoing struggle to make ends meet: “It could always be better. But we know how the situation is, we’re just lucky to be here.” In a country with a tennis tradition so hallowed, it seems odd for the sport’s federation to have to give thanks for mere existence. Offering the federation’s deep-pocketed sponsors more polished products in exchange for increased funding seems to be one solution. But products like major tournaments, where a brand could exploit top players and top exposure for maximum gain, have largely become a thing of the past. The last major ATP tourneys staged here were the Paegas and IPB bank events of 1998, which offered prize money of USD 365,000 and USD 1 million respectively, and attracted marquee names like André Agassi. The biggest tournament of the past few years has been the Živnobanka Czech Open, with prize money of USD 125,000, and a roster of players (apart from Jiří Novák) not particularly well known either here or abroad. “I know a big tournament might make for better presentation for the sponsors,” admits Nechutný. He adds, however, that the federation has opted instead for a series of smaller events to better develop young talent. This makes limited sense. It seems using major events to fuel the sponsoring of youth programs might be more comfortable than relying on stable, but meager public money.
Football and ice hockey have their own difficulties. Though the two sports likely account for more followers here than any major religion, attendance at matches is surprisingly sparse. Comparing attendance in western Europe and the Czech Republic, says Pavel Paska, is discouraging. “We can’t get more people into the stadiums…we try, but they don’t come. The puzzling part is that we have four top teams in Prague alone. Everyone involved with football here should be concerned.” Petr Fousek, general secretary of the Czech Football Federation, also cites a need for concern. According to him, after the Czech national squad’s successes in the Euro championships in 1996, attendance rose to roughly 8,000 spectators per match. However, it has since markedly decreased. “I think we will, in the very near future, have to start with some special promotional programs to attract people again,” says Fousek. The Sparta ice hockey club, a perennial Extra League champion in addition to regularly being ranked in the top ten in Europe, also can’t seem to rouse the public interest it needs to thrive financially. The club, with an annual budget of CZK 180 million and revenues that depend on sponsorships to the tune of CZK 120 million, is currently not turning a profit. At the same time, says Sparta’s Koželuh, the club is one of the most financially stable in the Extra League. “Attendance is one of our biggest problems,” Koželuh admits, adding that Sparta’s arena has a capacity of 14,000, though average regular season attendance is usually down somewhere around 5,000.”
|Breaking Western standards?
Czech companies currently use sports sponsoring as an effective marketing strategy tool very rarely, and in this they are trailing the developed world. So claims Peter Kovarčík, the chairman of the board of Teleaxis, which is one of the most important sports marketing players in this country.
Photo: Archiv PIM
In light of present shortcomings, are major initiatives on the horizon? Not according to the federations. While Fousek acknowledges the time for a PR boost is nigh, he also claims that any and all new moves will go through the federation’s long-time marketing agency, STES, of which it is 100% owner. In fact, all of the major athletic federations exclusively use their own marketing agencies, created as private companies to channel away the heavy taxation on marketing activities they would incur as civic associations. In this way, they maintain an extreme degree of control over any marketing activity, which may not always be in their best interest. Many wonder if better results couldn’t be achieved by outsourcing external outfits with international experience. But as Karel Bauer, marketing director of the Czech Olympic committee points out, federations did dabble with outside firms in the early nineties, and had negative experiences.
Gun-shy and reluctant to lend any authority to outside sources, federations have turned inward and are making due with what they have. Complicating matters is the absolute secrecy involved in any sponsorship contract. This makes it difficult to really know what the standards are that are being set in the local market, and how much pressure is being exerted to up the ante. Meanwhile clubs, which are private institutions, are only now beginning to wriggle free of the excessive marketing influence of federations to make more independent and beneficial decisions. Excessive nepotism and networking, though perhaps not as influential as they once were, have also hindered the growth and redistribution of funding in the sports world. “The percentage of decisions being made and contracts being signed on a friendship basis, or through personal connection or network, compared to those of pure business calculation, is declining,” says Bauer. He cites a new breed of results-oriented manager taking hold at major companies as the reason why.
Carlo Capalbo, however, is less sanguine. Capalbo, founder and director of the Prague International Marathon, feels that big money properly redistributed through sports will not be possible here until conditions are changed dramatically. Sports marketing agencies used and owned by the federations, says Capalbo, have never had to stand on their own feet. Their services have therefore not kept pace with the changing market, and they’ve relied more on the comfort of a closed market than on results. “It’s not mature,” says Capalbo of the local environment. “So at the end of the day, you have your sponsors because of friends. I think sports marketing companies here are not up to standards… instead of using the power of friends and connections, they should use the power of a good delivery.” Every time a football star scores, says Capalbo, an automatic emotional link should be made by skillful agencies to a particular corporate sponsor. “This way, of course,” he adds, “a company can be convinced to invest more money.” Which they are, as of yet, simply not doing.
|Your ad here
While gaining sponsorships is crucial for all professional hockey clubs, Sparta Praha has been more successful than most at attracting major brands to players’ uniforms.
1 – Front jersey top
*Note: all figures reflect standard club and federation annual rates, and do not necessarily reflect the value of specific contracts
No shortage of funds
Considerable funding for sports, as Škoda Auto has proven in the international arena, is available. According to sources close to Škoda Auto, the auto maker recently signed a deal with the International Hockey League to extend its sponsorship of the World Championships. From 1992 through 2007 the deal will be worth CHF 7 million (CZK 144 million). The problem locally is a failure to attract similarly generous attention. By way of comparison, the Czech Football Federation, the largest in the land, receives annual sponsorships worth roughly CZK 60 million.
There’s little doubt that many companies here have the knowledge and volition to get involved in sponsoring in a bigger way, and to begin helping clubs and federations to develop on a larger scale. Mobile phone operator Eurotel is a good local example of the skillful blending of corporate communication through sports. Whether exclusively sponsoring top decathlete and all-around congenial fellow Tomáš Dvořák, sending the Eurotel cheering squad (yes, the country’s first professional cheerleaders) out to matches, or taking care that their logo is emblazoned on the chests of Sparta football players, its investment has been both considerable and effective.
But sponsorship is not a donation, it’s an investment, and potentially a very considerable one. Firms must be skillfully sold a product in order to get involved in more than a cursory way. And they must be guaranteed a solid return on their investment. Propping up any firms’ decision to get more involved would be a more polished marketing system, a surge of interest from the public, and further engagement by the media. If these trends do not soon become evident, the results could be disastrous. Carlo Capalbo sees far-reaching effects resulting from an under-financed system. “At the end of the day, who suffers?” he asks. “Young people. The end result is that there is less money available, for young people full of talent who will have no chance to get involved and compete.”
|Winning the media race
TomáŠ Enge was the first Czech to step on the gas of a car in a Formula 1 race. According to his manager, Antonín Charouz, the way there was a rocky road, especially when it came to financing early in Enge’s career.