"Soccer Made In Germany" - Strategical chances and challenges exporting the German Bundesliga

Institut für Sportökonomie und Sportmanagement

Institution of Sport Economics

and Sport Management

Research Report

“Soccer Made in Germany” - Strategical chances and challenges of exporting the

German Bundesliga -

M. Sc. Sport Management

Institute for Sport Economics and Sport Management

Strategy & Planning

February 28th, 2013

Martin Jäger

Class of 2013

Table of Contents

LIST OF FIGURES .................................................................................................................. 2

1. INTRODUCTION ............................................................................................................. 1

2. STRATEGIC MANAGEMENT IN TIMES OF GLOBALIZATION .................... 1

3. THE BUNDESLIGA IN THE EUROPEAN FOOTBALL MARKET .................... 3

4. EXPORTING EUROPEAN PROFESSIONAL SOCCER TO

INTERNATIONAL MARKETS ......................................................................................... 6

5. STRATEGICAL IMPLICATIONS ............................................................................. 10

6. CONCLUSION ................................................................................................................ 13

REFERENCES ........................................................................................................................ 15

List of Figures

Figure 1 Total revenue Top20 clubs in 2012 - Amounts in million € (Deloitte, 2012).

................................................................................................................................ 4

Figure 2 International Reevnues of the top five leagues - Amounts in million €

(DFL, 2013). .......................................................................................................... 6

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1. Introduction

The 21st century has been marked by globalization. The advent of rapid

communication technologies, cultural acceptance as well as social and political

cohesion has transformed our modern world we live in and the management of

businesses. Competition in every industry grew to global scale and businesses

have to adapt new strategies to keep up with the growing competition.

Professional sport leagues have grown into professional entertainment businesses,

of which some are well known worldwide. Such global growth requires business

strategies that focus on a bigger market than solely the home base. The Premier

League is the flagship of European football around the globe in terms of

popularity. Large investments in high profile players and infrastructure combined

with success in international Championships turned the League into the most

watched football league worldwide. International success does not come by itself.

It takes knowledge about the industry as well as an understanding about cultural

differences to find strategies to enter new international markets.

This paper aims to explore the attraction factors that drive the demand for a sport

league in foreign markets and tries to identify strategies taking those attraction

factors into consideration. This exploratory research is based on previous

academic research and illustrates findings from existing literature. The work of

this paper is structured as follows: The effects of globalization on strategic

management will be presented. The following section uses recently published

business reports by the DFL and Deloitte to analyze the status quo of the European

football market and the position of the Bundesliga. The next part provides existing

information about the chances and challenges of exporting a league to

international markets. The paper ends with strategical implications and practical

suggestions as well as concluding remarks.

2. Strategic Management in times of globalization

Globalization is an important phenomenon affecting sport and businesses in

general. Economic, political, social, cultural, and technological forces have all

contributed to the increasing global nature of sport (Thibault, 2012). Globalization

is defined as „a process through which space and time are compressed by

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technology, information flows, trade and power relations, allowing distant actions

to have increased significance at the local level“ (Miller, Lawrence, McKay, and

Rowe. 2001, pg.131). In context of this paper, this means that a product can be

delivered on a global scale immediately when the action takes place on the pitch.

This definition also takes into account that success or failures in distant

international markets have an effect on core domestic market. In the context of this

paper, that is losing market share to other leagues, leading to less growth in

international broadcast revenue.

Strategic Management

Organizations must compete for a variety of resources in order to survive in a

competitive market, and hopefully thrive. Such endeavors need strategies to

pursue organizational objectives in a coordinated and efficient way. Managers are

simultaneously responsible for the management of numerous strategies related to

different activities their organization is involved in (Parent, O'Brien, and Slack,

2012).

League officials facing the challenges of international expansion experience the

difficulties of bringing domestic strategies in line with international ones. A

various number of stakeholders in several markets around the globe with diverse

interests have discrete aspirations from a league such as the German Bundesliga.

Whereas the relationship between individual fans and their favorite team is much

stronger in a domestic market, the international audience typically expects

excellence and an exciting competition within a league. They are much more

likely to tune off the television and switch to another league or sport program if

their needs are not satisfied.

Strategic management is the process of planning, implementing, controlling, and

evaluating many different strategies that are all aimed at fulfilling the vision of the

sport organization as a whole (Parent et. al., 2012). Although, strategies may

pursue distinct objectives, they are all bound to follow the code of the main

purpose of the business, the vision. The vision of the sport organization refers to

its highest aspirations its’ most desirable goals. The vision is articulated in detailed

terms in the sport organization's mission statement, which defines its central

purpose, the business/es it is involved in, and its principal customers, users, and

clients (Pitts and Lei, 2003). The mission statement serves as a foundation for the

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organization's strategic planning process prescribing the future direction. The

German Football League (Deutsche Fußball Liga GmbH - DFL1) states its vision

as following: "The DFL is the Competence Centre of Professional Football in

Germany. Innovation and excellence, combined with the awareness for social

responsibilities allows us to be groundbreaking for the sustainable positive

development of the League and its Members."

Competitive advantage

Why is strategic management important? Managers have to understand the

business they are involved in and its' relationship with the environment. This

understanding provides managers with the foundation on which to base their

decisions and thus to effectively create or sustain a competitive advantage in the

marketplace (Parent et al., 2012). An organization has a competitive advantage

when its profit rate (or however success is broadly defined in that organizations

particular sector) is higher than the average among competitors (Hill and Jones,

2001). Sustaining a competitive advantage is the central purpose of strategic

management because it allows the sport organization to maintain an edge over its

rivals (Pitts and Lei, 2003).

DFL and its international expansion plans

Clearly, one of the present strategic goals of the DFL is to increase the

international reputation of the Bundesliga and to eventually expand its’ market

size and revenue streams from TV-distribution and merchandising abroad. This

strategic goal is, to keep up with other big leagues in Europe in terms of financial

viability of the clubs and their sporting performance in the German Bundesliga.

3. The Bundesliga in the European football market

Deloittes' latest edition of the Football finance review (2012) examined the status

quo of the market situation in European football. The report highlights that despite

to wider economic pressure, the European football market continued to grow by

1 The organization responsible for operation of the German national football league – the German

Bundesliga.

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4% to €16.9 billion of total revenue in 2010/11 (Deloitte, 2012). The revenue

generated by the "Big Five" leagues grew by 2% to €8.6 billion. The main driver

was broadcasting revenue accounting for approximately €4.1 billion (up 3%),

followed by commercial revenue (up 4%). The only decrease (2%) was reported

for match day revenue as clubs have to adapt pricing strategies to deal with the

difficult economic environment (Deloitte, 2012).

Figure 1 Total revenue Top20 clubs in 2012 - Amounts in million € (Deloitte, 2012).

Footballs greatest business challenge remains cost control. The "Big Five"2

leagues' wages increased by over €104 million (up 2%) to exceed €5.6 billion in

2 Big Five is a term for the five biggest professional soccer leagues in Europe, namely the English

Premier League, the German Bundesliga, the Spanish Primera Division, the Italian Serie A and the

French Ligue 1.

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2010/11 (Deloitte, 2012). The UEFA's „Financial Fair-Play“ 3 break-even

requirement forces European football clubs to increasingly focus on achieving

more sustainable levels of expenditure relative to revenues. While most clubs

enjoy substantial revenue growth, large differences in the level of earning between

clubs have appeared, even amongst those at the very top end of the tier (Deloitte,

2013). Whilst the fact that football's top twenty of the best earning clubs contribute

over one quarter of the goal revenues in the European football market gives an

indication of the sport's financial polarity, there are substantial revenue differences

even among these twenty club. This in turn has an effect on the distribution of

talent and the quality of the clubs and the competition within the leagues.

According to Deloitte (2013) Real Madrid earned almost €200m more than the

club ranked 5th (FC Chelsea) in their list of the best earning clubs, reported in

Money League Top20 clubs in 2011/12 - see figure 1.

The position of the German Bundesliga

The Bundesliga is the second most profitable league in Europe (Total revenue:

1.75 billion in 2010/114) behind the English Premier League (Total revenue: 2.5

billion in 2010/11) –see figure 2. As the market leader - the Premier League serves

as a benchmark to examine the position of the Bundesliga in this

paper. Unaffected by the ongoing economic crisis in the global financial system,

the Bundesliga has continued its' dynamic growth of recent years. The revenue of

all 18 clubs in the German Bundesliga have been recorded to be more than €2

billion by the end of the season 2011/12 (DFL, 2013), representing a growth of

€140 million over the previous year (up 7.2%).

Even though total revenues are growing, the domestic market seems to be

matured. The ticket sales seem to have reached their maximum and no big gains

are to be expected in the future. The number of average spectators is stagnating

around 44.000, depending on the teams playing first division and their stadium

3 Regulation that obligates European professinoal soccer clubs to keep their costs lower than their

revenue otherwise they are faced penalties. 4 The revenue figure has intenionally not been used in this case for the purpose of better comparison

to the English Premier League, which has not published the newest revenue figures by the the time

the research was conducted.

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capacities (DFL, 2013). On average, these accounts for almost 10.000 spectators

more than on English Premier League ground and is the highest average

attendance in Europe (DFL, 2013). The DFL has recently announced that the

domestic broadcasting rights deal starting 2013/14 would generate €628 million

each season for four periods. Despite the fact that this indicates an unexpected

growth of 50% (Sponsors, 2012), it still stumbles behind the Premier league which

reports a 70% increased to €1.15 billion each season for three periods also starting

2013/14 (Deloitte, 2013). Due to market specific factors, it is unlikely that the

German Bundesliga will accomplish to beat its closest rival generating higher

domestic TV-distribution revenues in the near future. To minimize the lag to the

market leader, the DFL is advised to devote further effort and resources towards

international markets, which bear chances for further growth.

Figure 2 International Revenues of the top five leagues - Amounts in million € (DFL, 2013).

4. Exporting European professional soccer to international

markets

The motivation for clubs and leagues to expand their market size by entering new

international markets has been exemplified by reference to the competition

between the German Bundesliga and the English Premier League, namely to

increase revenue streams in order to stay competitive. Corporations and media

networks are eager to financially invest in sport properties in order to enhance the

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visibility of their products and services as well as to gain a bigger market share

and higher profits (Thibault, 2012). The more attractive a league is, the higher the

international interest of networks and corporations in the sport prospect.

Eventually, a higher interest leads to greater revenue derived from selling

broadcasting rights and merchandise.

Distinct pre-determinants of countries regions have to be taken into consideration

when determining strategies to enter a new market. Woratschek (2008) points out

the following:

• Popularity of the sport

• Consumption capital

• Competition in that market (other sport leagues; competing soccer

leagues)

• Buying power

• Structure of foreign TV-market

Woratschek (2008) identifies buying power and consumption capital as the two

most critical preconditions marketing a soccer league in China. Unfortunately

there are no general pre-determinants published to the knowledge of the author.

The consumption capital theory (Stigler & Becker, 1997) says that consumer

derive more utility from using product or services in case they have knowledge

about the product or service. In other words, the more they know about the sport or

the league, the higher their utility. In context of this paper it means, that the target

group that has knowledge about the rules of the sport, knows about the clubs

participating in the league and the leagues’ star players, are more attracted by the

league and its’ content. Therefore, those consumers derive an increased amount of

utility from watching the game or event. The second precondition – buying

power, is critical in a sense that, additional income for national football leagues

can only be expected if sufficient buying power in certain international markets

exists. On one hand, the target group is required to have buying power to be able

to afford Pay-TV with sport content, and on the other hand to make sport

programs attractive products for advertisers to purchase commercial airtime from

the networks.

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Barriers and Challenges of International Sport Distribution

International marketing is different and challenging from domestic marketing. One

challenge for leagues is the immobility of the product – the game itself. Stadiums

of the Bundesliga are based in Germany and consequently it is hardly possible for

the international audience to get in touch with the live atmosphere and the athletes

itself (Woratschek, 2008). The best option for exporting a sport league is the

distribution through media channels like television and the internet. The

geographical distance is not the only challenge, differences in the cultural

background have to be regarded as well (Woratschek, 2008). Doing business and

doing business right in other regions and continents is crucial. Cultural

understanding and intercultural competence are valuable assets in marketing a

product like sport abroad (Winkler, 2006). The political situation (Woratschek,

2008) in a country might be barrier that can hardly be influenced by sport league

officials and remain a tough task, especially in countries with political instability

or different political systems like Cuba. Competing European soccer leagues and

other forms of sports, such as Basketball, Cricket and Rugby are direct

competitors (Woratschek, 2008) to the German Bundesliga. Competitors try claim

valuable market share in the sport and entertainment business and can make the

process of taking foot in a new market complicated.

Attraction Factors of Sport Leagues

The audience in foreign countries defines different attraction factors opposed to

the fans of a league in their home country. Therefore, international marketing of a

national sport series has to be adapted to local conditions. Woratschek (2008)

interviewed 15 international experts from sport business, science, organizations

and the media. His analysis revealed five attraction factors that are considered to

be core value driver of international marketing of national football leagues abroad:

• International Top Stars

• Historical Relations

• Local Heroes

• International Sport Achievements

• Technical Broadcasting Quality

The most important attraction factor according the results (Woratschek, 2008) was

the international top stars in a league. Internationally recognized talents raise the

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popularity of the league and its’ clubs. Superstars are players with extraordinary

skills and/or players that have gained fame through clever media marketing. In

European soccer, a fairly well-determined relationship between team salaries and

club performances can be shown (Szymanski and Smith, 1997; Szymanski and

Kuypers, 1999). It can be assumed that a higher team payroll indicates a higher

concentration of star players. In the season 2010/11 the total payroll in the

Bundesliga marked €780 million (DFL, 2012) averaging a payroll of €43 million

for each team. The Premier League doubled the total payroll of the Bundesliga to

1.85 billion (Deloitte, 2012) equaling a €92.5 million average team payroll. A

substantially higher average team payroll of the Premier League leads to the

assumption that more international star players play for English clubs compared

the Bundesliga.

The demand for English football in former English colonies is higher than the

demand for football series of other foreign countries (Woratschek, 2008). Such

historical relations take long term effects. Germany does not have strong

relationships to its’ relatively small amount of former colonies. Therefore, there is

no strong historical bond between Germany and other countries.

Higher attention in another country can be achieved by contracting players with

existing local hero value in their home country (Woratschek, 2008). Especially if

the local league itself does not show a high level of performance. Such an

audience is more likely to be inclined to follow a local player that is internationally

successful. A great example is the Chinese star NBA player Yao Ming, who used

to play for the Houston Rockets and became the most popular Chinese athlete next

to Liu Xiang. During the season 2012/13, 256 players in the Bundesliga were

recruited from foreign countries representing a quota of 49.2% (Transfermarkt,

2013a). The Premier League contracted 329 players (65.5%) from foreign

countries (Transfermarkt, 2013b). The Premier Leagues’ orientation towards

foreign markets and hire new talent from there might be an advantage for their

international marketing strategies.

The UEFA Champions League and the FIFA World Cup are sport championships

which among sport events have the highest TV-ratings worldwide. International

sporting achievements by winning such tournaments can lead to increased interest

in clubs and the leagues they represent (Woratschek, 2008). In the recent past,

international sporting achievements of German Bundesliga clubs have been rare.

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Over the past ten years, German Bundesliga clubs have had only two appearances

in the UEFA Champions League without winning the title once. Over the same

period, clubs from the Premier League dominated the Champions League in terms

of appearing in the finals and claiming the championship three times. The

international success has helped the Premier League gaining recognition and

promoting excellence on a global scale.

The technical broadcasting quality is equally important for the domestic market as

well as for the internatinoal audience (Woratschek, 2008). Technological advances

like high-definition television (HDTV) and quality camera work provide a

standard that attracts foreign networks and consumers. The DFL, produces its’

match day broadcasts itself and provides English and Spanish comments to its

internatinoal partners. Both leagues, the Bundesliga and Premier League are on

level in terms of broadcasting quality.

The value of a league abroad is determined by its’ performance within the

attraction factors (Woratschek, 2008). In order to gain a higher international

reputation the DFL needs to find strategies to improve its attractiveness for

internatinoal star players and to win international championship titles, if they want

to keep up with the market leader. Further implications for strategy development

are presented in the next section.

5. Strategical Implications Collaboration between the DFL and the Bundesliga clubs is imperative to

successfully improve the specification of the afore-mentioned core value drivers in

order to improve the effectiveness of implemented marketing strategies in foreign

countries. The role of the DFL is to find league structures which improve the

international marketability while keeping its' traditional values and genuine

character to the domestic market - Germany. Clubs and League officials are

advised to collaboratively work together to express concerns and to adjust

strategical orientations. Strategical implications and practical examples will be

given in the following part.

Clubs can increase their global recognition by hiring international star players

(Hill, and Vincent, 2006). The growth of total revenue in Bundesliga (DFL, 2013)

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suggests an optimistic future with more cash available to invest in new talent. This

bright looking future is dimmed by strict league obligations, such as the Licensing

System and the "50+1 rule 5 ". These league obligations have a long-term

orientation and are set in place to ensure the financial viability of the clubs and to

preserve its' independence from third parties taking control over the clubs’

management. Due to these restrictions, young talents have to be found in their

early age and developed in football academies to become star players. Young

talent from countries performing well in national competitions, like the UEFA

Euro Cup and the FIFA World Cup, deserve special attention, since these kinds of

championships are the playground on which international stars are made and gain

international recognition.

The DFL has opened its' first international office in Singapore in June, 2012. Such

international representation offices with expert in the culture and business of such

region are worth aspiration. In key markets, like China, the Arabic hemisphere and

the United States, such offices enhance intercultural communication, strengthen

international relationships, improve promotional effectiveness and have to

potential to reduce business costs while increasing business activities.

Hiring local heroes are a promising possibility to increase awareness and interest

in foreign countries (Woratschek, 2008). Key markets have to be in the center of

focus for scouting and hiring talent, by both parties - the DFL and the clubs as a

start of such an international labor strategy. Woratschek (2008) points out that

many clubs in the Bundesliga claim that the skill level of athletes from emerging

industrial nations like China is rather low and bears financial risks to the club. A

strategy to overcome this challenge is implement grassroots sport and youth

development programs with former German coaches, designed and organized by

the DFL and/or the German Football Association (Deutscher Fußball Bund - DFB)

in cooperation with local clubs of those countries. Monitoring such programs 5 Restriction imposed by the DFL, that prevents external parties to take control over a sport club.

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enhances the chance to spot and promote talent early which can later be recruited

by German clubs for a relatively low price. A nice side-effect to the chance of

early local hero recruitment is the goodwill factor that the DFL receives by

investing in the sport development of foreign markets. Such involvements can also

help intensifying relationships to foreign countries and can turn out to be an

advantage in further marketing activities such as selling TV-broadcasting

rights. This strategy could also work the other way around, creating German

Local Heroes by exporting German players at the end of their career to key

markets. Practices like this can be observed in the United States, where

international stars like David Beckham was hired by the club Los Angeles Galaxy

or Thierry Henry who left Europe for Red Bull New York, although with the

primary intention to promote the sport of soccer in the United States. Former

players or coaches possess an existing network in the soccer business as well as

well-founded knowledge about the game and business behind it, which can be of

high value to „newcomer“ -countries. At the same time can it may help to promote

the Bundesliga and German way of Football.

Another strategy is to stage promotional events. Exemplary measures taken in the

past are for instance the friendly game between FC Schalke 04 and Philadelphia

Union on U.S. soil or the Asia Tour by the DFB National Team. Such events have

the potential to create international awareness and image in a given nation. Other

sport leagues like the National Football League started to move a small number of

games to London every year. Promotional activities like this should to be taken

into consideration for the Bundesliga or the context of the National Cup (DFB

Pokal). "Skill and Trick-shows", inspired by the Harlem Globetrotters or street

soccer tours can organized and promoted by the DFL with the help of a number of

Bundesliga stars as testimonials in order to reach the youth generation of a foreign

country. Promotional activities have to be long-term oriented and take place in

strategically selected countries for a maximum impact.

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Another big challenge is the time difference. The Premier League already has a

system established with kick-off times adjusted to improve international

marketing. Woratschek (2008) recommends moving one of the many Saturday

3.30pm games to an earlier time like 12.30pm to serve the Chinese market and the

eastern hemisphere in general. The DFL has made a first move in 2008 by moving

one Saturday game to 6:30pm and one Sunday game to 5:30pm. One primary

reason behind this decision is to serve the demand of the North American

broadcaster ESPN (Spiegel, 2008).

Media presence is a key driver in for successful promotion of a sport domestically

as well as internationally. The DFL founded the subsidiary company DFL Sports

Enterprises (DFL SE), which is responsible for international distribution of live

match day broadcasts which are also produced by another subsidiary company

Sports Cast. That provides the DFL with the advantage that everything from the

production to the distribution is controlled by the league itself. Since its foundation

in 2008, The DFL SE managed to increase its’ distribution of international

broadcasting rights by 129% (DFL SE, 2013). In 2012, the website

Bundesliga.com has launched, delivering content edited to attract international

markets to build up consumer capital in foreign markets. The next strategical step

to improve their consent distribution platform is to make further use of social

media networks such as Facebook and Twitter as well as mobile media marketing

to engage foreign fans and consumer in Bundesliga activities.

6. Conclusion The DFL faces a tough competition promoting its’ prime product the German

Bundesliga against the internationally well established and recognized English

Premier League. But with constantly growing financial and sporting success over

the past years, the Bundesliga has developed into a highly competitive league with

growing international recognition. In order to keep up with of the market leader,

the Bundesliga has to pursue strategies to improve its’ attractiveness in foreign

countries. The stagnation of match day revenues in Germany and the relatively

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small market share in international markets support view to pursue international

growth strategies.

The league needs to cooperate with clubs like FC Bayern München or Borrussia

Dortmund to effectively implement strategies and to use synergy effects in

promotional activities. Core market drivers suggested by Woratschek (2008), such

as International topstars, local heroes, historical relations, international

achievements and broadcasting quality provide an orientation about factors

affecting the attractiveness of a sport league in foreign markets. International

strategies should be directed towards the improvement of these core value drivers

to gain international awareness and recognition.

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