Generally speaking, there is very large disconnect between your die hard sports fans and corporates who attend sporting events purely for the perks. As the business world and sporting worlds converge ever closer day by day, many of us as fans believe this is doing more harm than good. When attending a title deciding event and 50% of the crowd do not support either participating team or are only there for the free drinks and meal, it is not a good image that the governing sports body are portraying.
Whether we like it or not, corporate influence in sports is here to stay, and logic suggests it will only grow. There are certainly positive influences that can be found such as event sponsorship. However, I am of the belief that the most positive influence is not yet in existence.
In business, every company is in a different stage of its life, requiring different needs and possessing different risk appetites. Take for example, a start up tech firm. This firm has a great idea and undoubted potential, however it does not have the resources to develop it. It therefore attempts to source funding in order to develop its concept. Unfortunately, due to the perceived risk, it is unable to obtain any form of debt financing. The only option therefore is equity. This tech firm raises X amount via a share issue, with an option for the investor to invest a further X amount upon successful completion of various milestones. This process matches somebody with a high risk appetite and resources who is looking for long term upside, with a company looking to sacrifice some of the upside in order for a development opportunity and short term security. Both needs are fulfilled.
Welcome to what I call the TAP theory. This stands for Talent Asset Packaging. Applying the example above, imagine the tech firm being a player who is excelling at a particular sport, but does not have the resources to develop his/her talent or nurture his/her growth. If there was a platform in which this player through his/her guardian had access to private funding, this would give him/her the best possible chance of achieving their target in playing top level professional sport.
Importantly, in terms of agreement structure, this would take the form of talent asset packaging only. By this I mean, the investors will fund the players development in exchange for an equity percentage in the economic benefit for his/her on field performance. South American football for example, uses a different type of third party ownership in order for clubs to be able to compete to keep their best players. For example, Brazilian star Neymar was sold off in percentages to different corporates in Brazil in order for Santos to be able to keep him. Eventually he was owned 60% by the club and 40% via different third parties. This was in exchange for benefits such as image rights, sponsorship etc. The third parties exit strategy was upon a transfer to a big European Club, which turned out to be Barcelona. This causes many headaches as buying clubs not only have to negotiate with the selling clubs, but also the third parties involved in the players interests.
This is counter productive and provides scope for all sorts of moral hazards. The TAP theory would be structured much differently. As mentioned above, the only benefit over the term of the funding agreement would be from a players on field performance, i.e. no ownership of image rights and sponsorship contracts. Another cap would be for example, an investor can only farm-in to a players talent interest up to 49%. The return would also be different. It would be for a portion of the players wages instead of a cut of the transfer fee upon which the player would have sole discretion to negotiate through his agent (as the player will always have a majority ownership of his output).
Using football to again demonstrate an example of TAP, ponder this scenario. There is an 8 year old Brazilian footballer who was born in an extremely low demographic area. He loves playing in the streets with his neighbours and clearly possesses something much different to his friends. He is unable to showcase his talents to club scouts, as his parents can not afford to pay a local club sides annual fee. He is also not able to walk to their pitch as it is too far away and his parents do not have a mode of transport to get him there. His parents enquire to a TAP specialist firm about the possibility of funding for their child and send them vision of him playing. The firms representatives like what they see, assess his talents in the flesh and then negotiate a funding contract with his parents. The contract includes funding to play for his local club, state of the art training equipment and footwear and specialist one on one coaching with the best youth coach in South America on top of his local club training sessions. The duration of the contract is 3 years, with an option to fund a further amount if certain milestones are met for a talent ownership of up to 49% of the player.
Ten years later, the player is now 18 years old and on the books of one of the biggest clubs in Europe. Without the initial investment, this player would not have had the opportunity to play professional football and him and his family would have lived a life of poverty. Not only has this investment changed those lives, it has also provided the investor with ongoing multiples of his initial capital throughout the players career. It is a win win situation for both parties and for the fans, because we have not missed out on a special player due to not ever having an opportunity.
I see the early market for this type of investment in approximately 8-12 year olds as this will be the period in their lives in which they learn their sports at the highest marginal rate. When that market gets flooded, there will be potential for investors to break into the mature market at a discount, as everybody has different speeds of development.
In order to capture the talent pool that gets overlooked, sporting bodies need to think outside the box. Innovation drives competitive advantage. Competition creates higher quality. All of these are essential in propelling the sporting world forward.
Please let us know what you think of this idea via our Facebook page! Hopefully it has given you something to discuss with your fellow sports nuts over the weekend.
Whether we like it or not, corporate influence in sports is here to stay, and logic suggests it will only grow. There are certainly positive influences that can be found such as event sponsorship. However, I am of the belief that the most positive influence is not yet in existence.
In business, every company is in a different stage of its life, requiring different needs and possessing different risk appetites. Take for example, a start up tech firm. This firm has a great idea and undoubted potential, however it does not have the resources to develop it. It therefore attempts to source funding in order to develop its concept. Unfortunately, due to the perceived risk, it is unable to obtain any form of debt financing. The only option therefore is equity. This tech firm raises X amount via a share issue, with an option for the investor to invest a further X amount upon successful completion of various milestones. This process matches somebody with a high risk appetite and resources who is looking for long term upside, with a company looking to sacrifice some of the upside in order for a development opportunity and short term security. Both needs are fulfilled.
Welcome to what I call the TAP theory. This stands for Talent Asset Packaging. Applying the example above, imagine the tech firm being a player who is excelling at a particular sport, but does not have the resources to develop his/her talent or nurture his/her growth. If there was a platform in which this player through his/her guardian had access to private funding, this would give him/her the best possible chance of achieving their target in playing top level professional sport.
Importantly, in terms of agreement structure, this would take the form of talent asset packaging only. By this I mean, the investors will fund the players development in exchange for an equity percentage in the economic benefit for his/her on field performance. South American football for example, uses a different type of third party ownership in order for clubs to be able to compete to keep their best players. For example, Brazilian star Neymar was sold off in percentages to different corporates in Brazil in order for Santos to be able to keep him. Eventually he was owned 60% by the club and 40% via different third parties. This was in exchange for benefits such as image rights, sponsorship etc. The third parties exit strategy was upon a transfer to a big European Club, which turned out to be Barcelona. This causes many headaches as buying clubs not only have to negotiate with the selling clubs, but also the third parties involved in the players interests.
This is counter productive and provides scope for all sorts of moral hazards. The TAP theory would be structured much differently. As mentioned above, the only benefit over the term of the funding agreement would be from a players on field performance, i.e. no ownership of image rights and sponsorship contracts. Another cap would be for example, an investor can only farm-in to a players talent interest up to 49%. The return would also be different. It would be for a portion of the players wages instead of a cut of the transfer fee upon which the player would have sole discretion to negotiate through his agent (as the player will always have a majority ownership of his output).
Using football to again demonstrate an example of TAP, ponder this scenario. There is an 8 year old Brazilian footballer who was born in an extremely low demographic area. He loves playing in the streets with his neighbours and clearly possesses something much different to his friends. He is unable to showcase his talents to club scouts, as his parents can not afford to pay a local club sides annual fee. He is also not able to walk to their pitch as it is too far away and his parents do not have a mode of transport to get him there. His parents enquire to a TAP specialist firm about the possibility of funding for their child and send them vision of him playing. The firms representatives like what they see, assess his talents in the flesh and then negotiate a funding contract with his parents. The contract includes funding to play for his local club, state of the art training equipment and footwear and specialist one on one coaching with the best youth coach in South America on top of his local club training sessions. The duration of the contract is 3 years, with an option to fund a further amount if certain milestones are met for a talent ownership of up to 49% of the player.
Ten years later, the player is now 18 years old and on the books of one of the biggest clubs in Europe. Without the initial investment, this player would not have had the opportunity to play professional football and him and his family would have lived a life of poverty. Not only has this investment changed those lives, it has also provided the investor with ongoing multiples of his initial capital throughout the players career. It is a win win situation for both parties and for the fans, because we have not missed out on a special player due to not ever having an opportunity.
I see the early market for this type of investment in approximately 8-12 year olds as this will be the period in their lives in which they learn their sports at the highest marginal rate. When that market gets flooded, there will be potential for investors to break into the mature market at a discount, as everybody has different speeds of development.
In order to capture the talent pool that gets overlooked, sporting bodies need to think outside the box. Innovation drives competitive advantage. Competition creates higher quality. All of these are essential in propelling the sporting world forward.
Please let us know what you think of this idea via our Facebook page! Hopefully it has given you something to discuss with your fellow sports nuts over the weekend.