Dec 9, 2007

Olympique Lyonnais Is FT Case Study For Running A Successful Club

This weekend's edition of the Financial Times has an article that should be required reading for soccer execs (and indeed anybody who runs a sports club) anywhere. In the Sporting Life column, Simon Cuper lays out the very simple yet logical formula Olympique Lyonnais has used for nearly a generation, with impressive results: l'OL has dominated competition in France, winning the last six domestic league titles, and has also made inroads in Europe against teams from "big three" leagues with several times its budget.

I don't want to spoil the article for you, so I recommend clicking on the above link (or this one) to read it yourself. But the formula is really very simple, borrowing the basic principles of investing: spot and exploit market inefficiencies, buy low, sell high, stick with proven commodities and remove all emotion from the equation. (If you didn't know these were principles of investing, you aren't alone; one of the reasons successful investors are successful is because of the naivete, whims and hysteria of most players in the markets. But that's another story for another day. Actually it isn't, because I deal with this stuff all the time at my day job and don't particularly want to do so in my free time. But I digress).

So if it's so simple, then why isn't everybody doing it? One reason is that club owners, like financial markets, are irrational and prefer to overpay for a big name than invest in a cheaper asset that has proven to generate income. At the same time, they aren't willing to sell holdings whose value has peaked. It's not all about foolishness though: success alone doesn't always sell tickets or merchandise, at least not in the big leagues. If teams like Real Madrid or Man United or Chelsea were to dump their best players when they are at peak value, their fans would howl in disgust--and probably stay away from games for awhile to boot. Conversely, having stars on your roster--even ones who aren't very good (I'm not going to mention names but I think we all know who I'm talking about here)--sells both tickets and merchandise and also gets mad media attention. This is true even (especially?) if the team doesn't perform very well on the field. But if it's on-field success you're after, and you have some margin for error at the gate by virtue of playing in a less than soccer-mad city and/or country (Lyon, France definitely qualifies as such, or at least it did in the late 1980s when the current ownership group took over) then following this blueprint is definitely your best option. I hope Red Bulls executives read the article. Actually maybe I'll send it to them myself to make sure they do.

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