Oguche Agudah, Chief Investment officer, Natanel Florens
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Solving youth unemployment in Africa through sports 21 Aug 2018
The amount of money that a number of sport stars earn nowadays is mind-blowing. From golf to tennis, basketball, motor sport and football, just to name a few, earnings for the top stars in these competitive sports could top tens of millions of dollars annually as salaries from their core sporting activities. If you add incomes from endorsements and sponsorships, these could grow their earnings to hundreds of millions of dollars.
The top five highest-earning athletes globally, according the 2018 compilation by Forbes magazine, are as follows:
1. Floyd Mayweather ($285 million)
2. Lionel Messi ($111 million)
3. Christiano Ronaldo ($108 million)
4. Conor McGregor ($99 million)
5. Neymar ($90 million)
Most of these individuals will probably never register a startup; but they are undeniably talented in what they do and they have been able to garner substantial wealth through their talents. They also serve as role models to many and their financial heft benefits many people around them.
Whilst their talents are important, the major reasons a lot of sporting activities are multi-billion-dollar markets today have to do with the business models put in place by the respective associations and governing bodies of the different sport industries. Note that about 50 years ago, many of these professions were not necessarily viewed as lucrative career options for athletes who participated in them.
There are millions of African youth that are unemployed or underemployed. These teeming young people can channel their energies into mastering and pursuing careers in a number of sports. However, there has to be a transformational process that will achieve the following:
a. evolve a sustainable business model in each sport, and
b. absorb and engage many African youth profitably.
Let's use two global sport associations as our case studies and see how we can adapt their successes to develop viable sporting businesses in Africa. We'll use the Association of Tennis Professionals (ATP) and The National Basketball Association (NBA). We'll deliberately not use FIFA because this writer has discussed football's world governing body in a previous article to underscore lessons African businesses can learn from football. Another reason FIFA will not be mentioned is that I want readers to see that other sports also have huge earning potential, as long as they are structured well.
Association of Tennis Professionals (ATP)
This association was formed 46 years ago. It organises and manages the major male tennis events globally. The association also oversees the prestigious player ranking system and engages sponsors for the various tournaments, amongst other things.
The association is run professionally, with a competent board in place. Its board includes current and former players who look out for the interests of the players. The ATP is run as a “for-profit” organisation, just like any major global corporation. It ensures there is structure to the whole tennis calendar and that top players attend events, leading to huge followership for the game, which eventually leads to huge sponsorship and marketing revenues, of which sizeable portions go to the players.
This is one well-oiled loop that ensures all participants – fans, players and sponsors – have their individual goals met. It's the ATP's job to understand these varying goals, and strive to meet them for the overall benefit of tennis as a sport. The Women's Tennis Association (WTA) is a counterpart organisation in the women's professional game.
National Basketball Association (NBA)
The NBA is the men's professional basketball league in North America, formed in 1946. It's the premier men's professional basketball league in the world. The NBA is managed professionally, with a constituted board. It's led by a commissioner who runs the NBA like a corporation.
The NBA is responsible for marketing the league across the globe, ensuring the overall profitability of the brand, the clubs and the welfare of its players. The NBA has done extremely well in this regard over the last three decades. Its players are the world's best-paid athletes, based on average annual salary per player.
The association reported revenues of $7.6 billion in the just-concluded 2017-18 season. TV revenues peaked at $2.6 billion, with the rest coming from merchandising, advertisement, sponsorship and ticket sales. The NBA also has subsidiaries, including NBA TV and NBA entertainment, which rake in additional revenues. The average NBA team is worth $1.65 billion as of February 2018.
To put the NBA's earnings in context, its revenue figure of $7.6 billion exceeds the GDP of Somalia ($7.37 billion 2017). The league's earnings are also equivalent to the combined 2017 GDP of five African countries, namely; The Gambia, Guinea Bissau, Seychelles, Cape Verde and Djibouti.
Lessons for Africa
So, how have these two organisations (ATP and NBA) been able to create brands with gigantic market values and turned its players into millionaires? And then, what can African countries learn from the structures of these organisations as we look to resolve rising youth unemployment on the continent.
1. Product, Product, Product: It's all about the product. These organisations created products that fans want to connect with. They don't view their sports from the lens of “just a game”. But they view them as brands that must be built, nurtured and sold to various stakeholders (fans, advertisers, TV stations, et al).
2. Professionalism: These organisations, oftentimes go to great lengths to headhunt top-notch CEOs and executives to run their affairs. They view their respective sports as businesses that need to generate profits in order to keep the stakeholders happy. They have competent boards overseeing the organisations. They have rules governing the games and the conduct of teams and players, leading to uniformity and transparency – key ingredients for any successful product.
3. Partnerships: They have key partnerships with the people and organisations that can make them reach their goals. They try to understand the needs of the brands that support them and they pay attention to the concerns of their fans – including the spectators who go to the arenas and viewers who watch on television. They also have to understand what would keep the top players coming; for instance how much they need to generate in order to keep them happy. These organisations are masters at stakeholder management. They know what each party requires in order to benefit the whole.
4. Players 1st; players 2nd; players 3rd: Without the players, there is no game. Therefore, these sporting organisations make sure the welfare of the players is paramount. The administrators are hardly ever in the headlines. They stay in the background, focusing on effective structures, good governance, and sustainable business practices. They let the players take the front seats. It's the players that fans want to pay money for. Whether it's through the ranking system of the ATP or the annual awards and all-star events of the NBA, they make sure the players are the ones the fans are always talking about.
5. Information: Closely related to the players bit is the fact that information has to be readily and easily available. If you go to the websites of these bodies, you'd see players' statistics, reports and schedules on tournaments/games and schedules, among other relevant data. There is transparency and a smooth information flow that allow the customers (fans) to be informed about the products they are paying for.
I see a very big opportunity for African countries if they can adopt these principles and begin to design systems around sport and create well-paying jobs for thousands of young people. We need to see sport as a business and divorce it from the bureaucracies of the local associations and government.
Notice, for instance, that the English Premier League manages the commercial aspect of the football league in England while the English Football Association handles issues relating to the National teams, as well as the rules of the game in partnership with FIFA.
It's the same with the ATP and the NBA. They are mostly concerned with the commercial aspects of their respective games.
It's important to note that it's not only the athletes that get employed. There are also many ancillary jobs that are created as a result of the commercial development of a sport. For instance, there will be more job opportunities for talent scouts, agents, coaches, trainers, sports analysts, referees, and merchandisers.
We can even create our own African sports and commercialise them. We need new and radical ways of solving the unemployment crisis in Africa beyond the traditional means that have not yielded much results. Sport is a veritable outlet and we need to exploit it.