The Selling Club Model

folder_openAnalysis, H&H Articles, Rangers FC

Ajax. FC Porto. Borussia Dortmund.

That was the status of club that Commercial Director James Bisgrove said that Rangers are looking to infiltrate as we make our way back to being not just the premier club in Scotland, but one of Europe’s premier clubs as well. Those clubs are seen as the yardstick from which Rangers progress shall be measured, both commercially off the field and our progress on it. Off the field Rangers are becoming a commercial powerhouse, with Bisgrove taking Rangers from having just 10 partners to now having over 30 that range from Glasgow Airport to Cadbury to other clubs such as long-time friends of the Rangers, Hamburg.

While these large strides have been taken off the pitch to compete with the likes of Ajax, Porto and Dortmund, we are only in the infancy of becoming like them on it. That may seem strange to say on the back of one of the all-time great league triumphs, but the key feature of emulating them is the ability to match success on the pitch while using the players that brought you that success as a means of continually generating revenue that will then be put back into the club in order to become self-sustaining. This Is known formally as the ‘Selling Club Model’ (SCM) or more commonly referred to as the ‘Ajax Model’. It’s something that has been spoken about at length by both the directors of Rangers and fans alike but it has taken on a new focus as we move into a summer where we are all aware that the club will cash-in on sellable playing assets.

With that in mind, this seems like a good time to take a deeper dive into the SCM; what it entails, how our benchmark clubs have managed to achieve it to such success and how Rangers can learn lessons from them to make those strides ourselves.

Sustainable Footballing Economics vs Accelerated Growth

John Vrooman once said that the key to understanding footballing economics is to ‘analytically grasp the passionate and pragmatic complexities of the beautiful game’. As Rangers supporters, I’d say the last decade has given us the ability to do so arguably more than any other support in world football. Rarely if ever will you find a club for whom the release of their annual accounts is treated like some kind of national event in the way you find with Rangers.

Vrooman is of course, correct. Many directors and majority shareholders of football clubs are successful businesspeople. However, unlike in any of their personal organisations where profit maximisation overrides all other priorities, there is the obvious caveat that when running a football club fans will (in the main) place the on-field success of the team above everything.

That being said, there is still a strong rationale for profit maximisation among the owners of football clubs. Football, especially with upcoming proposed relaxation of FFP rules, exists in its own free-market economic bubble. It is therefore argued by the so called ‘father of sports economics’, Simon Rottenberg, that rational teams will aim to maximise the profit it can make off each individual player. This may seem like a simple observation, but it is an important one, as it is the sole factor that underpins the entire SCM.

The competing aspect to this (and the phase of our recovery we are aiming to move away from) is the ‘accelerated growth’ model – a phrase we have all come to know well since the takeover of Dave King in 2015. This model requires owners to focus purely on the sporting performance of the team and an ability to provide the financial backing to do so. In the case of Rangers this has been done through the board of Directors both providing adequate financial backing in the transfer market while underwriting the losses to accelerate the growth of the club on the pitch. This is of course deeply unsustainable for clubs who do not have the financial backing of, say, an entire Middle Eastern country, so while it may work for a short period of time (and without question Rangers have benefited massively from it) it is a necessity to move to the sustainable SCM for the long-term health of the club.

With that covered, lets take a closer look at our three ‘benchmark clubs’ to see how they operate and how Rangers can either do the same or do it better.

Borussia Dortmund

Dortmund are a curious case among this list as they are the only club that are known to sell their prime assets directly to their biggest rivals in Bayern Munich. This is a factor in the SCM that is fairly unique to German football as Bayern have the financial and historical clout to hoover up all the best talent in the league, hence the reason they are on course for their 10th straight domestic title (and unlike some others this season, they’ll probably achieve that feat).

Dortmund, however, are in a different position to Bayern entirely and have historically struggled financially. Their financial trouble began as far back as 1924, as the organisation that built the then 18,000 capacity Borussia Sport Park underwrote the stadiums insurance policy for 12,000RM (about £90.6m in todays money) to buy 11 players and banked on success in order to pay it off. Just 5 years later however, they found themselves in court as they failed to keep up the debt repayments and almost were expelled from the DFB altogether. It was the stadium again that caused Dortmund to nearly fall into bankruptcy in 1995 as they increased the capacity to 60,000. In order to do so they leased the ground to a property developer and within a decade were in such a financial mess some doubted if they would ever be able to buy the lease back again.

In that respect, the turnaround of Dortmund in a financial sense has been nothing short of remarkable, as the arrival of Hans-Joachim Watzke and the introduction of the SCM managed to turn the club around. Between 2005-2015 they managed to clear €126m of debt and turn the club into a profit-making machine.

Since then, the focus has moved from talent retention and debt to talent development and profit. Recently, Dortmund have increased their gross profit margins to great success through smart scouting and even smarter selling. Let’s look at some examples.

PlayerAge when PurchasedPurchase Price (Year) (£)Selling Price (Year) (£)Age when soldProfit (£)
Ilkay Gundogan204.95m (2011)24.30m (2016)2619.35m
Ivan Perisic223.60m (2011)7.20m (2013)243.60m
PE. Aubameyang2424.75m (2013)57.38m (2018)2832.66m
Ousmane Dembele1913.50m (2016)121.50m (2018)20108m
Henrikh Mkhitaryan2411.70m (2013)37.80m (2016)2726.10m
Total Outlay£58.50mTotal Sales£189.71mTotal Profit£131.21m
*Transfer prices as documented on Transfermarkt

As can be seen from the table, Dortmund have managed to maximise their profits through player trading – making approximately £131m profit on their £58.50m outlay*. This has allowed them to put their club on a solid financial footing and crucially, detailed to future talents that they are a club they can sign for and use them as a steppingstone for future transfers — therefore continuing the cycle. This is a crucial aspect for Rangers in the SCM, as we need to prove ourselves as a club where players can come and develop before moving on at a massive profit for the club. As we do not share the benefit that Dortmund does of playing in a top 5 league and having automatic champions league qualification (although we may soon) it places even more importance on qualification for European football to give talent the opportunity to showcase themselves at the highest level.

FC Porto

Given the size and scale of Dortmund’s transfer sales, it is probably more realistic to compare Rangers in that respect to the likes of Porto – a club famous for being owned by Columbian striker Alfredo Morelos.

Joking aside, their business model is very much akin to what we will be aiming to emulate over the coming years. Like Dortmund, they have a strong record in the player trading department but unlike Dortmund and like ourselves, they are trading players from a position of being outside the top 5 leagues. In an effort to keep pace with those clubs who have a natural advantage given to them due to their geography, Porto President Pinto da Costa decided to adopt the SCM by buying young talented players and flipping them for large profits in order to keep the club both competitive and financially stable. Since 2002, Porto have won 19 trophies while making €400m in player sales and in that regard they have been described by some as “the worlds most effective “moneyball” club” with Pinto da Costa saying:

We have to be permanently studying the youth market. This is what allows us to keep fighting, despite having a budget 20 times less in respect to income [than other leading clubs]. Year after year we lose great players and then put our faith in players with great potential.”

Porto’s transfer outlay/sales can be seen from the graph above, with a general trend of their transfer sales offsetting their spend by a sizable amount, with a total profit of €449m. Their total operating revenue is slightly higher than Rangers (approximately £16m higher) and they are selling players at a broadly similar rate that Rangers are aiming to going forward. Porto have felt the affects of the pandemic on their ability to sell players quite heavily, with an example being that while they managed to sell Eder Militao to Real Madrid for €50m in the summer of 2019, the postponement of the 2020 summer transfer window affected their ability to sell players for quite that amount of money (with the notable exception being the sale of Fabio Silva to Wolves). While Rangers profit margins will not reach this magnitude in terms of player sales (we hate to admit it but Real Madrid are sadly not shopping in our market) there is nothing to stop us replicating this success through marketing ourselves to young talents the way Porto do.

A large aspect of Porto’s success in this regard has been marketing themselves to young talents as a side that they can come and showcase their talents at before taking the next step up to some of Europe’s biggest leagues clubs. In a Rangers aspect, continued success domestically will help us do the same but arguably more crucially is continued success on the continent. In that respect we have made massive strides in the Europa League, but if we can access the Champions League (like Porto) then the benefit is not only the immediate short-term cash injection, but the long-term financial benefits of payer acquisition and sales.

Ajax

We all know Ajax – the godfather of the SCM. They do it arguably bigger and better than any other club in world football. When it comes to Bisgrove’s comparison – this is the number one club we need to emulate wherever possible on the park.

Analysing them as a case study from which Rangers should base our operations upon is an entire article in itself, so I’ll try and cover the main points here. Unlike previously, where we focused upon transfer fees and profit margins, with Ajax I want to discuss how they develop their players into a position where they can make millions from their sales.

Primarily, this is down to the Environmental Success Factors (ESF) which they have analysed and developed for decades. The model takes into account the environmental preconditions for players (such as the facilities like the training centre) and combine them with human environmental factors (personnel such as the management team and the staff) to create three outcomes:

  • Individual development and achievement
  • Team development and achievement
  • Organisational development and achievement

This is ingrained into the players from a young age at Ajax as they make their way through the Ajax academy, known as ‘De Toekomst’ (or ‘The Future’ in English). Within De Toekomst, they combine both their empirical model of the club with their ESF model, which look like this:

Within this as can be seen from the above model, they espouse three core club values to the players that form part of the core Ajax SCM. They demonstrate to players that ‘Ajax is the road to stardom’, with the famous phrase being drummed into young players that “your career start here”. Secondly, they educate players not just on their footballing intelligence but their emotional intelligence as well; how to manage mixed emotions, the pressure with playing for a big club and being in the media spotlight. The final core value is that every player is being developed for the first team. That seems obvious, but the crucial aspect for Ajax is that their core way of playing trickles down into all aspects of the club and therefore all players from the first team downwards are coached, trained and developed in the same way with the same general training programmes. We have seen a move to this at Rangers recently, with first team players and the management talking to young players coming through to give them advice as they are asked to play in the same way as the first team.

These core values are underpinned by a further three basic assumptions. The first is that “development is survival” which basically equates to the fact that the club need to continuously develop players to sell them to continue the cycle and maintain the identity of the club. The second assumption is that “each player is an investment”. As a result of this assumption, each and every player is treated with importance meaning every detail of their development both professionally and personally is analysed so that it can be maximised to ensure that they can eventually add as much value to the first team as possible and eventually make as much money for the club as possible. The final assumption is that “with great power comes great responsibility”. Due to the fact Ajax see every player as an investment, they demand a lot from that player and if they fall short of standards at the club then they will be cut. Ajax however have a stringent policy of support for young players who do not make the grade and ensure they are not exiled from the social environment and ensure that all players and ex-young players in their care have the opportunity to succeed both in and out with the footballing environment.

For Rangers, this is the model we need to move to if we are serious about turning ourselves into an elite selling club and as previously mentioned we have already see signs of this as Rangers have looked to ensure that the managers philosophy is implemented throughout each level of the club. However, this can be take further to increase the potential for youth development and sales. Like at Ajax, it is imperative that the same underlying assumptions are implemented in order to ingrain a way of thinking, feeling and playing at Rangers that will enable us to espouse the core club values – developing them into sellable assets. The way of looking at every young player like an investment is a crucial aspect to this, with a constant communication between all “player stakeholders” as Ajax put it, such as the managers, the coaches, the player, their families and their educators to ensure an open and honest relationship that Is centred around maximising the development of the player. This is all part of ensuring that the ESF are geared to ensuring the complete and total wellbeing of the player.

Rangers

The move to the Selling Club Model is a reality we have all known would happen one day but now we are at the stage where we prepare to make that final step there can be exciting opportunities ahead. We undoubtedly have sellable assets that we will cash in on in the summer transfer window, with arguably the top three being Glen Kamara, Borna Barisic and Alfredo Morelos. While it is unlikely that all three will depart, it is imperative that we do look to maximise the value of them when they do go and with Barisic and Kamara heading to the European Championships, it is almost inevitable that suitors will be looking acquire their services.

The bar for the comparison set by James Bisgrove is ultimately very high, as has been demonstrated. Borussia Dortmund, Porto and Ajax are arguably the top three clubs in the world when it comes to showcasing the Selling Club Model at its finest. Each have their own qualities that they bring to the table with regards what Rangers can learn from them. Borussia Dortmund have a strong record of profit maximisation; Porto are the experts in marketing themselves to young talented players and Ajax are the connoisseurs in developing them themselves. There is a real opportunity here for Rangers to embrace aspects of all three and develop our own brand of the Selling Club Model. If we do, we can continue to move Rangers into the position of being a modern 21st century European powerhouse like Borussia Dortmund, Porto and Ajax.

And let’s be honest, that’s the stature that this club deserves.

@rsjh0501

Tags:

Related Posts

Season 2020/21 Review – Part 2

Part 2 – A blog for Europe The European campaign once again showed the quality of Steven Gerrard’s team. Three…

Who is Rangers most creative passer?

question_answer0
Sunday’s 3-0 win against St Mirren continued to highlight two key areas of improvement within the Rangers team. Decision making…

Preview: Rangers vs S.C Braga

question_answer0
Whatever else happens tonight, I implore everyone at some point to just take the moment in. We’ve came an incredible…
Menu