THE BREAKDOWN: West Ham on the Brink, Are Sports Teams Just Brands & The WNBA’s Big Cash Play (E18)

30:35This London Stadium Challenge, I think, actually is the underlying thing. It sits at the heart, and we're not West Ham fans, and I'd love for West Ham fans to properly have some commentary on this. But to me, it certainly feels just like that underlying, bubbling kind of tension, maybe is the best word, within the club. Unhappiness. Unhappiness. And we'll move into Karen Brady because she's just announced she's leaving. Yes, so Karen Brady, Baroness Brady, as she has been for a little while now, she's been either chief executive or executive vice chair of West Ham for 16 years. okay so that spans all of this time when the stadium move was being thought about the eventual move from upton park to the london stadium the last however many years it is that they've been in the london stadium is it about 10 years something like that um around about that um so she's been very much the the the day-to-day week-to-week figurehead of the club when the club was owned by David Gold and David Sullivan.

31:36Now, as a triumvirate, David Gold, David Sullivan, and Karen Brady first come together around about 30 years ago when Gold and Sullivan bought Birmingham City and put a very youthful Karen Brady in as the chief executive back in those days. She was the youngest ever managing director of a UK limited company. Right. And it was funny because their manager was Barry Fry and the whole thing was very uproariously funny. But, you know, they were reasonably successful and eventually they sold out of Birmingham and then subsequently bought West Ham. Now, they bought it at a good price, in inverted commas.

32:10They bought it back in an era when valuations were just starting to rise, but they had not yet fully risen. So we're talking about, and I'm trying to remember off the top of my head, it was somewhere between 70 million quid and 100 million quid. It was that type of thing, which at the time people were, it was quite toppy for a club like West Ham. But of course, in more recent times, the club's been valued at more like 600, 700 million. And that was part of a billion, actually. Well, I mean, in some people's dreams, maybe even a billion. But I think in reality, if you spoke to people in the industry and said, you know, what would you get for a full set of West Ham?

32:47People are talking more about 600 or 700 million for all the reasons that we've spoken about. You know, they don't own their own stadium. Their revenues aren't as big as the big, you know, the very biggest clubs. You're talking about Everton. Everton went for these kinds of sums, you know, et cetera. It's that type of mid-table established Premier League club. So effectively, Golden Sullivan and Gold passed away about three years ago, I think it was. And his shares are now held in trust by his family. And, you know, they effectively have all, quote, done well out of their ownership of West Ham.

33:20If you look at the total amount they put into West Ham and then compare it against what their shares in West Ham are worth, today they are ahead of the game they've done well but they're not miles ahead of the game and i think this is the moment at which potentially things do start to bite and karen brady's exit from the club um a few weeks ago after those 16 years points to a for me at least suggests or points to potentially a slight changing of the guard um because she was very much sullivan's person, go-to lady. And what you've seen in the meantime is about five years ago, a Czech billionaire called Daniel Kratinsky bought into the club, buying shares from the existing owners.

34:04And the original, I think, shareholding was about 25%, 27%, something like this. And he had a put-on-a-call option, right, with Sullivan. So effectively, what that meant was is that at a subsequent point, Kratinsky could either take full control by paying a certain amount to the existing owners. Or potentially, the existing owners could say, actually, we now insist you take control. And those are then valued at different amounts. The put option will always be valued at a lower level than the call option. So you get the right incentivization on both sides. For whatever reason, Kratinsky didn't exercise that.

34:37But what has happened more recently is that as the Gold Family Trust has become less of a factor, Kratinsky and Sullivan have been increasing their shareholdings. And there's now a big question mark over who is going to be, in the future, the majority shareholder at West Ham. And the truth is, just nobody knows. Yeah, it's a lack of clarity. There's no transparency around it. Kratinsky is known in his general business career as the Sphinx. And that's nothing to do with his football track record. That's how he is perceived as doing business. Impassive. No one knows what he's thinking. No one knows what he's doing.

35:11Yeah, the Sphinx. That's his business nickname. Right? Right. And so no one knows what he's thinking, what his motivations are, what his timescales are, what his plans are. Actually, no one really knows what David Sullivan's plans are. He's got his two sons heavily involved in the club. That's Jack Sullivan and David Sullivan Jr. They're both directors of the club. Jack Sullivan was running the West Ham women's team and so on and so forth. And of course, Karen Brady was very much his lady. Does Karen Brady leaving look like Kratinsky starting to flex his muscles and saying, I want more say over the run in my club?

35:44Because frankly, you know, of the 104.2 million pound loss, pushing on for 30 million quid of that is Kratinsky's own loss. OK, so he might well be sphinx-like in many ways, but there aren't that many billionaires I know who enjoy losing 30 million quid. So there's a lot of question marks out there. But I think the one thing which can't be questioned is that relegation to the championship would be pretty seismic for West Ham because the extent to which their sort of the TV revenues form obviously a very large percentage of their overall revenues, almost 50%, and their matchday revenues, which are, I think, significantly predicated on the fact that they are playing in the Premier League against these big other clubs.

36:28Will they fill that 60 ,000-seat stadium at quite a high rental price against much smaller clubs? So can I ask you a question? Because when we talked about Spurs, We actually said, look, aside from the embarrassment and the schadenfreude of everyone else, as a business, as an actual club, relegation for one year isn't the end of the world, right? If they get back up straight away, for West Ham, you think if they go down immediately, like from year one, they've got some real challenges. There's a real danger that it can unravel in a Sunderland or Leicester type way if they don't get a very, very quick grasp on some of these broader issues.

37:03I think the big difference is that, you know, you've got Kratinsky lurking there in the background who has a very valuable stake. And it seems to me unlikely that he's going to allow his stake to become significantly devalued by West Ham spending a lot of time outside the Premier League. So the question is, is, you know, how does that power? I don't know. We don't even know if it is a power struggle. For all we know, they all get on brilliantly well. We just don't know. Right. Because it's all opaque. but if you look at the situations with Leicester City where the owner's home company King Power has been suffering corporate stress and if you look at the situation at Sunderland where there was a single owner who had already lost an awful lot of money and who decided effectively I don't want to can't lose any more money on Sunderland you had a situation where effectively you had ownerships who are no longer in a position to keep the party going the question here is is Kratinsky, and maybe Sullivan, but is Kratinsky in a position to say, right, let's reset and fund the club properly and heavily.

38:08And yeah, we are going to lose a lot of money, but we're going to reset and we're going to go again. Or is there a power struggle going on behind the scenes by which Kratinsky thinks, I might be able to get this quite cheap because the valuation of the club might come down quite a lot and the losses might be too much for Sullivan and co to really keep up with, at which point I might be able to dilute them. We just don't know. All we do know is you've got a club, which is basically a mid-table Premier League club that for a number of years now has been trying to behave like a big six, big seven, big eight club in terms of the transfer fees they've been spending, right?

38:41So if you think about those clubs of similar or just lower revenue levels who are trying to pick off the£10 million,£15 million signings that they can then sell for 50 to 60 to the bigger clubs, West Ham and probably Aston Villa and Newcastle are the clubs who have been trying to say, no, we are the big guys. We're the guys who go and spend 50 to 60 million on a player, as opposed to the guys who are buying cheap to then sell high. That having failed, and with the liabilities that that has brought with it, and there's definitely been a reputation in the market over the last few years that West Ham's transfer business has been very agent-led.

39:18It's definitely not been a club that's been renowned for data analytics or for super smart scouting. The reputation is, and I can't say the reputation is definitely true, but the reputation of the market is it has been quite agent-led. Yeah, but it's also just chaotic because there's so much upheaval, inconsistency around a manager's position. I mean, you just look at the way the leadership of the club on the pitch has also operated. You've had managers, I mean, Moyes, Lepati, Potter, now Nuno, in a very short space of time when you have lots of different football philosophies, we've discussed it before, all coming in, all clashing.

39:48That's basically three or four different transfer ideals and ways of wanting to play so managers are coming in they're picking up players from a previous regime they don't like them you've just signed them for 35 million quid what do we do you know there's just a further it's further evidence of that instability and when you've got all of this chaos happening behind the scenes then the overall picture is not going to be very good I mean look I thought it was quite interesting looking at the broader Brady pieces as you said like a an indication of of where it's at and I'd just like to say look firstly I think you know there's a huge amount to admire about her she's done an amazing job in in many ways uh particularly at birmingham um and you know west ham fans will have their own views but there's still been an increase in you know 300 percent increase in revenues of the club since she's been there they have moved into a stadium we've talked about that you know that that is um and they won a european and they won a european that's where it's culminated in but at the beginning um in 2010 she wrote in her newspaper column i don't know if you saw this to west ham fans i'll make a single pledge while we're on the board we will hang in the tower of london before your club again goes through the financial turmoil which so nearly brought it down well i mean i looking at the time of departure she ever saw the stadium deal that looks increasingly short-sighted she made a solemn promise about financial stability that spectacularly failed to keep and leaves the club potentially heading into the championship with 204 million in short-term debt and the squad being stripped for parts that was a very bold statement but in all seriousness you know when you actually do highlight it like that, that's been a failure.

41:20Yeah. And what it points back to is you can get an awful lot right on the business side of a club. But ultimately, if the football strategy isn't right or isn't executed correctly, you end up coming a cropper anyway. You need both to be right. And you can probably get away a little bit better with a great football strategy and an average business operation than you can with a great business operation and a poor football strategy. Yeah, would be a really good example. So I think just looking at it right now, everything's in flux it's increasingly probable they do go down I think the next few months West Ham fans and the rest of us actually will be looking very very closely to see what's happening behind the scenes who's actually going to run the club who's going to step forward and say right I'm basically the owner I'm you know I either own more than 50 percent or for whatever reason I have assumed control the club I'm appointing a chief executive there's going to be a proper recruitment operation and all these types of things.

42:14I think that that's what the next stages should look like. If they don't look like that, and if there's no obvious movement after a potential relegation, I think that's when as a West Ham panel, I'd start to get seriously worried. Can I ask you one quick question? I meant to ask it earlier. You mentioned wage bill at 100 million. Yeah. And revenues at 230. So that'd be like a 40%. Is that on when you've broken down wages before, where it's like, is that just the player piece? Yeah, and don't forget that that's just the wages, right? So you have to think about net transfer spend as well, right?

42:48So if you're thinking about total football, yeah, exactly. If you're talking about total football spend and you're looking at the amortized transfer fees alongside the wages being spun out on the same timeframes, et cetera, that number is obviously going to be an awful lot higher. I mean, if we had the 100 and whatever million amortized fees due, then that's 210 million pretty much, which is 90 % of your, suddenly that's 90 % of your revenue on score cost ratio. Yeah. So I think it's a bit less than that. I think the number I heard, and again, it's speculative at this point, but I think the number I heard was about 175 million on an annualized basis, including the amortized transfer fees.

43:24So 175 as a percentage of 225, that's wobbly. Okay, interesting. West Ham fans, let us know your thoughts. Yeah. I'm sure it's a pretty nervy time for you. As you know, or as you would have heard, I'm really hoping you stay up. It'll be a great reassurance. Endear you to the show. That feeds very nicely into a second topic, particularly with how you were rounding off good business, Charlie, and performance on the pitch, because the second topic we want to talk about is off the back of something that's been bubbling in the news over the last week relating to Bristol Bears, one of the Prem Rugby Team's CEO, Tom Tainton, saying at a football industry event that Bristol needs to be thinking like a marketing agency that plays rugby and that recruitment of some players who are maybe more appealing as brands is the way that the club should look.

44:15And as you can imagine, fans, the pure fans, should we say, the fans steeped in their traditions. It hasn't gone down well. It's gone down like a bucket of cold sick. And, well, for a couple of reasons, it's quite interesting to me. Firstly, I vehemently disagree with a lot of the critique, and we'll discuss that. Secondly, we've actually, if you look back, just three days released a show with Tom, which he came and filmed with us just after this event. And we had a fantastic conversation. It was after the event, was it? It was after the event. Because what I was a little bit worried about, Charlie, is that this poor chap came in here and he already had a speech prepared about all the usual bromides.

44:51And he came in here to have his ears filled by you, the whole bunch of stuff about, you know, well, basically sports clubs are really marketing content agencies. And he thought, that sounds great. I must add that into my speech. and he's gone down there and then had buckets of crap pull all over his head and he's sat there at home going, God, never listen to Charlie Stebbings again. So true. If it was the other way around, I'd be in trouble. You'd have to wear a fake moustache if you went to Bristol. Yeah, true. I still don't think that one. I'll get away with it. There's a few points to make on this.

45:20Firstly, in the context with which these comments were said, I think it's pretty unfair and actually poor practice that it's pulled out into the mass audience because it is very, very different. to say something like this to a panel of sports industry professionals in a room about the commercialization of sport and driving value through individual stars and talent to how he would communicate with a fan base talking about how bristol's going to develop and what when we were chatting about it and i've still always seen is this has never been positioned as the expense of performance on the pitch for rugby he sat in the show and you can listen to it now saying silverware winning our first prem title silverware is the next step for us the priority now the question of how we get there can then include broader work around making ourselves more marketable more investable more of an more of an attractive proposition to brands this is all kind of part of the same ambition you just in this day and age have to pull a few more levers to do that because and it's something i very firmly believe and i'm sure this will delight some of you who don't feel like this but you know no club no sports team has a right to exist you have to you have to still fight for your audience you have to fight for people to come and turn up and watch you on tv and but it is not unheard of for teams to wasps wasps worcester um london irish my key point really and this is the discussion charlie because we've got some interesting insight across sport here while maybe maybe there could have been a slightly more sensitive phrasing to the point being made by tom bearing in mind the content the context it was actually given in and bearing in mind this belief that we often talk about of sports and being content businesses having to think like that in this new world of sports consumption to to deny this to have significant issue as fans is really just to put the asset which i'm sure you treasure in danger let's say that in danger you have to think about progression you have to think about progressive strategy so i guess um you've just said you just used the word you you have to think about progressive but by by which I think you're addressing that to the fans.

47:22Sorry, yes. But of course, the truth is that the fans don't, right? And I think that's the problem with this whole thing, which is that if Tom Tainton was having a conversation with me and you about how as a commercially focused executive, because he's not the director of rugby, he is the head of the business operation of the club, how do you start thinking about ways to supercharge your revenues to enable oneself, the club, on a sustainable basis to afford the kind of playing budgets, which enable that club to be competitive at top level. And I'll come on to that in a moment in terms of Bristol's competitive situation with other top rugby clubs.

47:56That is the type of conversation that happens all the time, right? So hate to disappoint any just general sports fans out there who think that we're all there sort of kissing the badge and wearing bobble hats as executives. That's not how it works, right? So we are fully aware of our responsibility to try to deliver success on the pitch. and we are under intense pressure as sports executives to provide the money to do that whilst asking our owners for as little money as possible, right? Now, I know that fans don't care about the drain on an owner's pocket, right? But they should. First of all, because actually, as I've said before, I think on my first interview I ever did with you guys, was if the owner is funding it mostly, then it's not your club, it's his club.

48:44and you don't really have any rights over it then. So if you actually want to have the traditions of your club valued, that money has to fundamentally mostly come from fans, which in turn then gives you the right to challenge and question the direction of the club because it's mostly your money being spent. We had that discussion about Celtic the other day where basically all the money comes from Celtic fans and therefore Celtic fans have every right to question the way in which it's being spent. There are other clubs where basically, dare I say it, like under the previous ownership of Chelsea, where the majority of the money is coming from one guy.

49:14And frankly, it's his way or the highway. And the fans shouldn't really demand to have too much of a saying because it's not really mostly their money. I love that, yeah. Okay, so exactly. So here we are at Bristol, right? And you've got a business-focused executive who's been in the Bristol sports family of clubs for a decade. Originally, I think you'll correct me if I'm wrong, as a PR guy working out for the marketing and PR department and then into more senior roles. and then eventually into a role at Bristol Sports, which is the umbrella company looking at all of the Bristol clubs, Bristol City, Bristol City Women, Bristol Bears, Bristol Bears Women, and then finally into the hot seat as chief executive.

49:55Now, he's done that at a time when Steve Lansdowne, who is the ultimate owner of all of those clubs, has made it very publicly clear that now that he is retired and in his mid-70s, that the days of him munificently funding all of these clubs are drawing to an end, And all of these clubs need to become more sustainable and more investable to people other than him. So it's absolutely clear that Tom Tainton would have been given the commission and the mandate by Steve Lansdowne on his appointment. Can you try and make some sense out of this? Can you try to make sure that I'm not having to spend five million pounds a year, which is what it has been, of my own money propping the rugby club up?

50:34Can you try to make more sense out of it? And as an energetic, imaginative young executive, he's done some really interesting stuff. And we have to recognize that, you know, this is the club that brought Ilona Maha to the UK last year. This is the club that did the deal to bring Lewis Rees-Zamit back from American football. Okay. And it's reflected in their attendance levels, which are really, really high. Okay. So this is why I think it's important to get some nuance into this. Okay. So the attendance numbers in English professional men's rugby, you've got Leicester Tigers, who are the biggest historic club of English men's rugby.

51:13Sorry to Bath fans, but that is generally speaking how the rest of us would view it, who are getting 21 ,000 a week at Welford Road. Then you've got a whole group of clubs, Harlequins, Bath, Gloucester, Northampton, who are around 14 ,000 to 15 ,000. but Bristol were up at 19 ,000. So they're the only ones now who are pushing on to try and challenge the attendance levels that Leicester are getting. But that has not necessarily all translated straight through into revenue. Their revenue levels are, or have been around about the 13 million pound level compared to Leicester and Northampton, you know, single club cities where rugby's quite heavy and quite dominant.

51:52I know Leicester City is very, very big and Northampton Town exists, et cetera. but they are big rugby cities. And they also sort of speak for their county. Leicestershire and Northamptonshire get behind their rugby clubs. So they're both up at the sort of 21 million type area. And Bristol's been down at 13 million. Okay, so that, and that was a loss, a loss of 5.5 million. So what Tom Tainton's challenge here is, is how can I get more people through the gate? How can I do more interesting things commercially? How can I engender a broader audience beyond even just the ones who come through the gate and pay for tickets?

52:26I need to start thinking of this business in a different way. Because if I just run it like a traditional rugby club, then ultimately, in the end, Leicester squash me. And the French clubs squash me. And I end up not being able to, particularly if Mr. Lansdowne eventually decides to sell the club or move on, whatever it might be. Once that cash float is no longer in place, then at that point, the spending that we have available to spend on players starts to come down and we become less competitive, which is not the aim of the exercises. as he said to you, we want to win silverware. So he's trying to square this circle, and it's a difficult circle to square, and coming up with inventive ways to doing it.

53:03And his way of explaining that is to say that the way that I look at it is that we are a marketing agency that plays rugby. Of course, he's not saying it's not a rugby club. Of course, he's not. He knows it's a bloody rugby club. He runs a rugby club. But he's saying that's how I think of it. And he's saying that to a group of other sports executives so like you i want to be 90 right behind him and his way of thinking and the things that he's doing to try to make his sports club sustainably competitive at the top level the one quote which i thought was injudicious and i must put an asterisk saying i've given plenty of injudicious quotes right so have you got any of them to hand well you won't have to just look on wikipedia it's all there um right so he gave a quote which i think was injudicious.

53:45He said, our players have to be competent, but if they are not bringing any value off the field, then that genuinely factors into our recruitment conversations. Now, this is the bit which was then picked up by Brian Moore, the veteran, former England hooker who is a columnist for the Daily Telegraph and a great sage of rugby these days. And this is the bit that he picked up on. He didn't have a big issue with some of the rest of it because Brian Moore's a pretty smart guy, he kind of gets it. But he did say, what players do on the park must come first, and nothing off the field will make up for not doing their primary job.

54:19Now, you know, is there a false distinction being made here between, well, you can have players who are outstanding on the park, who are also outstanding off the park, and Tom Tainton might well say, I want, I'm targeting the ones who are both. And maybe some other clubs aren't. Maybe some other clubs are basically saying, well, it doesn't really matter what they do off the park whereas i'm saying it does matter what they do off the park but i think that brian moore is right in saying that that there needed to be you know saying our players have to be competent i think probably one would want to replace the word competent with excellent right so that the bar you can't imagine like recruiting a player who is just competent to a club that's aiming for top silverware you know you are trying to push the bar higher than that but overall i think his general direction of travel is the correct direction of travel his way of thinking is the correct way of thinking because one big gripe i have with sports club executives is effectively they sort of sit there and when the team does well more people turn up and more money comes in or whatever it might be and they go well because we're doing a good job and then when the team doesn't do well they say well of course the reason why the number's down is because the team aren't doing so well and you sort of think well what's the point in you then i mean effectively the head of marketing at the club is simply the first team manager.

55:33So why are you being paid a fat salary for sitting there basically just doing nothing? Whereas he's turning on his head saying, no, I want to be proactive. I want to do stuff. I want to make a difference. It's just come across in the wrong way. But I just wonder whether this is the moment, Charlie, just have a look at the financial, you know, the challenge that English professional rugby is facing vis-a-vis French rugby. Because, you know, we're in the middle of the, you know, the Champions Cup sort of denouement where obviously there is not an English team in the final. It's being played between an Irish team and a French team.

56:04And that's been quite consistent over the last few years, which is that the big French clubs have sort of dominated with Leinster sort of sticking their foot in the door, you know, and saying, well, we're here as well, etc. And I'm just sort of looking at this and the problem that English rugby faces is quite similar to the problem that European top flight football faces vis-a-vis the Premier League's TV revenues. And hence why the Tom Taintons as well are really having to work very, very hard to even vaguely keep up. Because if you look at what Prem Rugby's TV revenues have totally flatlined over the last 15 to 20 years, they're basically getting 30, 35 million a year from their TV deal.

56:47In 2013 to 2014, it was 38 million a year. Okay, now if you split that out between the clubs, the amount that each club is getting from its TV revenues is minimal. Now, if you're looking at France, they're getting$110 million domestically from Canal Plus, okay? And then they're getting an extra$20 or$30 from their foreign rights. So in other words, the French League is getting almost as much from its foreign rights as the English League is getting from its domestic rights. And that then leads to totally different cost caps. So, you know, if you look at the English League, currently£6.4 million per club in terms of total squad cost.

57:25They can push that up using various allowances to about£7.5 million, that kind of thing. In the French top 14, it's already at 10 to 11, rising to£14 million. So in other words, they're effectively able to spend almost twice as much as the English clubs. And yet, effectively, our top clubs are being judged somewhat by their own fans on, okay, well, how are you competing in European competition against the top French clubs. So it's a big challenge. It's a huge challenge. As I said, it's the same challenge that, you know, Spanish football clubs and German football clubs are facing when it comes to competing against English Premier League clubs.

58:00Yeah. So at the same time with that, quite often if you do have less of a reliance on central revenue, let's say it was, I don't know, three to four million of TV deal money coming down into the Prem clubs, and you're then getting clubs that are doing, what, 20 to 25 million, they're having to generate a lot of that on their own absolutely you look at the premier league clubs yeah you'll have a few premier league clubs in there some of the smaller ones whose reliance on central media will well central revenue streams will be up at maybe 75 to 80 so in some ways for rugby they're being forced to to look at this like european football clubs in different ways they're being forced to extract more value out of the club that they've got and try and find ways to to generate more cash but that does lead to then situations like this so the purity of that rugby fan you know the the die-hard um passion that exists for everything that is called rugby and i think it probably does more in rugby than any other sport i think i think rugby is really holding on to its traditions and its amateur past which i understand but i always sort of say to fans that circumstances i say the same in football as well which is if that is your priority and you're cool with that that's okay right but let's make it very clear that you won't be competitive as a club are you okay with that bit as well right so that's the question i'd be asking bristol rugby fans which is okay he could have perhaps put it a bit differently but fundamentally he's trying to drive your club forward so it can compete yeah right are you if you're saying you don't want his mindset and his way of looking at things at your club Are you okay with being a mid-table club that doesn't compete in Europe, that can't compete against the French clubs?

59:40Because if you are okay with that, do you know what? Absolutely fair enough. And you can see this in English men's football where Wimbledon, the Dons Trust, won't sell a majority of their club. Now, if they did sell a majority of their club, it being a central London club and all that brings, they could probably find a very rich new owner who could come in and who would more reliably be able to provide the funding to take Wimbledon to the next level. But the fans say, okay, that's fine. But actually it's not fine because unless we keep control of this, we might lose the bits that really, really matter to us.

1:00:14So that's the question I'd ask Bristol fans is do you want to be a bit like AFC Wimbledon? Do you actually want to try and keep, not be as competitive, but be very clear that you want to keep your heritage or do you want to be competitive? So anyway, I think we agree. Could have been put better or at least could have been, I think one thing that you have to understand is as a chief executive, everything you say in public, even something you say in private pretty much, you have to say, would this stand public scrutiny? Because it could well come out in this day and age. Anyhow, there we are. Moving on.

1:00:44Moving on to, Charles, the WNBA. Oh, fantastic. Women's basketball. Area of expertise. Which is Charlie's abiding passion. I'm not a huge basketball fan. No? Men's, women's, no. I mean, I love the last dance, which is horrible. and that's literally probably the thing that every basketball fan hates to hear. I thought it was brilliant, really interesting. I said it before on the show, I struggle with some American sports. Yeah. But I know you are. But it's not going to stop us discussing them. Oh, no, God, no, no. And the WNBA returns this week for their new season. Now, what's really interesting, I find, the WNBA was set up 30 years ago, 1996, and unlike the mistakes that are being made by professional women's football in Europe.

1:01:31They were much more careful to start low and build slowly. And they deliberately have a season, which is the opposite of the men's season. So just as the men's season is coming to an end, the women's season starts. So that if you are a passionate basketball person, you have the opportunity both to focus on the men's season when it's happening, and then to focus on the women's season when it's happening as well, as opposed to being forced constantly to either focus on both, which is very difficult, or else to choose between the two. And one of the main cornerstones of their gradual growth has been a very strict wage cap, as happens in most US sports.

1:02:15So back in the day when the thing was starting out, your average female basketball player was being paid 20 ,000 to 30 ,000 bucks a year. and you had to make a serious choice. I know Mrs. Methven had to make this choice which is am I willing to basically be paid less than I would be in what I would probably be doing in the rest of my life because don't forget all these athletes are coming out of colleges so it's not like they're sort of 16 year olds who pretty much this is their entire life. They do have other avenues they could pursue or am I just so passionate about basketball that this is what I'm going to do.

1:02:48and over those 30 years there has been a gradual growth you know they started off playing in secondary arenas the crowds would be 1 000 2 000 3 000 and over about 25 year period gradually it grew they started to play more often in the associated men's arenas because the often the franchises were associated to nba men's franchises it was very much a baby born of the nba as you'd expect with it being called the WNBA. And it was pretty low cost. And in as much as, you know, it was heavily subsidized effectively by the NBA during that entire period. In more recent times, there's been a lot more noise around the WNBA.

1:03:32And it's perceived, and we'll get into whether it's true or not, that there's been an explosive growth, exponential growth has sort of come from nowhere. And that then in turn has meant the players who by this point were being paid about 100 ,000 bucks a year, so still quite modest, 120 ,000 bucks on average, that kind of thing. So talking about those in the UK audience, about 80 ,000 pounds a year, that they should be being paid a lot more, a bigger slice of the pie. And their union, the WMBPA, took a strike ballot and they voted to go on strike in advance of this upcoming season. And then there's several months of negotiations with the WNBA about what the wage cap might move to.

1:04:17And they've ended up moving it quite a bit, right? So the wage cap has really flown from sort of average player earning about 120 ,000 bucks a year to more like 500 ,000 bucks a year with a clear view on potentially going to more like 800 ,000 bucks a year by 2031. Now, the league said something quite interesting during this whole process. And they said that the WNBPA said that the proposal is unrealistic and will cause hundreds of millions of losses for our teams. And that is true. That is broadly true, right? Which is that these increases are not actually affordable as things stand right now.

1:04:57Can I ask you a question straight in there? because what I saw and the other side of this that came out recently is all big noise. We know the lovely metrics of valuations, but there was a big headline of the first billion dollar women's team valuation with the Golden State Valkyries. Alongside the billion dollar valuation was their revenue figure of$78 million in their first year. Now, can we leave the valuation aside just for that? $78 billion in revenue in a debut season is an impressive feat for a sports organization. And is the highest in the league. But they will still live under the same rules and regulations of the salary cap, right?

1:05:38So a$1.5 million salary cap with revenues of$78 million. From that standpoint, do you not think that there's a legitimate discussion to be had with those players? Some of whom I read said that, you know, they last year struggled to pay their rent. but the team can make X amount, that that should have been raised, that the players should have been getting more. But that's linked to team success. Again, because you're going to tell me that the average is far lower, which I'm sure is true. But do you not think in that situation that that is right, that the players get paid more? Yeah, and I think there was absolutely a case for the players to be paid more.

1:06:15But to quadruple it in one go, I think is punchy, bold, brave, or whatever it might be foolish because the recent supposed exponential growth has been very heavily linked to one player, Caitlin Clark. And for those who don't know, this is a young basketball player who came out of college two or three years ago, two years ago, and was a very, very famous player at college as being the generational talent outstanding talent who then the moment she came into WNBA brought a huge upswing of interest in the WNBA from general men's basketball fans following her and there was almost like a control study because TV audiences shot up during her involvement and then when she got injured they halved again the messy effect at Miami.

1:07:12So, you know, the question is here is how much of this explosion interest is driven by one player? Now, there's no doubt, by the way, that there has been slow and steady growth anyway, right? And we discussed recently how the real big flashing red sign about the women's Super League football is that attendances are actually declining rather than increasing. Whereas in the WB NBA, they have been increasing. And the league-wide average now is around about 11 ,000. The league just landed a new 2.2 billion media deal this season? The media deal is an interesting one because it's effectively a subset of the NBA deal.

1:07:46So effectively, the NBA negotiates their deal with all the big companies. And then they negotiate at the same time, what share of that is going to go to the WNBA. So working out exactly what a normal commercial rate would be for the WNBA is quite difficult to do, because it's all a long period of time has been 3%, 4%, 5 % good, steady, and starting to build an environment where these franchises can make money. I think when you start to move towards a situation where the players have been paid a million bucks a year, that is going to put quite a lot of stress on the entire system. And you, I think, would be well advised to consider carefully the extent to which this is very heavily driven by one athlete who is, it's almost hard to describe how famous she is in the US.

1:08:36She is extremely famous within that US market. So she is the one female basketball player who has elevated herself onto a totally different level by which normal sports fans will go, oh, is Caitlin Clark playing today? I'd like to watch her, right? That's what's happened here. So look, I think it's a nuanced picture, which is that women's basketball is growing. Even without Caitlin Clark, it already was growing. Even if she were to get, heaven forbid, badly injured again, it would still be basically growing. There are more expansion franchises coming. So by 2030, there will be three more franchises.

1:09:14The cost of those franchises is$250 million. And I just mentioned the Valkyries. They were bought a few years ago, a couple of years ago, I think. Born. Yes, but as in the license went for$50 million. $50 million, right. So that was their expansion franchise. So it's gone from$50 million to$250 million. Now, I took the time before discussing this to consult the sports industry sage, Roger Mitchell, who has been talking about this for the last two or three years. And he describes women's professional basketball as what he calls a fugazi, which is basically a bluff. The whole thing is like a Ponzi scheme where lots of confidence is sprayed around in lots of different directions.

1:09:53And really rich people buy into that confidence and say, yeah, it's worth 300 million, 500 million, 700 million, 900 million. It's like being the sales ring at Tattersall's when they're orcharding off one of the top yearlings from one of the big stud farms. And scrape it all back and say, well, this is a mature product. This is not a new product. It's been there for 30 years. And on a revenue basis, we're starting to talk about revenue multiples at 20x. Tech multiples, basically. Right. We're looking at tech unicorn type multiples being applied to a mature legacy product, which has been showing a steady growth profile, like many sports have been during that entire era.

1:10:37And at a time when other sports franchises, for instance, the English Premier League being the premier football franchise in the world, revenue multiples, 4X. So Premier League, 4X, women's basketball, 20X. and so the question is which people like roger raise is not should women's basketball exist not should women's professional basketball players be reasonably well paid it's are we starting to look like the inflation of a bubble here which all sorts of things are being sort of you know dreams and hopes are being piled into when in actual fact there was a perfectly reasonable steady slow growth legacy product that was going on there which over time indeed would have could have should have led to a sensible growth pattern but so are you basically saying that for them to be able to get paid what really we're talking about here we just need to see the collective value of that league actually increase from a revenue standpoint i.e if a league is making a lot of money and can support the salaries of those players to a percentage in line with how the nfl or the nba operates which are generally on 50 distribution of finances to the players from the league and the clubs, right?

1:11:49Yeah, but don't forget there are certain basic, when you're operating a sports club, there are certain basic costs that have to be covered off first, which kind of apply to all sports. So it's fine to share 50 % when your revenues are so big that the 50 % kept by the club or the franchise is big enough to cover all that type of stuff without batting an eyelid. But if your revenues are more like most WNBA franchises, around about 40 million bucks a year, and let's just say, for example, that the franchise holder was only receiving 20 million bucks of that. And out of that, they were having to put on the whole show, all the travel around the country.

1:12:22They were having to pay all the coaching staff and the general sort of commercial staff, et cetera. There isn't much left at the end of all that. So the kind of levels that we're moving to here mean that the group who are scooping the gain from the current hopes and dreams of where women's basketball is going to go are the performers. And the people who are having to take it on trust that eventually the percentage that the franchises get to keep will be sufficient to justify the kind of valuations they're playing are the franchise holders. So the balance has totally changed. And because obviously, as you said, three years ago, even buying a franchise was so relatively inexpensive that actually you could afford to be a little bit more sort of, you know, generous with your view in terms of how much should be going as a player.

1:13:07But when you're paying$250 million for the right even to have a franchise, you're doing that because you think that there is going to be it's going to be a profitable business. You're not doing it because you think that every single time that there's a bit more revenue it just gets shoveled straight to the players. We saw this in the NWSL didn't we though? I mean in 2019 they were trading at about$2 million a franchise and then Angel City sells for a$250 million plus maybe even valuation. So it's not the first time this type of multiple is being attributed to some of these teams in women's sports in the US.

1:13:38That's because there's a real rising hype as you've said around some of these now. But also, most importantly, I always worry with this, that it's just built in comparison with what the men's is. And therefore, that always adds a particular premium to it because there's just this underlying belief that it should be up higher because the men's is so high. I saw reading some of the stuff before, right? If you're looking at a comparison between those wages and a top player could earn, it was about$249 ,000. Next line was the top NBA player earns$50 million. dollars it's like well yeah but again bring it back to the what the nba is and has created and what the wmba is and has created it's very hard to compare those two because it's apples and oranges it is apples and oranges it's absolutely apples and oranges but there is this sort of lingering thing of saying fundamentally it's unfair that female athletes get paid less than male athletes and this is not something which is replicated this fit the sense and a feeling is not something that's replicated across other segments, right?

1:14:41So in other words, if I was to ask you the question, who do you think earns more in the fashion industry, a female supermodel or a male model? I listened to like David Gandhi stuff before and he's been paid like a million a year for some campaigns and the female equipment, I think like Gisele Bunch only got 30 million for the same thing. So for me, that whole direction of travel of saying, well, there needs to be equality in everything, it's just totally nonsensical and there's no doubt that that there's a bit of that that's driving this then there's the sort of this could be the next big thing what roger calls the fugazi element of it which is the the hype and the bubble around it and then underlying it actually there is some growth right which is what means that even people who are very cynical about it have to accept yeah but it is growing right so in 20 years time if it kept on growing at three or five percent a year you know could end up being something so anyway i mean if it is tied into the media deal at 2.2 billion, regardless of how they're doing it.

1:15:36I mean, if that's there, then that's good revenue. Yeah. On another show, I'll come back on unpacking that TV. We don't have time right now. That TV deal is not a genuine... That's not a genuine... But it's still revenue coming to the league or not? No. Right. Not in the same way. It doesn't work quite that way, but I'll come back onto that. Okay, fine. I mentioned 78 million for the Golden State Valkyries, and you said that was the top by a considerable amount. Do you know what some of the other teams are? I believe that the average is about$45 million. But then again, even at$45 million,$7 million to a cap to your player, that's one-seventh just under.

1:16:13Yeah. So that's manageable. But that's very similar to what we call a big League One football club here. And that's about what they sort of pay their players and they lose money as well. What, one-seventh? What? One-seventh of their revenue. Well, yeah. So if you look at a big League One club like Bolton Wanderers or something like that, they'll be doing about£21,£22 million revenue a year. So talking about 30 million bucks, a bit more than that, which is similar to the sort of bottom half WNBA clubs, et cetera. And their players will be paid eight, nine million a year, that kind of thing. So 40%.

1:16:44But you're not paying 250 million for an expansion franchise. You can pick up these clubs for a tenth of that. And this is where the disconnect happens for me, which is American sports is a business. It's not a passion play. It's not a lifelong fan of the Golden State Valkyries going, I've been watching the Golden State Valkyrie since I was five years old, et cetera, et cetera. These are driven by business fundamentals at some point, right? Franchise owners expect that their franchises will make money. And there was nobody at the moment in the entire industry, including the players, who are expecting WNBA franchises to make money right now.

1:17:19And for me, that's dangerous. You know, the American system is built off the basis that they will make money. And that's what justifies these huge expansion fees and indeed general valuations. Okay, interesting. The season starts this weekend. It does. So if you are interested in checking out the product, go and take a look. I wish I could tell you which platform to go and access it on, but I don't have a clue. But one to watch. I find that really interesting to take a look at. And Charlie, a really enjoyable chat today. I think we covered some good stuff. So thank you very much. Thanks, Charlie.

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