Reaching For Revenues

           What do red wine and a hydropower plant have in common? These are two of the latest examples of sports organizations trying to diversify revenue streams outside of traditional channels. For the Washington Redskins, the Alexander Valley Cabernet Sauvignon is the team’s attempt to “honor [fan] loyalty” by providing them with the “perfect wine to be savored every time the Burgundy and Gold take the field.” For the Trabzonspor football club in Turkey, the team needs “a guaranteed source of income, and we have the ideal conditions for hydro power”.

            It is easy to dismiss these attempts as another instance of sports organizations trying to monetize every possible aspect of their brand. In the Redskins case, it is it difficult to argue this point. Having an official wine to become a symbol of the football team’s success of over the past 80 years is questionable. In addition, one frequent Block Six Analytics Blog reader pointed out that perhaps should have gone with the a Burgundy wine to celebrate the “Burgundy and Gold” as supposed to a cabernet.

            Trabzonspor efforts, however, make much more sense. UEFA, soccer’s European governing body, is implementing new rules for the 2014 season that attempt to prevent owners from using money outside of their soccer teams’ revenues and profits for team operations. This is to prevent teams with billionaire owners, like Manchester City and Chelsea, from acquiring players regardless of costs because the owners’ outside financial holdings can compensate for any team losses.

But why does Trabzonspor want to invest in hydropower plants? According to The Financial Times, Turkey has been long dependent on importing natural gas from neighboring countries like Iran and Russia to fulfill its energy needs. Therefore, the country has been actively looking for alternative energy sources like hydropower (which power that comes from energy that is given off from falling water). Trabzonspor is situated in area of the country with heavy rainfalls. In addition, Trabzonspor’s club chairman has a civil engineering background and has worked on numerous infrastructure projects. Since the owners cannot use their personal funds to continue Trabzonspor success (the team has won six Turkish cups), investing the team’s financial assets in a growing industry allows Trabzonspor to pursue a new revenue source.

While most sports organizations will not be able to invest in hydropower plans, they do face a similar strategic problem that the Turkish soccer club faces. They need their business operations to finance team’s ongoing operational activities. Sports organization can no longer rely on owners, shareholders, or governments as significant funding sources. Instead, these organizations are constantly searching for new ways to generate revenue especially after the most recent economic downturn.

It can still make sense organizations to pursue new projects to maximize revenue in ticket sales, media distribution, corporate partnership agreements, merchandise, and events While it is not clear whether Trabzonspor was willing or able to invest more money in enhancing traditional revenue streams, it is clear that the owners took the initiative to take advantage of an opportunity to invest in new channels. Other sports organizations should also to alternative areas to find greater returns and generate new revenue.

We want to note that not every type of brand extension or alternative investment should be pursued even if it can bring in much needed money to an organization. The Redskins may want to think about sticking the wine idea back in the model. However, looking at new sources of revenue outside of traditional channels should be a consideration for sports managers at all levels.