Is Investing in Sport a Good Business Decision?

Sports teams have become a necessity for billionaires in recent years. Chelsea, Manchester United, and Manchester City are just a few of the high-profile clubs that wealthy investors have purchased in recent years.

High net worth individuals have also purchased Formula 1 teams. Vijay Mallya, an Indian businessman, purchased the Spyker F1 Team in 2007 and renamed it Force India. Richard Branson’s Virgin Racing and Malaysian entrepreneur Tony Fernandes’ Lotus Racing were both established soon after.

Professional sports leagues in the United States generate approximately $80 billion in revenue each year, which is eight times the revenue generated by Hollywood.

In addition, there is a sizable market for sports betting. A total of approximately £6 billion is wagered remotely through online bookmakers each year in the United Kingdom. The vast majority of businesses run promotions like no-deposit free bets to entice new customers to choose them over their competitors because there are so many competing for the same business.

You might think that investing in sports is a no-brainer, given the variety of sports and the number of high-profile teams owned by wealthy individuals, but is this really the case?

Achieving both sporting and financial success is a delicate balancing act.

After purchasing Tottenham Hotspur in June 1991, then-Lord Sugar vowed to run the club like a business, taking a fiscally prudent approach.

This made perfect sense to the successful businessman. As a result, he would be ensuring that the club would continue to exist for many years to come. It’s hard to argue with Sugar’s strategy in light of the current collapse of football clubs due to a lack of funds.

He, on the other hand, was oblivious to the significance of sporting success. For teams to stay in their current league in European sports, especially football, they must be consistently successful in order to avoid being relegated.

Dropping from the Premier League to the EFL comes with huge losses of revenue that can force clubs to begin a fire-sale of their top talent, leading to a further decline in sporting success.

Manchester City’s owners have had to spend a lot of money to get their team to the top of the league. This can be good for the company, but it’s also a big risk.

A sports club investment may not make financial sense from a pure business perspective.

A Marketing Strategy Based on Investing

If you buy a sports team for the sole purpose of profiting from it, you’ll likely fail. As long as it’s for a product that you’re already selling, you may have better luck.

You can cut out the middleman by purchasing a team and putting your own logo all over the place, such as the recently-IPOed Zomato, which spends billions each year sponsoring sports teams.

One of the best examples of this is Red Bull. The Austrian beverage company’s marketing strategy is based on positioning itself as a product for people who enjoy doing exciting things. Dario Costa’s successful world record attempt of flying a plane through two tunnels was funded by the organization.

More than 30 teams and clubs have been owned and/or sponsored by the company over the years. Formula One teams, football teams, and an esports team are all included. Red Bull Racing, which won back-to-back Formula One championships in the 2010s, and RB Leipzig, which was promoted to the Bundesliga and has even finished as runners-up several times, are two examples of teams that have had tremendous success.

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