Step Changes – Climbing the footballing mountain

TLDR version:

Clubs have a natural level based on their income

The only way to add significant value to a club is to break out of their peer group and go up a level.

This happens by getting better players on the pitch. You can only do this by doing something significantly different than your peers.

Building this competitive advantage is likely a 5-10 year project, so separate project management from day to day pressures.

Q: How do you climb a mountain? 

A: One step at a time.

When faced with the fundamental question of how to make a football club better the easiest answer is just that. Keep on moving forward one foot in front of the other, each day you improve a little, and those small improvements compound over time and eventually you succeed.

No doubt this is good advice, everyone should look for improvements and aim to maximise efficiency.

But at some point on that path up the mountain you will hit a section that steady progress can’t overcome. 

That is because when we talk about improving football clubs we aren’t talking about a steady path, leading to the summit of a mountain. We are talking about a path with sheer cliff faces, and climbing sections. 

Pyramid or Mountain

In football we often refer to the pyramid. As clubs improve they make steady progress through the leagues, smoothly moving up through the system to the very top. Steady, predictable, and incremental.

Each step is as far apart as the last.

The reality is more like this.

Steady progress can only get you so far. When you reach a certain level being able to out-compete teams with a budget 25-50% larger through your efficient spending isn’t enough. Teams with budgets 2-3 times as large simply buy the players you would want to sign. Your coach gets offered a better job. Your Sporting Director leaves. 

But why would I want to climb a mountain?

A nice stroll in the foothills may be the right thing to do. Running a club well is something to aspire to. Not every club can realistically build to the Champions League level, even over time. 

However, most clubs bleed money. Running a football club at any level is really, really expensive. The biggest clubs lose tens of millions a season on the underlying costs of putting on football matches, even smaller clubs can lose a few million. At some point you have to think about sustainability. 

In the last few years, I have seen hundreds of pitches for clubs seeking investment. Very few of them have any prospect of the investor making a return. Most are just invitations to burn tens of millions before eventually selling to some other unfortunate person.

There are a few exceptions to this; blue chip clubs that have very large revenues and prestige, clubs in specific markets with the ability to massively profit from player trading, and clubs that are in markets where there is potential to access the elite.

The final category is clubs who have the potential to “level up”. Moving a club up a league or two and establishing it at the higher level will add value to the investment.

That isn’t easy, it requires a step change.

Step Change

A step change, or paradigm shift, is a major change in how something is perceived. 

In mountain climbing the earliest people to attempt to scale the tallest mountains would have done so with minimal equipment. They would have reached seemingly impossible sections and would not have made it to the top.

After the invention of climbing rope and metal fixings, these previously un-climbable mountains were conquered. People have found a way to do the impossible. Nobody could climb Everest but with oxygen supplements over 6400 climbers have made it to the top.

We no longer think of mountains as un-climbable and we no longer think we will drop off a flat earth if we travel too close to the edge.

If we consider the Champions League as football’s Everest and look at the last 20 years of winners we’ll see the football elite with Real Madrid, Barcelona, Bayern Munich, Manchester United, and Liverpool regular Champions and runners-up. The only teams to have won their first Champions League trophy are Chelsea and Manchester City. 

So clearly one method of climbing Everest is to build a pile of cash as high and simply step across. 

But what if that isn’t an option? How do you level up so you are at least starting your assault on Everest from base camp rather than sea level?

This is the point where we need to consider the difference between short-term competitive advantage and long-term transformation.

Meta Games vs Step Changes

Smart clubs are always playing meta games. Looking for quick-to-exploit differences that enable them to get ahead of the competition. They are efficient and maximise their budget, they may get the occasional glimpse of the promised land through an unexpected promotion, but they are soon to slide back down to their level. Luton Town may be a good example of this. Smart enough to win promotion but ultimately not ready for a sustained spell in the Premier League. 

A Step Change is something different, this is a sustainable long-term transformation of what the club is perceived as, both internally and externally. 

If we wanted to define this we would say it is when it would be a shock if the team were to be relegated from the level. The club has broken away from their perceived natural level and settled at a higher level.

The obvious example in England is Brighton. They are now firmly established in the Premier League. Brentford are coming close to reaching that point too.

The Brighton and Brentford model

Everybody has data now. What Brighton and Brentford have is ownership who buy into it. Their systems and data have received (tens of) millions of investment as they rely on data in their non-football core business of gambling. They completely trust the accuracy of their data for making football decisions. So whilst it is true that decent data exists at all levels of football now, enough to make very good decisions, it is still the case that most clubs do not put data at the heart of what they do.

This isn’t a blog on data though.

It is about anything that can cause a long-term upscaling of the club, something that enables the club to win more games, and sustain that advantage over time. So whilst data was (and is) a way of levelling up a club it is not the only way.

Finding the New Natural Level

When you look at the teams who have made a step change in how they are perceived you find something in common.

They have done something radically different to everyone else.

If you just sensibly and incrementally improve you’ll hit that unclimable rock wall. This is the limit of what your club can realistically achieve, your natural level. 

For a lot of professional clubs in the UK that is probably reaching League One and surviving at that level. 

There isn’t much difference in potential between a top non-league club and a bottom-end League One club. Most National League clubs with EFL usable facilities could imagine a realistic 20-year path to playing in League One, it wouldn’t be easy but it is feasible with some luck.

Beyond League One? That gets harder, you have to be better than ex-Premier League teams like  Birmingham City, Charlton Athletic, Barnsley, Wigan, Bolton, Reading, and many more ex-Championship teams. 

These teams can sustainably spend multiples of your income and will attract owners who will spend unsustainably on top of that. They have 20k seater stadiums and are based in large towns and cities. 

Maybe reaching that League One level is the Everest equivalent for most clubs. You can’t do anymore. There has to be some realism, and teams reaching as high as they can feasibly reach should rightly be celebrated.

But there are teams at that “League One sized club”  level that could break out. 

Historically Brentford were a third tier team.

Brighton is historically a bigger club, with a larger support and catchment area and spells in the top division, but on average an upper League One, lower Championship level club.

Yet both have scaled the mountain, and at worst would now be perceived as a Premier League team with average relegation risk. That puts the club value at 20x what it would be in League One.

In Italy, Atalanta have shifted from a yo-yo club to an established top 7 finisher who have enjoyed European success. This has seen them gain investment at a valuation in the hundreds of millions. Their success has been due to having one of the best academies in the world, developing players to trade profitably and supplying their team with talent at below market price values.

Breaking out of your “natural level” to get higher, and crucially to shift perceptions of your team’s level is crucial for a significant return on investment. 

Keep in mind that Brighton and Brentford were fortunate in that their owners were able to leverage technology from their other businesses that significantly helped the teams break through levels. They also injected a significant amount of their wealth to make the step change. Only now as established Premier League teams are they, potentially, able to make a return on that investment.

This isn’t easy.

Moonshots or simply strategy?

In technology, a moonshot is an ambitious, exploratory and groundbreaking project undertaken without the assurance of near-term profitability or benefit.

You try radically different things in the hope of developing a breakthrough.

As exciting as that sounds football is a sport governed by some simple rules. 

As interesting as Brighton, Brentford, and Atalanta’s projects were technologically and organisationally the result was they ended up with better footballers on the pitch to win games.

Projects need to be centered around the idea that the team ends up with better players than they could naturally afford. Moonshots are great, maybe necessary when obvious wins have already been used up but there are obvious wins available to most clubs.

Significantly Different

In order to build a defendable long-term competitive advantage you need to do something significantly different from your peers. Different and not easily replicated.

Not easily replicated means something that will require skill, time, and patience to execute.

Time and Patience

Atalanta revamped their academy in 1991, Brentford and Brighton took 10+ years to reach the Premier League after their owners became involved. 

How many teams have a Sporting Director or Head Coach who has been in position for over 10 years? How many clubs have had the same ownership for over 10 years?

How many projects that will take 10 years to come to fruition will survive the full 10 years without being significantly changed or cancelled? 

When you look at it like this it is no wonder most clubs can’t get over that sheer rock face in front of them. We know it will take 10+ years to see the outcomes of patient strategic building.

When faced with a 10-year wait it isn’t surprising that most people prefer repeatedly running and jumping to grab at a higher ledge. 

But a project taking 10 years to come to full capacity doesn’t mean there won’t be at least some benefits from day 1. 

Separation

In our view there is only one way to successfully undertake long term projects in football clubs. That is to separate delivery of long term projects from day to day operations.

Choose the projects you want to undertake (data, distributed academies etc) and assign a team to build what you need built, with incentives to stay in place and make it work.

These security of employment of these people should have nothing to do with whether the team win or lose at the weekend. The budget should be completely separate from the rest of the expenditure at the club.

There should be no oversight or input from the first team staff.

Of course the project needs monitoring, with milestones, targets and reporting but the project should not be influenced by anything other than the idea you are building the capacity of the club to make a step change and to find a new natural level. 

Conclusion

Once a club has reached their natural level, and is run as effectively and efficiently as possible an owner should look at planning to make a step change.

That could be stepping up from the National League to becoming an EFL club, a Championship club to a Premier League club, or a Premier League club to a Champions League club.

Breaking out of your peer group to join a higher group will take long term planning and the pursuit of a project that will separate your club.

The project should always focus on supplying you with better players than your peer clubs.

Once established at a higher level the process starts again.

Strategy is key. If you don’t have a clear footballing strategy you are sure to underachieve and lose money. 

MRKT Insights have worked on strategic plans with some of the most innovative clubs in football.