Football Partnerships

By Matt Cutler

Real Madrid announced yesterday that it has extended its shirt sponsorship deal with Austria-based betting firm bwin for another three years.

bwin’s name first appeared on Madrid’s shirt at the start of the 2007-08 season in a deal believed to be worth more than €15 million a year.

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All bets are off!

By Jérôme Osselaer

A growing global market of $350bn
$350bn is the estimated revenue generated by sports gambling worldwide, according to EWS (Early Warning System) officials.

In the US, 48 of 50 states allow some type of legalized gambling, but Nevada is the only state where sport wagering is legal. In 2006, the country enforced its ban on internet gambling by outlawing gambling-related banking transactions, closing off the world’s biggest online betting market at the time. Various media accounts estimate that the annual amount illegally wagered on sports exceeds $80bn. In Nevada, the amount legally wagered on sport is just $2bn per year.

Gambling is also illegal in the vast majority of Asian countries, where illegal betting could account for more than $100bn. “That’s the general industry reckoning for how much revenue, meaning the total turnover minus winnings paid out, was collected in the illegal Asian betting markets this year” (W. Feldner, EWS Head of Strategy). According to Interpol, crime syndicates control 95% of the Asian trade in illegal gambling on football matches. “Our main fight is against those markets. In Europe the industry is highly regulated” (W. Feldner).

The European market is also driven by football. This article focuses on the link between the sports gambling industry and football in the top five European countries (England, Germany, Spain, Italy, France), where national markets have been progressively deregulated.

Anywhere, anytime, on anything, by anyone
With the advent of digital media (the internet, mobile phones and interactive TV) and high levels of internet penetration, together with the expansion in satellite and cable TV coverage, the cross-border supply of gambling services has become increasingly accessible to an increasingly broader customer demographic.

Although horse racing is still a major revenue stream, factors such as the emergence of online gambling and betting on a broader range of sports, especially football, have fundamentally changed the business model of UK bookmakers, such as Ladbrokes and William Hill, the sector’s two biggest companies, which may be less recession-proof than in the past with fewer loyal customers. “The current business model hasn’t been tested under a recession. It used to be horse-race dominated, but now profits come from machines and online gambling” (D. Nathan, Blueoar Securities).

Along with these traditional bookies shifting from a brick’n’mortar to a click’n’mortar business model, the market has seen the emergence of new entrants, with pure players such as Betfair, Bwin and 888.com.

Deregulating, slowly but surely
UK : from the 1960s, when betting shops were forced to black out their windows, to the Gambling Act in 2007, the UK legislation now allows gambling companies to advertise on TV, while the government insisted on a 9pm watershed and imposed a 15% tax rate on online gambling companies. The Act also set up the Gambling Commission, responsible for regulating the whole industry. Following these rules, Google recently decided to end a 4-year global ban on gambling adverts on its site for British customers. Gambling in UK is now a 24-hour activity, worth more than £40bn annually. Football’s ascendancy over other sports is obvious, with about 60% of the market, of which 70% for the Premier League, 15% for the Championship and 15% for the rest.

Spain: the regional governments in Madrid and the Basque country have become the first to relax the gaming regulations which banned bookies’ shops from high streets. Other Spanish regions are expected to follow their lead. Betting is limited to 30 sports, but bets on political and religious events are strictly prohibited. Football is likely to be the main draw, as 65% of all bets placed online last year were related to the nation’s favourite sport.

Italy: with recent changes liberalizing Italian gaming regulation, it is estimated that about $91bn will be wagered in the country annually by 2010. Not surprisingly, football should come first. “We now have a whole new generation growing up with a lot of opportunities to watch football on television and bet on it. These people have no knowledge of racing or what is going on in racing” (G. Barsotti, Italian racing journalist).

France: in 2006, the LFP, the French professional league, banned Bwin from putting its logo onto Monaco’s jerseys and stopped 888 from backing Toulouse, citing the risk of legal proceedings. Bwin’s co-chief executives were arrested in September while unveiling its deal with Monaco. Then, the European Commission found that France was “hindering competition in the sports gambling industry” with the national monopolies of La Française des Jeux and the PMU, and officially asked the country to modify its legislation in June 2007. Consequently, the French Ministry of Budget recently announced a “deregulation under control”, probably from 2010, when the online gambling market should reach 10 bn€. A market targeted by Lucien-Barrière and Partouche, co-leaders on the French casino market, but also by the LFP, expecting a 2% tax rate.

Germany: in 2006, state authorities banned Bwin from sponsoring Werder Bremen, saying it didn’t have a betting license. The German monopoly on online gambling prohibits all forms of games of chance. Earlier this year, the new Interstate Treaty on Gambling (ITG) became effective, adhering to the monopoly and containing the principle to avoid further addiction to gambling. The current ITG will expire in 2012. Many market experts consider it as an indication that after expiration of this term, the German gambling market should be liberalised.

A juicy market in need of consistent regulation
National policies usually regulate the quantity and quality of the gambling supplied. Thus, some forms of gambling may be prohibited, according to a range of factors including addictiveness or the extent of criminal involvement, or the number of gambling opportunities may be limited. Where the provision of gambling opportunities is permitted, two broad approaches are used to ensure the quality of the gambling services : either the use of a state-owned body with a monopoly position, or a licensing regime with a supervisory and enforcement mechanism.

Even if in some Member states, certain aspects of gambling are regulated at a regional level, such as the German Länder or the Spanish comunidades autonomas, the regulation of gambling is currently a national competence. But the complexity of the web of national laws has been exacerbated by the impact of the internet, as a means of communication over a distance which breaks down barriers between different jurisdictions. Worried both by the potential loss of revenue from taxation and the potential harm that unrestricted gambling can cause players, governments are struggling to address the issue. Besides, under the free movement of services and the principle of mutual recognition, boundaries upholding segmented national markets appear unjustifiable.

Instead of a selection of national courts reaching various interpretations of an unclear criterion and the European Commission launching infringement procedures on an ad hoc basis, legal certainty has to be achieved. The creation of a European Union-wide registration system would ensure a consistent responsible gambling policy across the EU while respecting the freedom to provide services. Deregulation of the gambling industry would incorporate safeguards against problem gambling and fraud into a common framework, which could be inspired by the recent Gambling Act in UK, where an online ad campaign featuring Eric Cantona has been banned by the Advertising Standards Authority for suggesting gambling was an escape from personal problems. French company Partouche Betting’s digital ads used images of Cantona dressed as a medieval king with the straplines “Bet to forget”, “Click or regret” and “To bet or not to bet ? There is no question”, after England’s failure to qualify for Euro 2008.

Initiatives to safeguard the integrity of the game…and the related business
The creation of a European Directive was already mentioned in the IESR (Independent European Sport Review) in 2006. The IESR was set up by a group of European sport ministers in the view of scandals surrounding the governance of football, with the objective to find out whether football governing bodies are fit for purpose in the efforts of preserving the integrity of the game and the so-called European Model of Sport. According to the IESR, there is a need for close collaboration between the public authorities and the game’s governing bodies in three worrying trends, among them money laundering and gambling, which may result in match fixing scandals. About 15,000 gambling websites are operating worldwide, of which 85% are created for money-laundering, a modern version of Casino.

Gambling on sports has always called into question the integrity of players, coaches, officials and referees. In 1913, a UK parliamentary inquiry already concluded that betting “remained a menace to football”. And once the public loses confidence in the integrity of the sport, its popularity is certain to decline, along with the related gambling market. “If customers feel the sport isn’t clean then we lose their business” (D. O’Reilly, the general counsel for Betfair). That is why lobbying groups that regulate sports betting are calling for an international agency to coordinate the fight against illegal gambling and match-fixing, considered alongside doping as the biggest threat to the integrity of sport. According to J. Wolfers, a professor at the University of Pennsylvania : “insider trading is a bigger deal in sports than in the financial markets. We have the Securities and Exchange Commission here. Why not the same for what is a multibillion-dollar sports gambling market?”

Consequently, several initiatives have recently been taken by the football governing bodies. “FIFA has decided to take action in order to protect the unpredictability of sporting results and the integrity of competition which have been under threat recently within football” (S. Blatter). FIFA has extended its early warning system through EWS GmbH, a company founded specifically for this purpose. “I have spent over 30 years working at FIFA. Football is my baby. I want to protect it. […] Modern technologies and in particular the opportunities opened up by the internet in terms of sports betting are creating new dangers for our sport. Attempts to manipulate matches are becoming ever cleverer and are endangering the integrity of the game” (S. Blatter).

Focusing on “the grey market in Asia” (W. Feldner), EWS shares information with more than 400 betting operators worldwide. “We are working together with FIFA and EWS to keep sport clean” (N. Teufelberger, CEO of Bwin). EWS also monitored the 2008 Olympic Games in Beijing on behalf of the IOC. Even if EWS is a good start, many experts believe that it is not particularly effective at detecting all potential fixes at a World Cup Finals. The amount of money bet on a World Cup match is so great that you cannot see many of the betting anomalies caused by fixing, particularly if the fixers are helping the favourite team win.

Besides, UEFA are to launch a gambling investigation unit. The unit should be fully operational from next season. The governing body said the special unit would need to work in close cooperation with governments and police. “Sports governing bodies reach some limits in this matter and need full support from authorities who have access to information they don’t have” (G. Infantino, UEFA legal affairs director). UEFA would be pleased to cooperate with a proposed EU police force to fight sports-related crime.

However, anti-corruption investigations involving people “searching for certainty in the uncertain world of football” (D. Hill) are suffering from a lack of expertise, effort and “means to enforce the law” (M. Platini), which makes C. Koerl, CEO of bet-monitoring firm Sportradar, call for “a specific cross-border law for match-fixing so investigators know how to proceed”. For instance, the issue of sports cheating in UK is less of a priority for the Gambling Commission than money-laundering, and its primary function is to ensure bookmakers operate within licensing conditions. The recent match-fixing investigation involving Norwich City and Derby County hit a dead end because Singapore based SBOBET and IBCBET refused to release information requested by the FA. Another issue is banking secret, with gambling websites registered in fiscal paradises (Malta, Gibraltar, Switzerland, Liechtenstein or the Caiman islands).

More transparency for the Good of the Game
As football attracts considerable commercial interest, it can be vulnerable, in part due to a lack of sound control systems and clear management structures. Despite the picture painted by media of single cases of corruption, the problem does not only lie with individual players, referees or judges, but also with sports associations and their officials. Illegal gambling is obviously “a big threat … in the special case of football even bigger than doping because of the perception it leaves in the minds of the public” (D. Zenglein, EWS). But those governing sport at the highest levels must themselves be solid examples of integrity and fair play.

Therefore, NGOs like Transparency International (TI) call “for greater transparency and effective anti-corruption enforcement in sport, specifically in football. Sport mobilises great sums of money and heated emotions. And international sport institutions enjoy a growing amount of power, power that ultimately derives from the community-level support of sport clubs. Corruption in sport is an abuse of this power. Aside from perverting a team or club’s role-model function and disappointing fans, sport corruption often has links to organised crime, money laundering and big-ticket corruption, such as large bribes paid for sport facility construction contracts. Early Warning System, has taken up its assignment of detecting irregularities in game scoring. These are laudable efforts, but the phenomenon of corruption in sport runs deeper than match-fixing. There is a need to address the conflicts of interest that are part and parcel of a familial network of athletic officials that spans the globe. What is missing is more transparency, rigorous enforcement and follow-through, including the systematic exclusion of tainted officials. A web of patronage and personal connections holds back the true professionalisation of global sport bodies such as the IOC and the FIFA”.

“Sport is based on strong ethical ideals: peace, friendship, solidarity and fair play. Its representatives are role models. […] There is an urgent need for decision-makers to take responsibility on this issue and to enforce zero tolerance on corruption” (A. Schwöbel, Managing Director of TI Switzerland). According to Jens Anderson of Play the Game, the issue is “not simply adopting ethical guidelines, but having in place credible monitoring and sanctioning practices”, as international sports associations are beyond government control and therefore accountable only to their members.

In order to ensure a sound and healthy future for European football, the IESR considers it is necessary to address corporate governance issues. Thus, national associations, as well as UEFA and even FIFA, must be role models by adopting sound financial management and best practice, increasing the levels of democracy and transparency. Indeed, what a better way to protect the integrity of football than governing bodies as role models?

The IESR called for the creation of a European Sports Agency that could monitor and coordinate the implementation of the Review. As “there is a huge lack of law and no independent controlling system”, Jens Weinreich goes further and calls for “a World Anti-Corruption Agency like the World Anti-Doping Agency, with a world anti-corruption code, a kind of supervisory council, with an important role for NGOs”. In any governance system, checks and balances are essential to ensure legitimacy and even legal certainty.

Earlier this year, a Swiss court produced evidence that in the period from 1989 to 2001, ISL paid officials from a number of sports federations 87.5 M€ to obtain profitable broadcasting rights. Unfortunately, what has been called one of the biggest corruption scandals in sport ended with only three minor convictions. Despite official commitments to organisational transparency and the establishment of a code of ethics for FIFA officials, much remains to be done. The best code of ethics is useless if there is no effective enforcement system to back it up.

Gambling operators, a new sponsoring boost
A link with football is a guarantee to attract the interest of men aged between 18 and 44, considered as the most likely to gamble online. Therefore, the betting companies decided to sponsor football clubs. Fulham were first into the market with Betfair in 2002. Middlesbrough followed with 888.com in 2004. Although online gambling companies could have curbed their sponsorship of European football teams after Bwin was banned from backing clubs in France and Germany, this trend skyrocketed in 2006, an annus horribilis for the online gambling industry following the US clampdown.

The industry became a new lucrative partner for several European clubs, especially in the UK, including some of the most prestigious FCs such as AC Milan, Real Madrid or Tottenham. In 2008, four Premier League clubs have betting companies as shirt sponsors. Every club has an affiliated “betting partner”, with website links. Stoke City is even owned by bet365 Group.

On paper, it seems like a win-win situation, with online gambling companies raising brand awareness and FCs increasing their sponsorship revenues. “We have set ourselves the goal of establishing Bwin as the leading international online gaming brand. […] Football is easily the most important and most attractive betting sport, [so] it obviously makes sense to seek a partnership with an internationally known, successful top club.” (Manfred Bodner, Co-CEO of Bwin). “It has led to a massive brand expansion – the Premier League attracts a global audience” (M. Robinson, Head of Marketing at 888.com).

Consequently, football shirt sponsorship has recently enjoyed steady growth. According to Sport+Markt, total revenues last year were £287.8 M in the six top European leagues, up 10.6% on the previous year and doubling their value in eight years. Bwin is a major contributor through agreements with Real Madrid for 15 M€ a year and AC Milan for 12 M€. In order to protect these deals and increase its brand awareness in Germany, Bwin was even ready to pay fees when Madrid played a friendly match in Frankfurt and Milan played against FC Bayern München.

Finally, it is worth noticing the four-year shirt sponsorship deal worth at least £34 M struck by Tottenham with Mansion in 2006. According to a statement from the club, “Mansion will partner Tottenham Hotspur across a wide range of commercial activities including the extension and expansion of the club’s brand into key territories across Asia and other important international markets”. The deal called for developing an international supporters club to help push the Tottenham Hotspur brand, as well as a co-branded internet gaming site with a joint share of the revenues.

A relevant brand management should be consistent
Previously, Mansion targeted Manchester United with a £65 M deal over four years. But United felt uncomfortable with the idea of forging strong links with a gambling company and considered the biggest offer was not necessarily the best. Thus, United decided to sign a four-year £56.5 M contract with AIG. The club wanted to “avoid damaging United’s brand. […] Let’s be clear - we passed up the opportunity to do the world’s biggest shirt deal to do the right shirt deal” (D. Gill, CEO of Man United).

Football is an obvious focus for online gambling companies both in terms of demographics and exposure. “The image of sport is very important, particularly to sponsors. Usually they are buying a good image when they support a particular sport” (S. Schenk of TI Germany). While football clubs may extract revenue from tie-ups with betting companies, deals with controversial industries such as gambling, alcohol and HFSS (high in fat, sugar and salt) foods have also collateral costs.

Indeed, gambling is not usually associated with Dostoevsky’s novel rather than negative consequences such as addiction, crime and fraud. Even if some initiatives should protect the most vulnerable targets, for instance in UK where advertising is not permitted on children’s replica sports kit, “the growth of betting services means that sports must remain vigilant against the negative impact it can create” (T. Payton, advisor to the sports industry), both in terms of social and marketing issues.

When there is insufficient coherence between the values of the club and the perception of fans, a blurred identity is far from the ideal start to define your positioning, elaborate your brand strategy and develop brand equity, especially when an increased awareness and integration of CSR into the football business, particularly in UK and Germany, fosters the competitiveness of the game and creates additional value for its stakeholders.

Contrary to Madrid and its deal with Bwin, Barcelona opted for Unicef as its shirt sponsor. This judicious choice is in line with its marketing strategy and the key attributes of the Barcelona brand : solidarity, integration, public-spiritedness and freedom. Thus, the brand can be efficiently leveraged through merchandising, broadcasting, exhibition games abroad, the internet or community involvement. Aston Villa is following Barcelona, giving away shirt space to allow Acorns, a children’s charity, to be prominently displayed instead of 32Red, a gambling company. “The shirts have monetary value, but they also have emotional value to fans” (D. Riddle, Villa’s head of community).

Jérôme Osselaer is a football consultant based in Paris. His column appears regularly in Offsides. Email him at josselaer@gmail.com.

Ireland’s Boylesports Limited has announced plans to spend more than $4.3 million on expanding its Internet betting business into Spain and a number of other European countries over the next twelve months.

The firm behind online bookmaker Boylesports.com, Dundalk-based Boylesports has hired John Overett, a former executive with Austrian online sportsbetting specialist Bwin, to head a team of 20 people developing websites and gambling products for Europe.

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