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Inter: Galaxy or Black Hole? Yang Sun Ming Gong Xueping Li Inter: Galaxy or Black Hole? Yang Sun Ming Gong Xueping Li

In a TV talk show. . . • Host: Suppose that one of your In a TV talk show. . . • Host: Suppose that one of your key defenders is injured, what you do? • Adriano Galliani (AC Milan CEO): We’ll buy a veteran defender and utilize his experience. • Luciano Moggi (Juventus GM): We’ll buy a high potential young player and train him to be the best. • Massimo Moratti (Inter Milan Chair): We’ll buy another star forward… 2

Inter Man Utd (benchmark) = € 118, 000 Annual Player Wage € 115, 000 Inter Man Utd (benchmark) = € 118, 000 Annual Player Wage € 115, 000 Annual Player Cost Wage Cost € 148, 400, 000 Turnover in 2003 << € 251, 400, 000 Turnover in 2003 Growth Rate varies around Ø 12% Compound Annual Growth Rate Negative Profit (there are other spends) Profit ≈ 20% * revenue Bought 106 first-team players (Including 20 superstars) in 10 years (Spent € 562, 800, 000) Spent less than € 200, 000 on buying players (6 star-players) in the past 10 years Ø Champions since 1989 9 League Titles in the past 12 years Sources: Man Utd Annual Report 03, The Deloitte Football Rich List 2004, http: //www. footballtransfers. info/, and http: //sports. 163. com/tm/021206_270400. html 3

P-V-C • Purpose Value of Money = Value Add Cost Make the money you P-V-C • Purpose Value of Money = Value Add Cost Make the money you spend be worth the money, so that you run a healthy business. • Viewpoint Massimo Moratti (Chairman of the club, enthusiast of soccer) • Context Running F. C. Inter Milan in the next 10~15 years (long-term scope) 4

The Rich List really follows their historic performance 2003 Revenue Souce Distribution Match Day The Rich List really follows their historic performance 2003 Revenue Souce Distribution Match Day Broadcast Commercial 1. Manchester United € 251. 4 40% 33% 27% 5 titles in 10 years 2. Juventus € 218. 3 10% 54% 36% 3 titles in 10 years 3. AC Milan € 200. 2 16% 55% 29% 4. Real Madrid € 192. 6 30% 34% 36% 5. Bayern Munich € 162. 7 6. Arsenal € 149. 6 27% 50% 23% 7. Liverpool € 149. 4 28% 42% 30% 8. Internazionale € 148. 4 20% 57% 23% 9. Newcastle United € 138. 9 34% 43% 23% 10. Chelsea € 133. 8 33% 32% 35% …… 9 titles in 12 years 40% 60% millions Source: The Deloitte Football Rich List 2004, 5

Market Segment Royal Fans Core Market Mostly local/regional 90% Revenue Driven by long-term performance Market Segment Royal Fans Core Market Mostly local/regional 90% Revenue Driven by long-term performance Tottering Fans Marginal Market Can be global 10% Revenue Driven by shortterm performance, big faces, etc. Sources: Man Utd Annual Report 2003 6

Revenue Management is not the core competence! Sources: Man Utd Annual Report 2003 Hire Revenue Management is not the core competence! Sources: Man Utd Annual Report 2003 Hire sports business MBA’s and/or sports business consultants (they are all over) to figure out every possible ways to make money – but you are not promoting your position on the “rich list” unless you maintain playing success. Let’s focus on the core competences that really 7 make a difference …

The Core Processes now and in the future Players Gather Players Team Train Players The Core Processes now and in the future Players Gather Players Team Train Players Team Performance Fans Medias Sponsors Play Match Team $$ Manage Business Release Players Primary “cash in” Process Primary “cash out” Process 8

Gather Players Purchasing Behaviors • In a TV talk show. . . • Host: Gather Players Purchasing Behaviors • In a TV talk show. . . • Host: Suppose that one of your key defenders is injured, what you do? • Adriano Galliani (AC Milan CEO): We’ll buy a veteran defender and utilize his experience. • Luciano Moggi (Juventus GM): We’ll buy a high potential young player and train him to be the best. • Massimo Moratti (Inter Milan Chair): We’ll buy another star forward… 9

Gather Players Player-In Player-Out at Inter (Clu: No way to make money by trading Gather Players Player-In Player-Out at Inter (Clu: No way to make money by trading players) Release Players Christian Vieri £ 32 m(1999) present Ronaldo £ 18 m(1997) £ 28. 49 m(2002) Francesco Toldo £ 18 m(2001) present Hernan Crespo £ 16. 57 m(2002) £ 16. 8 m(2003) Fabio Cannavaro £ 14. 57 m(2002) present Clarence Seedorf £ 13. 5 m(1999) Swap (2002 F. Coco) Robbie Keane £ 13 m(2000) £ 11 m(2001) Dennis Bergkamp £ 12 m(1993) £ 7. 5 m(1995) Nwankwo Kanu £ 4. 7(1996) £ 4. 5 m(1999) € 462, 800, 000 …… …… …… 106 Players in 10 years € 284, 500, 000 10 Source: http: //www. footballtransfers. info/

Training is the essential value-adding process. Train Players Spiritual Mental Technical Physical Adaptability Aggression Training is the essential value-adding process. Train Players Spiritual Mental Technical Physical Adaptability Aggression Flair Crossing Passing Acceleration Natural fitness Ambition Anticipation Important matches Finishing Set pieces Pace Stamina Controversy Bravery Influence Dribbling Long throws Agility Strength Loyalty Consistency off the ball Corners Penalty taking Balance Versatility Pressure Creativity Positioning Heading Tackling Injury proneness Condition Sportsmanship Decisions Teamwork Marking Technique Jumping Temperament Determination Work rate Long shots First touch Professionalism Dirtiness Cross-position capability Cooperate characteristics It is impossible to improve all the measures and it really takes time (Δt) to improve! 11

Train Players Play Match Squad Transition Old Generation Young Generation Performance Δt t 12 Train Players Play Match Squad Transition Old Generation Young Generation Performance Δt t 12

Train Players Play Match Squad Transition Old Generation Young Generation Performance Δt t 13 Train Players Play Match Squad Transition Old Generation Young Generation Performance Δt t 13

Train Players Play Match Organizational Issues Are Essential! • Belief must be aligned! Top Train Players Play Match Organizational Issues Are Essential! • Belief must be aligned! Top Management (Making money has no conflict with splendid performance) • Great changeroom atmosphere must be maintained Manager* and Coaches • Give opportunities to young players! • Try to retain the knowledge from the old generation. • Cross-organizational issues: Good relationship with partner clubs (switch players, co-own players, cotrain young players, outsourced training, etc) Players * Manager = Head Coach 14

Have the right people! Align the Belief Make (the right) Decision Control the Training Have the right people! Align the Belief Make (the right) Decision Control the Training Top Mgt Control the Match Manager, Coach, Phys. Make (the right) Decision Manager, Coach, Phys. Manager, Top Mgt. Performance Scout Manager* Players Gather Players Team Train Players Team Play Match Manager Top Mgt Manager Coach Team Coach Release Players Manager Players Top Mgt physiotherapist Process that primarily “cash in” * Manager = Head Coach Process that primarily “cash out” 15

Business Rule #1 • Buy no more than 1 star player each season value Business Rule #1 • Buy no more than 1 star player each season value add # of stars • Benchmark Man Utd. • Benchmark Real Madrid 16

Business Rules #2 • Buy players you need, not those you want! – Ask Business Rules #2 • Buy players you need, not those you want! – Ask for your coaches’ opinion. – Still need to train them well. – You need world class nutritionists and physiotherapists to take care of them. • Benchmark Man Utd. • Bad example: Real Madrid 17

Business Rules #3 • Spend at least € 5 m/year in your youth team Business Rules #3 • Spend at least € 5 m/year in your youth team – You need world class scouts to address this. – You need world class coaches to train them. – You need world class nutritionists and physiotherapists to take care of them. – Give chances to young players. – (Note that not all young players will work out. You need to risk-pool them) – Benchmark Man Utd • The following key players in Man Utd 02 -03 squad are from Man Utd Youth Team: David Beckham, Ryan Giggs, Nicky Butt Paul Scholes, Gary Neville, Phil Neville Wes Brown, John O'Shea 18

Business Rules #4 • Give at least 1 full season to your manager (head Business Rules #4 • Give at least 1 full season to your manager (head coach) Not like this: (Inter 10 -year Manager List) 03 -04 Hector Cuper 02 -03 Hector Cuper 01 -02 Hector Cuper 00 -01 Marcello Lippi 99 -00 Marcello Lippi 98 -99 Gigi Simoni 97 -98 Gigi Simoni 96 -97 95 -96 Alberto Zaccheroni Marco Terdelli Luciano Castellini Roy Hodgson Gigi Simoni Luciano Castellini Roy Hodgson Ottavio Bianchi Luis Suarez Mircea Lucescu 19

Business Rules #5 • Hire a world class VP/GM • In player purchasing/selling – Business Rules #5 • Hire a world class VP/GM • In player purchasing/selling – You can really get the player you need – at a reasonable price – negotiate well to address payment installment agreement. • In day-to-day management – Utilize his leadership to create great organizational atmosphere. 20

Ultimate Recommendation • Hire Industrial Engineers (not MBA’s) to address: – – Strategic Decision Ultimate Recommendation • Hire Industrial Engineers (not MBA’s) to address: – – Strategic Decision Making Tactical/Operational Decision Making Knowledge/Information Base Process Control and Continuous Improvement in your core competences Differentiation Add Science to the Art of Sports! Cost 21

Add Science to the Art of Sports! Align the Belief Make (the right) Decision Add Science to the Art of Sports! Align the Belief Make (the right) Decision Top Mgt Control the Training Control the Match Manager, Coach, Phys. Make (the right) Decision Manager, Coach, Phys. Manager, Top Mgt. Performance Scout Manager* IE’s Players Gather Players Team Train Players Team Play Match Manager Top Mgt Manager Coach physiotherapist Team Coach Release Players Manager Players Top Mgt physiotherapist IE’s 22

Questions 23 Questions 23