The business case explained
There’s been a lot written here and elsewhere about Goodwin’s contract length and immediate short-term tenure. Here are four facts, and two estimates, that I would suggest will drive the thinking of the Club’s board over the next 12 months. The figures quoted are in the Club’s 2018 Annual Report and are the most recent publicly available.
Melbourne’s revenue in 2018 from football related actives was $44.8M.
The AFL guarantees to cover player costs and other related expenses regardless of on-field performance. In 2018 this figure was $16.3M
Revenue in 2018 from Football related activities that the club has influence over, by dint of its on-field performances, was $27.5M. Here’s the breakdown.
Gate receipts $6,180,742
Membership, annual reserved seating and general fundraising $9,009,525
Sponsorship & corporate hospitality $11,287,779
Other revenue $922,363
The financial impact of 2019’s poor on-field performance could well be felt by drops in revenue across four of the line items above (i.e. gate receipts, merchandise, membership/reversed seating/gen fundraising and sponsorship/corporate).
According to reports today, Ross Lyon’s contract in 2019, based on Freemantle’s on-field performance, is worth 600K. It wouldn’t be unreasonable to assume Goodwin is receiving something similar.
The cost of paying Goodwin out, should the Club move on him in the next 12 moths, would be somewhere between $1.2 and $1.8 million. This estimate assumes that the pay-out would be the equivalent of the contact's balance (assuming base payment).
The Club’s on-field performance directly effects, or puts at risk, part of the $27.5M in revenue (based on 2018 figures). We can assume that a good year may well increase this revenue while a poor year will almost definitely have a negative consequence. By any measure 2019 has been a poor year and it would be reasonable to anticipate that revenue from club related activities will fall. The question is, by what amount? A five per cent fall in 2019 will mean a loss of $1.377M against the 2018 figure, while a 10 per cent fall will mean $2.755M. And this doesn't factor in opportunity costs . . . that is, revenue anticipated over and above the 2018 result that will also be foregone.
The problem the Club has is that this is now a ‘sunk-cost’. That is, the money is already gone and removing Goodwin now will not recover the 2019 financial situation.
However . . . and presumably this is the Board’s current focus . . .
If the Club doesn’t improve its on-field performance in 2020 by a substantial amount, the financial losses seriously mount. Another year where revenue is likely to be seriously down on 2018 levels makes the financial case for removing the coach pretty strong. It simply becomes a business decision. That is, the cost of keeping the coach versus removing him in order to stem the bleeding. For example, if the club has a poor year again in 2020, the potential losses over 2019/20 seasons compared to the 2018 season could well be in excess of $2.7M. It makes the case for removing the coach at a cost of $1.5M (assuming he goes during the bye in 2020) a no-brainer.
Few people want harm to come to the Club or Goodwin. However, a year like this one in 2020 is going to be traumatic for one party or the other.
And that’s fact number four.