The Business Case

[Queanbeyan Demon 6,843]

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.

Fact 1
Melbourne’s revenue in 2018 from football related actives was $44.8M. 

Fact 2
The AFL guarantees to cover player costs and other related expenses regardless of on-field performance. In 2018 this figure was $16.3M

Fact 3
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
• Merchandise $1,081,232
• 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).

Estimate 1
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.  

Estimate 2
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).

Discussion
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. 

Conclusion
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.

 

Edited August 20, 2019 by Queanbeyan Demon
Typos and clarity

[praha 11,240]

Great post. Of course, there are many other variables and impacts, and I would suspect the revenue impact would be a better reflection next to projections as well as comparatively vs 2018. I suspect the club expected a 25%-40% increase in revenue given favourable draw, reach, marketing, interest, exposure, and attendance. Instead we are looking at probably something closer to a 3%-5% increase (I think we'll still see an increase overall). So growth has hit a major speed bump and stands to move into the negative over the summer and into 2020. The old "doom loop".

Goodwin and co. have a lot banking on them turning this around.

[roy11 3,853]

Estimate 2 bit hard to estimate as we aren't privy to the contract and all its clauses. 

 

2019 financials will be interesting, gates should be down a bit given our form and also we didn't host Anzac Day Eve or Queens Birthday

[Moonshadow 17,676]

I think the thread should be titled "the business case for sacking Goodwin". That's what it's about.

[Kent 2,909]

6 minutes ago, Moonshadow said:

I think the thread should be titled "the business case for sacking Goodwin". That's what it's about.

As it should be!

 

[markc 975]

57 minutes ago, roy11 said:

Estimate 2 bit hard to estimate as we aren't privy to the contract and all its clauses. 

 

2019 financials will be interesting, gates should be down a bit given our form and also we didn't host Anzac Day Eve or Queens Birthday

its very poor by the ALF  re Anzac and Queens BD , we should host one each year , or are we planning on have a good year the crap year again .....  like the 90's one up one down ! 

[Anti-Saint 245]

top analysis QB - pity more have not read this.

I think all our games at MCG should be home games as: we invented the game and the MCG - No Dees = No AFL.

thanks

PS I can't stand Collingwood

[La Dee-vina Comedia 16,754]

9 minutes ago, Anti-Saint said:

top analysis QB - pity more have not read this.

I think all our games at MCG should be home games as: we invented the game and the MCG - No Dees = No AFL.

thanks

PS I can't stand Collingwood

Or, I assume, St Kilda, based on your name.

[Smokey 4,389]

Nice analysis @Queanbeyan Demon. 

I wonder which Department you're currently contracting to as a BA ... 

[Queanbeyan Demon 6,843]

Hey posters . . . our collective assumptions were not that far off the mark. 

[Sir Why You Little 37,034]

We have to have a good year in 2020.
2 Blockbuster Home games where each could pull 90,000 crowds

Burgess and his staff have to prepare the list Physically and Mentally to be absolutely ready to go Round 1.

AFL fans want to see us implode, they find it funny, it is expected. We have to hit them hard. 
i just hope Goodwin is up for the challenge, because last year he didn’t know how to fix problems that occurred 

“Be Patient Guys, it’s going to turn”

We cannot have any of that next year

[Lou C. Fur 1,009]

On 8/20/2019 at 3:39 PM, Queanbeyan Demon said:

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.

Fact 1
Melbourne’s revenue in 2018 from football related actives was $44.8M. 

Fact 2
The AFL guarantees to cover player costs and other related expenses regardless of on-field performance. In 2018 this figure was $16.3M

Fact 3
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
• Merchandise $1,081,232
• 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).

Estimate 1
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.  

Estimate 2
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).

Discussion
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. 

Conclusion
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.

 

You have stated figures "from the Club’s 2018 Annual Report". I think these figures are a little old.

Has the club's 2019 Annual Report been made public? If so, have you read it? If also so, are the figures you quote aligning with your argument?

I suspect not. 

Your post is not only narrowly from a business perspective, it ignores the football department perspective. Indeed, "The Business Case" begins not with anything to do with business but instead is an attack on the the coach.

Hope eternal. I can sniff success. When Melbourne wins the premiership with Goodwin as their coach I will shake your hand for making me stand up to your pessimism.

 

 

 

 

[Lucifers Hero 39,758]

On 8/20/2019 at 4:55 PM, markc said:

its very poor by the ALF  re Anzac and Queens BD , we should host one each year , or are we planning on have a good year the crap year again .....  like the 90's one up one down ! 

I don't think this was the AFL's doing.  A year or so ago Barlett was having discussions with Eddie about QB.  I recall PJ wasn't keen on two block busters in one year then a drought the following year.  He rightly argued to alternate them so our revenues balance out. 

Technically, the ANZ Eve and QB revenues balance out over a two year period but imv we aren't financially strong enough to wear that yo-you, especially when adding the loss of pokie revenue.

I'm guessing 2019 decision was on the back of 'return Home games' at the G vs Rich and Coll which should theoretically balance out the 2019 $$...which turned out to be a fizzer of an idea!!

Bartlett agreed to the QB rotation one year early. 

Edited December 16, 2019 by Lucifer's Hero

[Queanbeyan Demon 6,843]

16 hours ago, AC/DeeC said:

You have stated figures "from the Club’s 2018 Annual Report". I think these figures are a little old.

Has the club's 2019 Annual Report been made public? If so, have you read it? If also so, are the figures you quote aligning with your argument?

I suspect not. 

Your post is not only narrowly from a business perspective, it ignores the football department perspective. Indeed, "The Business Case" begins not with anything to do with business but instead is an attack on the the coach.

Hope eternal. I can sniff success. When Melbourne wins the premiership with Goodwin as their coach I will shake your hand for making me stand up to your pessimism.

 

 

 

 

FMD! Bizarre. 

[Jack Russell 80]

11 hours ago, Lucifer's Hero said:

I don't think this was the AFL's doing.  A year or so ago Barlett was having discussions with Eddie about QB.  I recall PJ wasn't keen on two block busters in one year then a drought the following year.  He rightly argued to alternate them so our revenues balance out. 

Technically, the ANZ Eve and QB revenues balance out over a two year period but imv we aren't financially strong enough to wear that yo-you, especially when adding the loss of pokie revenue.

I'm guessing 2019 decision was on the back of 'return Home games' at the G vs Rich and Coll which should theoretically balance out the 2019 $$...which turned out to be a fizzer of an idea!!

Bartlett agreed to the QB rotation one year early. 

Lucifer is totally wrong here.  It is an AFL decision and QB was the only blockbuster not being shared.  Bartlett did not agree to it and Lucifer you think you are a hero are totally wrong in saying Bartlett agreed to it.  My advice is withdraw the comment, administrators fix it or just ask Karl Langdon and the West - here comes a defamation action!  I actually think  people are getting really tired of people like Lucifer making defamatory comments online - mate clean up your act or you will get sued and cause this whole site to get shut down to our detriment and that of supporters.  Your PJ comment is astonishing.  He was the CEO when this would have been worked through so you are saying the President agreed to it but the CEO did not?? Give me a break. You obviously did not pay any attention to what was going on in terms of governance and management for the previous 5 years!

[Diamond_Jim 12,578]

a little over the top Mr Terrier but there is a grain of truth in what you say. (Mind you the AFL stepped in only when Eddie said he wanted the game back.) Not sure it deserved the outrage. Would Collingwood have waited another year... we may never know

https://www.theage.com.au/sport/afl/magpies-eager-for-their-share-of-queen-s-birthday-gate-20180604-p4zjfr.html

"The other issue is that we're alternating Anzac eve with Richmond," Jackson said. He said it was Richmond's turn to host the game next year and, should Collingwood host the holiday blockbuster, the Demons would not have either game in one season.

"I don't think that timing's right for a smaller club like the Melbourne Football Club," Jackson said.

[Jack Russell 80]

13 minutes ago, Diamond_Jim said:

a little over the top Mr Terrier but there is a grain of truth in what you say. (Mind you the AFL stepped in only when Eddie said he wanted the game back.) Not sure it deserved the outrage. Would Collingwood have waited another year... we may never know

https://www.theage.com.au/sport/afl/magpies-eager-for-their-share-of-queen-s-birthday-gate-20180604-p4zjfr.html

"The other issue is that we're alternating Anzac eve with Richmond," Jackson said. He said it was Richmond's turn to host the game next year and, should Collingwood host the holiday blockbuster, the Demons would not have either game in one season.

"I don't think that timing's right for a smaller club like the Melbourne Football Club," Jackson said.

Big Jim “grain of truth” sending links to what PJ said at the time about alternating hosting QB.  Why don’t you do your homework properly? Send the links where Bartlett opposed the concept of even alternating at all - his position was let’s not fight over QB as clubs with the oldest rivalry let’s lobby AFL to lock in 2 games each year and share a bigger pie. yet Mr Lucifer the Hero says he agreed to “give up QB a year early” Lucifer does not have a sceric of evidence on public record or at all yet the muppets just accept purported factual statements like this! What is your position on it? I am amazed at this biased love fest with our ex CEO - he was talking about alternating it and Bartlett opposed it publicly - go figure how someone like Lucifer can say Bartlett agreed to it - if you have the evidence put it up or I suggest shut the f$&k up (see earlier advice)

 

 

 

[Skuit 10,031]

On 8/20/2019 at 7:39 AM, Queanbeyan Demon said:

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. 

 

This isn't a business case. This is you simply highlighting the fact that business operations tend to be worth more than the people heading them. They wouldn't otherwise be businesses. 

The bolded bit is a highly flawed assumption, which is why people are paid to make actual business decisions in the first place. A business case would outline why replacing Goodwin would stem the bleeding.

And then there are further factors beyond that again. 

What you describe as a sunk cost, others may view as an investment. Ditching that investment would then be a truly sunk cost, which business leaders would consider when mulling over that option.