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

2 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…

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

4 P-V-C Purpose Value of Money = 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) Value Add Cost

5 The Rich List really follows their historic performance 1. Manchester United€ %33%27% 2. Juventus€ %54%36% 3. AC Milan€ %55%29% 4. Real Madrid€ %34%36% 5. Bayern Munich€ %60% 6. Arsenal€ %50%23% 7. Liverpool€ %42%30% 8. Internazionale€ %57%23% 9. Newcastle United€ %43%23% 10. Chelsea€ %32%35% 2003Revenue Souce Distribution RevenueMatch DayBroadcastCommercial Source: The Deloitte Football Rich List 2004, millions 9 titles in 12 years 5 titles in 10 years …… 3 titles in 10 years

6 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 short- term performance, big faces, etc. Sources: Man Utd Annual Report 2003

7 Revenue Management is not the core competence! 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 make a difference … Sources: Man Utd Annual Report 2003

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

9 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… Gather Players Gather Players

10 Player-In Player-Out at Inter (Clu: No way to make money by trading players) Source: …… €462,800, Players in 10 years €284,500,000 Christian Vieri£32m(1999)present Ronaldo£18m(1997)£28.49m(2002) Francesco Toldo£18m(2001)present Hernan Crespo£16.57m(2002)£16.8m(2003) Fabio Cannavaro£14.57m(2002)present Clarence Seedorf£13.5m(1999)Swap (2002 F. Coco) Robbie Keane£13m(2000)£11m(2001) Dennis Bergkamp£12m(1993)£7.5m(1995) Nwankwo Kanu£4.7(1996)£4.5m(1999) Gather Players Gather Players Release Players Release Players

11 Training is the essential value-adding process. It is impossible to improve all the measures and it really takes time (Δt) to improve! SpiritualMentalTechnicalPhysical AdaptabilityAggressionFlairCrossingPassingAcceleration Natural fitness AmbitionAnticipation Important matches FinishingSet piecesPaceStamina ControversyBraveryInfluenceDribblingLong throwsAgilityStrength LoyaltyConsistencyoff the ballCorners Penalty taking BalanceVersatility PressureCreativityPositioningHeadingTackling Injury proneness Condition SportsmanshipDecisionsTeamworkMarkingTechniqueJumping TemperamentDeterminationWork rateLong shotsFirst touch ProfessionalismDirtiness Cross-position capability Cooperate characteristics Train Players Train Players

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

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

14 Organizational Issues Are Essential! Belief must be aligned! (Making money has no conflict with splendid performance) Great changeroom atmosphere must be maintained 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, co- train young players, outsourced training, etc) Manager* and Coaches Players Top Management * Manager = Head Coach Train Players Train Players Play Match Play Match

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

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

17 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

18 Business Rules #3 Spend at least €5m/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 squad are from Man Utd Youth Team: David Beckham, Ryan Giggs, Nicky Butt Paul Scholes, Gary Neville, Phil Neville Wes Brown, John O'Shea

19 Business Rules #4 Give at least 1 full season to your manager (head coach) 03-04Hector CuperAlberto Zaccheroni 02-03Hector Cuper 01-02Hector CuperMarco Terdelli 00-01Marcello Lippi 99-00Marcello Lippi 98-99Gigi SimoniLuciano CastelliniRoy HodgsonMircea Lucescu 97-98Gigi Simoni 96-97Gigi SimoniLuciano CastelliniRoy Hodgson 95-96Roy HodgsonOttavio BianchiLuis Suarez Not like this: (Inter 10-year Manager List)

20 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.

21 Ultimate Recommendation Industrial EngineersHire 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 Cost Add Science to the Art of Sports!

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

23 Questions