APFCA’s Formal Position on Expansion: The need for a Transparent and Robust Approach

statements
4 Jun 2018
  • League must get to a sustainable home and away season as quickly as possible with a minimum of 14 teams;
  • Viable potential license geographies must first be identified and considered for investor groups to bid for – Any expansion strategy must be based on a comprehensive understanding of which markets are most viable and for what reasons;
  • potential entrants must be carefully vetted with a focus on financial sustainability, commercial potential, proposed infrastructure and ability to build a sustainable football organization that contributes optimally to Australian football;
  • The commercial realities of running a sustainable A-League club are best understood by the existing A-League clubs – consultation with the PFA is essential to success.  Neither APFCA or the PFA were consulted prior to the current process beginning;
  • It is imperative for the League that the value of existing licences are protected and enhanced by any expansion;
  • If executed correctly, the right expansion strategy will have a whole-of-game benefit effect.

The APFCA believes that it is essential that the 10-team A-League expands in a strategic and sustainable way, as quickly as possible.  Ultimately, the ambition must be to expand to numbers that will allow for a season based only on home-and-away fixtures.   Such a schedule will require at least 14 participating clubs and optimally 16.  The benefits of achieving a home-and-away fixture schedule are clearly evidenced by existing leagues around the World.  Moreover, there will also be the additional benefits created by new derbies and rivalries.  These positive developments will enhance both the international credibility and commercial viability of the League and will in turn create ongoing benefits for the whole Australian football family.

Expansion has been an intermittent and unfocussed consideration under the current arrangements, with the FFA stating in early-2017 that the addition of two new teams would lead to unsustainable losses for the governing body over the next six years, and that expanding the competition would require significant additional investment, and that expansion would therefore not occur prior to the 2018-19 season.  In 2018, the FFA Administration has returned to the matter in a wholly unsatisfactory way and remarkably without first consulting either the APFCA or the PFA.  This is yet another example of the dysfunction of the current arrangements and further evidence of the need for an independent A-League with its own governance model.

Expansion of the League will bring both sporting and commercial benefits.  However, in order to protect the quality and sustainability of the competition, it is the view of the APFCA that viable potential license geographies must first be identified and considered for investor groups to bid for.  This requires appropriate due diligence of potential markets and the application of expertise that A-League Clubs are in an unrivalled position to carry out.  Good governance demands this level of preparatory work from the licensing body.  Moreover, it is essential that any expansion strategy is based on a comprehensive understanding of which markets are most viable and for what reasons.

It is APFCA’s position that potential entrants must then be carefully vetted with a focus on their financial sustainability, commercial potential, proposed infrastructure and ability to build a sustainable football organization that contributes optimally to Australian football.

The commercial realities of running a sustainable A-League club are clearly best understood by the existing A-League clubs, which have managed to sustain the League despite the commercial impediments created by the FFA Board and its Administration.  It is a stark fact that FFA management and expansion policies to date have witnessed at least nine license turnovers or failures for financial reasons.

In conjunction with the PFA, an independent League body is best placed to determine the ideal circumstances for expanding the League in a sustainable way.  It is APFCA’s belief that the value of new licences should be:

a) Predicated on extensive pre-assessment of potential markets and associated licenses, including:

i. Demographic modelling

ii. Assessment of available revenue streams

iii. Cost of required infrastructure and available infrastructure

iv. The potential of planned football operations

b) Based on the market size of the intended geographic location – i.e. greater value placed on key television markets such as Sydney, Melbourne and Brisbane;

c) Benchmarked against the potential enterprise values of existing clubs so as to maintain the values and investments of existing clubs;

d) Used to offset the required annual distributions of the new entrants.

Executed correctly the right transparent strategy can deliver a number of new clubs that are sustainable and contribute instantly to the value of the League and its existing clubs and that will positively impact the League’s commercial activities.  It is imperative that the value of existing licences are protected and enhanced by any expansion, including the licence of Wellington Phoenix, a club that has the full support of the APFCA membership.  It is vital that there is no cannibalisation of existing markets in the process of expansion.

The right strategy will deliver a greater return on rights when the current television deal comes to an end and an ongoing increased return on the League’s commercial inventory.  Ultimately if executed correctly, the right expansion strategy will have a whole-of-game benefit effect.

What will be critical to the success of any expansion is the input and cooperation of the PFA in order to ensure that the expansion of the professional playing group within the League is optimally achieved.

It is also the shared view of the APFCA membership that a fully-expanded League model must be achieved and sustained before the introduction of promotion and relegation can be considered.

For promotion and relegation to be achieved it is imperative that a second-tier of Australian football is established and evolved in order to create appropriate football and economic proximity between the two tiers.  Only in this way can the second-tier produce promoted clubs with the capacity to compete in the A-League and at the same time receive relegated A-League Clubs without catastrophic economic impact for the relegated club.  The investment and time horizon for achieving a second-tier of this calibre should not be underestimated.  APFCA is committed to playing its part.