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Michael Broughton | Making sense of the Barça Studios sell-off

Barcelona's decision to sell two stakes in its Barça Studios unit to Socios and Orpheus Media has raised eyebrows, with some questioning the €400m valuation. Michael Broughton, who sits on a tech-advisory board with Socios, explains the logic for the deal

Photo: Michael Broughton

Telenovelas are a staple in Brazil. If there is anything more popular than football in the country, it is the emotional attachment to these TV dramas that have become so popular that match kick-offs are often moved to prevent fans from missing their daily episode.

Watching Barcelona this year has felt a little bit like a Telenovela – or for my British friends still mourning the loss of Neighbours – a bit of a soap opera.

The club is one of the leading brands in world football, made over €1bn ($1.02bn) in revenue at its height prior to Covid and yet has had a historic fall from grace. The arrival of former player Xavi as a coach has clearly stabilised the team on the pitch and the homegrown legend might one day lead the side forward to more titles. Off the pitch, it is hard to keep up with the announcements that emanate from the club on a near-daily basis.

The latest news is that the club has sold 49 per cent of its ‘Studios’ business for €200m as one of the ‘economic levers’ needed to bring the balance sheet under control. Coming after the club had already agreed to sell a share of future media rights revenues to global investment firm Sixth Street, the move was always likely to create controversy, but it was perhaps exacerbated by the fact that one of the investors in the studios business was Socios.com.

So how did we get here? And how is a football club’s content business being valued at €400m when most clubs don’t get that as a valuation?

It is clear to most outsiders that FC Barcelona has been mismanaged for some time. This is not to rehash those mistakes but overextending on Messi’s salary and buying new players on exorbitant contracts meant that there was an unsupportable level of costs. When Covid hit, the cracks became apparent and $1.35bn of gross debt threatened the club’s very existence.

My personal view was that Barcelona should think creatively about solving the debt problem. The power of the brand, the global nature of its audience and the still untapped digital economy offer tremendous upside. I believed in it so much that I conceived and put forward a ten-figure proposal that could ensure the financial security of the club, keep assets in house and ensure that the socios (members) remained in control. It was not to be and the club decided on another way forward.

Yet the same untapped potential, even from the first club to generate $1bn of revenues, has clearly been identified by others who have made proposals to acquire a stake in the assets of the club that are most relevant to them.

For Sixth Street this was the audio-visual rights. It makes sense, it’s a highly visible and historically dependable income stream. The cash flows will be backed by the broadcasters who are paying the fees and the brand they are backing is typically in the Champions League – and the funds input into the club would be hoped to secure that.

The Studios business

The Studios business is a bit harder to value, of course. In the past these ‘media houses’ as they are typically known, are a cost centre for a club. They are there to create and distribute content to their fans and are largely used to provide short-form content onto social channels and the native website.

The emergence of Web3, NFTs and the metaverse all hold a new-found promise to take the 400 million followers that a club like Barcelona will have and provide a way to generate a true direct-to-consumer product (not just OTT) that can drive real revenues into the club itself.

It’s perhaps best to, therefore, look at Barça Studios as a relative start-up but one with a pretty unique proposition. It offers:

  1. Real IP based around one of the leading sports brands in the world;
  2. A ready-built content production ecosystem;
  3. A latent audience of over 400 million people globally;
  4. An extensive archive of content and scope for new content creation.

There are very few start-ups that could boast any of the above. The problem however is that football clubs (or sports teams) have historically been poor at taking this and building a new revenue model. The media and twitter pundits have attacked the club in the past for failing to know anything about most of its claimed 400 million followers – something which is thought to have put it at a disadvantage in negotiations with shirt and stadium-naming sponsor Spotify, which clearly knows a thing or two about audiences.

Content is typically used by clubs to demonstrate a media value for sponsors and partners and not monetised in any direct sense. So the expertise needed to take this content and data engine and build it into something much bigger does not sit in-house.

Strategic investors

When we look at the incoming investors in Socios.com and Orpheus Media, a firm managed by Mediapro co-founder Jaume Roures, we see an interesting combination of strategic partners who might just be able to build something more meaningful. This is not the same as Sixth Street deploying capital against a known and dependable income stream, this is two companies that understand Web3, content and entertainment, bringing clear strategic value and ability to what was once a cost centre.

Roures is no stranger to Barcelona and content. As the head of Mediapro, he has been one of the most important people in sports content in Europe. As such, he is no stranger to the opportunity to invest in strong content and IP rights. He has also been an active supporter of Barcelona president Joan Laporta, assisting in providing some of the bank guarantees he needed to run for office. Orpheus Media is a production company and, given Roures’ insight into the club, the value of sports content and the expertise of his business, it’s not difficult to see why he would commit to acquiring the 24.9 per cent stake through Orpheus.

Socios.com is one of the clear leaders in Web3 in the sports industry, was already a known partner to Barcelona and has, via its initial product – the Fan Token – demonstrated an ability to drive revenues that previously never existed. It’s no surprise therefore that the company would have analysed the data from its other 150+ sports partnerships and concluded it can take the business to the next level.

Web3 world

One of the challenges that I have discussed at length is that the sports industry is deploying Web1.0 or Web 2.0 strategies in the Web3 world. Having spoken to a number of companies from this space, I have heard their frustrations with this.

It was interesting to note that the founder and chief executive of Socios.com tweeted about how to reimagine Barcelona as a club sitting on the blockchain and generating revenues as a node/validator. This isn’t something you can see happening given the way most clubs are commercially set up. If the commercial entity is separate, then you can start to reimagine how to generate revenues – as well as purpose and usefulness to the fan.

By investing into the company, and being the technology provider to the revised entity, Socios, and in another way Orpheus Media, will be able to help drive the new direction of the business.

At its core, sport is about communities and its fans. There are few opportunities to gain access to a community as passionate, loyal or as engaged as the Barcelona fans. Barça Studios (now to be known as Barça Digital Entertainment) has achieved a valuation based on this premise. But if they get it right, the deal might come to be regarded as cheap at the price.

Laporta knew that the appeal of the deal for the companies lay in getting access to the data, content and IP that is derived from sport without any of the exorbitant costs (such as player trading) associated with investing in a team.

When looked at through this prism there is an interesting business model that could emerge which others may look to duplicate. One of the unique challenges that every senior executive has in sport is trying to decouple the sporting and commercial when working internally – and it’s next to impossible as the head coach will always be just two players away from competing. Creating an external company to exploit additional commercial opportunities might be the only way forward.

We have seen new companies emerge with higher valuations off less tangible assets before and the decoupling of content/IP from the club itself is a potentially transformative approach to the sports business model.

If you want to see the closest comparison, go back and look at MLB Advanced Media. The premise wasn’t dissimilar. Hive off the company into a separate location and capital structure and give it the content and IP to build a new business. It went so well that in the end the company provided services for other sports and was eventually sold to Disney for $4bn.

Expect the Barça Studios deal to be vilified at first, but if it shows legs, I would expect a host of big clubs to follow suit.

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