The Parallels Between Business and Sport

The Parallels Between Business and Sport

The Parallels Between Business and Sport

Businesspeople are confronted at every turn with sporting analogies.

“It’s all about team”, “Follow the process”, and so on.

The subject of numerous sales training sessions, after-dinner speeches, and corporate retreats.

And for sure, these high-level messages have their place as motivational tools.

But what can we learn from the actual business of sport, as distinct from the contest?

This note covers five perhaps less-obvious parallels:

  • Ignore the Noise
  • You’re Always Learning
  • Avoid Paralysis by Analysis
  • Understand Fixed vs Variable Costs
  • Keep Winning and Losing in Perspective

Ignore the Noise

Sport is the most emotional of pursuits.

For many, second only to family, and perhaps faith.

Something almost sacred, around which memories have been created, friendships forged, good times shared.

When I acquired the Adelaide 36ers in 2016, my overarching goal was to restore the glory days of the 1980s and 90s.

This in turn required major change – shifting arenas, appealing to a new generation of fans, enhancing the game day experience, digitising the business.

Naïvely, I thought the enormous time and financial commitments my family and I were making would be self-evident, conferring on us a grace period while we fixed things.

But events unfolded differently.

Seizing their moment, a small but vocal minority derided me every step of the way.  Illogically, angrily, unkindly.  Often hiding behind anonymous social media accounts.

“Fans want to stay at the old arena so they can stomp their feet on the floorboards.” 

“He never played professionally; he knows nothing”.

And the most ridiculous of all: “How dare they enforce that player contract!”

But the naysayers never fazed me.

In fact, they only made me more determined.

Illegitmi non carborundum! (Or in good old Aussie vernacular “don’t let the bastards win”).

I held my nerve and kept going.

My focus was keeping traditional fans engaged, while making the changes necessary to revitalise the Club.

And so, for every step forward, we adverted to our legacy.

Changing arenas for a better game day experience?  Work with every member to recreate their viewing experience from the old arena.

Too much razzamatazz on game day? Have Club legends address the faithful after games and be active in the media.

Taking a tough stance on player behaviour?  Set up a Hall of Fame to remind the playing group what the Club stands for.

Over time, we won over our traditional fans, while building an entirely new customer base.

My advice is to ignore the noise.  People ultimately vote with their feet.

Focus on the 9500 fans coming to games, not the angry keyboard warriors.



You’re Always Learning

My 91-year-old Mum says she is still learning, every day, and demands that her kids do the same.

Mum is a hero to me and many in the community. A single working mother, who juggled family and career successfully, funded three kids through school and university, while still finding time to paint her beautiful landscapes, chair a local political branch, and be active in her Church.

And she is right (aren’t Mum’s always?) on the learning point.

In every industry in which I have worked or invested capital – funds management, property, sheep, wine, and especially sport – I became better over time.

The cycle was always the same:

Assumed Knowledge => Fact Finding => Strategic Adjustment => Increasing Effectiveness.

Malcom Gladwell’s best-seller Outliers argues that achieving expertise requires a minimum of 10,000 hours, or 3-5 years, of training and experience.

In my opinion it varies — the time required being proportionate to the complexity of the task.

And sport in the professional era is remarkably complex.

It requires commercial skills which blend a business-to-consumer (merchandising, game day experience, TV etc) and business-to-business (sponsorship, promotions, hospitality) mindset.

It is highly regulated, a “public good” that is consumed en masse.  The Covid lockdowns demonstrated this in abundance.

It is expected to reflect back society’s evolving values with dexterity, while never causing offense.

After I acquired the 36ers, it took me several years to gain comfort and a degree of expertise across these highly complex, interlocking areas.

Errors were made by me during this period – staying too long in the old arena, not understanding who the customer genuinely was, failing to grasp fully that we were in the “entertainment” business rather than purely sport, digitising the business 1-2 years too late.

But trial and error were part of the learning process.

Mum always says that that it is OK to admit what you don’t know.  For proud people this is easier said than done.

But it is unavoidable if you crave success.

Avoid Paralysis by Analysis

In a world dominated by data we rarely, if ever, have time to review all the available information.

At the Adelaide 36ers our team produce a seven-page analysis ahead of every game.

It summarises player’s past performances on shooting percentages, rebounds, assists, steals, and blocks.

Literally reams of data.

This is then combined with one hour of film, where we “scout” the opposition. 

Strengths, weaknesses, habits of our opponents at an individual and team level.  The “scout” is then communicated to the players ahead of game day.

But on game day itself, we are in a pressure cooker.  There is no more time for detailed analysis.  And so, we look to one summary measure, the “on-off ratio”.

This measure simply compares the 36ers’ score versus the opposition’s during the elapsed time for which a player is physically on the court.

The players’ individual on-off ratios, when combined together, are equal in points to the team’s winning margin or losing margin.

If a player’s individual ratio is negative, that player will often be subbed out, as he has likely not followed the game plan.

Similarly, a positive points ratio may lead to additional minutes beyond the going-in plan.

While imperfect, the on-off ratio is a highly effective “ready-reckoner” which predicts at an 80%+ confidence level the other detailed metrics.

Other sports have similar “super measures”.

AFL: Contested Possessions — tackling, ball gets and clearances – highly correlated to premierships for the last 20 years.

Baseball: On Base Percentage — popularised by the movie Moneyball but used since the 1940s as the best measure of effectiveness at bat (versus “batting average”).

Soccer: Chances Created – provides a basis for comparing possession vs counterattacking teams, and accounts for penalties created, 85% of which result in a goal.

Most other industries have similar key measures.

Airlines: On Time Performance –proxy for load management, fuel consumption, maintenance effectiveness, safety.

Shopping centres: Leasing Spread – proxy for retailer health, supply-demand of space, customer buying behaviours, inflation.

Hotels: Revenue per Available Room – proxy for occupancy, average daily room rate, marketing effectiveness, food and beverage consumption.

Funds Management: Risk-adjusted IRR – gross return of an exited investment, less fees paid by the investor, adjusted for the true cost of capital (debt plus equity), and the holding period of the investment.  Designed to avoid excessive risk-tasking.

An oversupply of data can be counterproductive.

Finding the one or two key data points which are a bellwether for how the rest of the business is performing saves time and effort and helps prioritise resources.

Understand Fixed vs Variable Costs

70% of a basketball franchise’s costs are fixed, consistent with other professional sports.

50% is attributable to front office and player salaries, while 20% is driven by game day costs such as stadium rental.

These costs exist whether one person attends a game, or it is sold-out.

And so, similar to say the airline or the car industries, with their heavy R&D and infrastructure spends, what matters most to a sporting organisation is revenue generation, amortising high fixed costs across the largest possible sales outcome.

This in turn has major implications for how the business is structured, managed, and controlled.

First, the most prized resource are “rainmakers” who build revenue streams by developing attractive B2C and B2B products that are capable of being consumed at scale.

The B2C model requires astute marketers who understand event management, game day experience, and fan engagement, tailoring each of these to specific high-potential segments.

B2B marketing by contrast requires identifying target clients individually, securing them via a bespoke product offering, then servicing, penetrating and growing the relationship.

Second, yield management capabilities are crucial, in order manage ticket pricing dynamically based on supply-demand.

Our target is to sell-out each game at the best possible price point.

The starting point is to have a 50% “baseload” of members (or season ticketholders) who pre-commit to every game.

For the remaining 50% we target different segments – corporate, family, and  community.  As a general rule, Friday night games sell best to corporates, Sunday games sell best to families, while Saturday games are mixed.

All of this relies upon real time data capture and monitoring, and targeted  advertising and promotion.

Third, given that 70% of the cost base is fixed, tight financial controls are required for the remaining 30% of costs which are variable.

Budget discipline is crucial, given the constant temptation to overspend in the pursuit of on-court success.

Finally, on a personal level, you need to be comfortable with a multi-year investment cycle while you build the volume across which to amortise your fixed costs.

This is perhaps the hardest part, requiring a patient capital source, and absolute conviction that a pathway to success exists.

Keep Winning and Losing in Perspective

Today’s 24/7 media cycle – for business, politics, and sport – feeds on drama.

And what could be more dramatic than winning or losing a high-profile sporting contest?

By contrast, Rudyard Kipling’s immortal poem “If”, from a simpler time, lionizes those who treat success and failure with steadiness and calm:

“If you can meet with triumph and disaster

And treat those two impostors just the same”

Kipling’s words still resonate today.

The challenge is to avoid taking the media hype too seriously.  Rather it should be seen for what it is, namely a necessary element of the business model, designed to entertain, and provoke interest.

All sports professionals, both on-court and front office, know that the margin between success and failure is slim.  That the bucket which decided the game could have gone either way.  That in the  long run referee calls even out.  That all team have injuries.  That players, coaches and executives migrate across platforms.

As such, they tend not to get too excited about a win or overreact to a loss.

Similarly, at an individual level, even the greatest competitors lose 50% of the time.

Michael Jordan, the greatest-ever basketball player, had a career field goal percentage just under 50%, missing one of every two buckets.

Ted Williams, the all-time batting leader in Major League Baseball, similarly made it to base 48% of the time, roughly once for every two at bats.

What the “failures” of the greatest-ever athletes really demonstrate is the intense competition of elite level sport.

For every missed bucket by Jordan, there was an opposition player who guarded him well.

For every strikeout by Williams, there was an opposition pitcher who had figured out his weaknesses and exploited them.

And the same is true in business.

The deal which fell over, the contract which failed to materialise, the missed budget numbers are usually the consequence of a competitive marketplace.

In sport as in business, what really matters therefore is not losing but how you lose and what you learn from it.  How you meet and beat the competition the next time.

A truism is that we learn more in defeat than in victory.

It therefore follows that losses should be embraced and built upon as the springboard for future success.

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