The FIFA Conundrum

On Thursday, 13 November, FIFA released a statement on the findings of the investigation of Michael Garcia, a third-party prosecutor, into the ethical conduct within the organization regarding the bidding process for the upcoming 2018 and 2022 FIFA World Cups in Russia and Qatar. In true FIFA fashion, their statement was quite controversial, in that it stated that the investigation revealed no evidence of wrong-doing in either case by either FIFA or the future host nations. Garcia, almost immediately, came out and publicly criticized FIFA, saying that FIFA’s portrayal of his investigation’s findings were “erroneous and incomplete”, and that he himself would appeal.

Yet again, FIFA digs itself further into an already cavernous hole from which it must climb out of to gain respect in the public eye. But does FIFA even care? The world soccer governing body has all but gotten its cake and eaten it too, and everyone else’s, with very few casualties in the grand scheme of things. And in those rare cases the focus has always been on the wrong-doings of the individual(s) involved and not much mentioned about the environment within the organization that fosters such behavior. When they continue to get away with it, why would anyone consider changing their behavior, no matter how poorly the public may look upon them?

One way in which FIFA has begun to see backlash is from its sponsors. Earlier this year, prior to the World Cup in Brazil, FIFA partners including Sony, Visa, and Adidas confronted FIFA about the World Cup bidding process corruption allegations and threatened the organization that there would be consequences should they not take the investigation seriously and try to sweep the issue under a rug. If those consequences were that FIFA loses its sponsorship income, what would that do to it’s overall revenue stream?

Source: fifa.com. Analysis by Business of Soccer

Source: fifa.com. Analysis by Business of Soccer

 

According to FIFA’s 2013 financial report, revenues from FIFA partners and World Cup sponsors represent approximately $248 million, or 18% of all of the organization’s income, at least for last year. While this might seem like a big hit for FIFA to risk, the reality is that there really is not much risk associated with losing sponsors. Not long after the joint outcry mentioned above, Adidas proceeded to re-up with FIFA through 2030. And though earlier this month FIFA partner Emirates announced that it would not renew its sponsorship agreement with FIFA upon the completion of its current contract with the organization, which expires at the end of 2014, and that Sony are also re-evaluating their involvement and association with FIFA, it is rumored that Qatar Airways and Samsung are both chomping at the bit at the chance to replace them. As seen with soccer clubs themselves, while broadcasting rights historically have been king in terms of revenue generation, commercial partnerships have seen extreme growth in recent years and this segment will only continue to grow in the future. Perhaps FIFA won’t see the level of suitors that it would like to see as a result of its recent transgressions, but there certainly will certainly not be any shortage in supply.

FIFA’s revenue stream is broken out into 3 buckets: Event Related Income (88%), Financial Income (6%), and Other Operating Income (6%). The World Cup is by far the largest source of income for the organization and the sponsorship revenues mentioned previously fall under the ‘Marketing Rights’ sub-bucket within Event Related Income. However, the largest single driver of revenue for FIFA with regard to its Event Related stream of revenue is the sale of television broadcasting rights, mainly for the World Cup and its qualifying matches.

Source: fifa.com. Analysis by Business of Soccer

Source: fifa.com. Analysis by Business of Soccer

While the World Cup is already the most watched sporting event in the entire world, numbers continue to grow with each event, and there is still a lot of opportunity for continued growth in the future. Advancements in mobile technology and second-screen viewing trends in sport will allow for a much more elevated bargaining position for FIFA, as well as any sports organization for that matter, to hike up prices for broadcasting rights, as the reach and potential level of engagement with fans continues to evolve to new heights. In 2013, a non-tournament year, broadcasting rights sales raked in $630 million for FIFA, or 45% of its overall revenue. This area is the largest single source of income for the organization. But again, there is no significant risk for FIFA losing out on the sale of television rights, as with sponsorship sales, simply because the opportunity cost of not purchasing the rights to the World Cup broadcasts is far greater than the risk of losing a portion of a network’s casual viewers over the principal of dealing with a corrupt organization. Soccer is the world’s most popular sport, and the World Cup is the world’s biggest sporting event – it will continue to be on TV and it will continue to attract billions of viewers, from which FIFA will continue to reap many of the benefits.

It is not fair to the individual national teams, club teams, nor the fans to have to even consider boycotting a certain area of the game that they love just to prove a point to FIFA that they have had enough, and that they can’t get away with whatever they want without consequences. Other options for the everyday fan, however, are quite limited. How then do we as a soccer industry hold FIFA accountable?

This is where the situation gets very, very complicated in terms of what legal power, if any, the countries that have soccer associations within FIFA actually have to do anything in this regard. That’s a topic for a separate article, or series, entirely, and I will let the legal experts handle that one. The fundamental issue at hand remains, however: how do we hold FIFA accountable?

 

What do you think about the state of FIFA and the ways in which the public can influence their decisions? Let us know in the comments section below or via Facebook or Twitter.

Reporting on the business side of the world's game.