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Wan's Column - Of Lavish Football Clubs, Financial Crisis, War Chest and Running Club’s Strategies

On my flight to Kota Kinabalu on 9 October 2008 for the Borneo Marathon, I read from the New Straits Times that the football clubs of the English Premier League have a combined bank borrowings of 3 billion pounds. That week Wall Street and stock markets around the world plummeted, despite the various rescue plans. Through the concerted effort of the government of US, UK and the European Union, the banking system was saved. Gordon Brown, the prime minister of England did extremely well with his measures in protecting the banks, a strategy that was promptly followed by US and countries in Europe. While the banking system has been saved (at time of writing at least), the lending standards are likely to be higher moving forward.

The four top football clubs, Chelsea, Manchester United, Arsenal and Liverpool with their high gearing and lavish spending on their star players signing and wage bills are likely to face financial difficulties in 2009. Manchester United is sponsored by the troubled American Insurer, AIG! The star players in the EPL are paid obscene amount of monies are likely to face more sober offers when the transfer windows reopen in January 2009. We are likely to see some distress sales of a few football clubs in 2009 when their owners facing financial difficulties themselves, have to sell their toys (football clubs). I anticipate that the de-leveraging in the financial market would result in the lenders of these clubs calling back a portion of their loans to a more prudent level. To add on to their trouble, their main source of revenue in sponsorship, marketing rights, TV rights and gate collections are likely to drop with most sponsors and fans cutting back their expenditure.

While I took a pause before wrapping up this article, I came across a report in the Star, 12 November 2008 (original source, The Sun, London) that big spending Chelsea is cutting back. Chelsea’s billionaire Russian owner, Roman Abramovich has called a halt to any spending plans, after losing billions in the Russian stock market collapse. Chelsea chief executive Peter Canyon has confirmed that Chelsea, under new manager, Luiz Felipe Scolari is unlikely to spend in the January 2009 transfer window. He went on to say that they need to sell someone to balance their books.   

Another piece of news that clearly indicates the gravity of the situation is the announcement by the organizers of the London 2012 Olympics that they will scale back their grand designs with the full blessing of the International Olympics Council (International Herald Tribune, 15 October 2008) Several of the planned temporary venues could be scrapped for existing buildings in an effort to stay within the 9.3 billion pounds budget.

The French Grand Prix was perhaps the first high profile international sports event affected by the financial crisis, the French motor sports federation announced on 15 October 2008 that it will not promote the race in 2009 due to financial difficulties. We believe we will see more sports events affected by the financial crisis as the various sports calendar for 2009 is announced with 2008 coming to an end.

In the midst of gloom, we have the good news that over the weekend of 1 November 2008, it was announced that ING, the Dutch based financial services giant will continue their title sponsorship for the New York City Marathon. This is a big relief to the New York Road Runners as ING is one of the large financial services companies that were bailed out by their government. While the New York City Marathon is the top icon among the all marathons, other less influential organizers may be less lucky as it is likely to be a case of selective continuance in sponsorship

On the home front, the sign of trouble that I notice is that the FA of Penang may withdraw from the Super League next year due to crippling financial crisis (Star 22 Oct 2008). It was reported that FA of Penang is unable to pay the players’ salaries for more than four months. While there may be more reasons to the problem of the FA of Penang, it is a challenging time to be financially strapped.

Another piece of negative local news came out on 30 October 2008 when it was announced in Bernama that the National Futsal League due to kick off on 31 October 2008 has been postponed at the request of Felda, the main sponsor of the NFL, in light of the uncertain economic situation. This is understandable as palm oil prices has plunged from the high of RM4,300 per tonne to the current RM1,500 this year. We are likely to see more of such decisions as corporations are likely to tighten their expenses budget and sports sponsorship is likely to get reduced substantially in the current budgeting season for 2009 financial year.  

In Selangor where we are active as runners, all the previous events owned by the municipals of Selangor did not go ahead in 2008 after the general election. The missing events are Ampang Jaya, Selayang, Petaling Jaya, Klang, Subang Jaya, Bangi and Shah Alam. The PJ Half Marathon that prides itself as the only event that was organized uninterrupted since 1984 has also disappeared from the running calendar. While I am not a fan of any of the above events (see my article on boutique events and event managers dated November 2007), it did contribute to a void in the Selangor running calendar. Klang was lucky enough to have the Klang Pacers that contributed 2 events, a 12km event and a 21km event this year while the adidas King of the Road graced the Shah Alam roads in August 2008. While the missing events in Selangor are mainly due to the change in state government, we will see less running events next year due to sponsorship issues. I am sure over these few months when the operating budgets for 2009 are drawn up, the knives are out to cut whatever fat that may still exist.       

Rustam Affandi, the president of PACM has mentioned to me in July 2008 that it will be challenging with the expected increase cost after the price increase of most expenses of the club. However, in July 2008, the financial crisis was not full blown yet, it was inflation that bothers him then. Today with the full blown financial crisis, we expect many regular sponsors to cut back their budget allocation substantially. Depending how important are run events to them, some events will not make it to the 2009 calendar.

Companies with their financial year ending December will typically draft their budgets in November and most companies are planning for a recession year in 2009. The respective financial controllers are making steep cuts, from operating overheads to capital expenditure. If all the big companies are cutting back, the recession in 2009 will become a self fulfilling prophesy.  

While Malaysia is not in the thick of the problem, unlike the 1997 Asian Financial Crisis, we will nevertheless be drawn in when all the major economies go into recession. Sponsorship of any kind will be difficult to come by and the cost may not go down much even with the dramatic lowering of the crude oil price (USD56 on 12 November 2008). When I was president of PACM, I have the opportunity to go through the membership database of the club over the years, I noticed that we suffered massive lowering of club members during the recession years, in 1987 we have only one hundred plus members (from 400 in 1985) and in 1997 we have only 300 plus with a high attrition rate. Given this circumstances, the club needs to strategize for 2009 and possibly consider some of the following strategies;

  1. protect the membership base
  2. make use of our war chest to sustain key events
  3. vary the concept of our events.
  4. market our chip system in a semi-commercial basis

I shall discuss in greater details each of the strategies I proposed below.

Wan quietly passed the PACM club captain in the Mizuno Wave Run 2008. Photo courtesy of Chan Wing Kai

Protect the Membership Base
Our membership base of about 1,500 has given us a good economy of scale in defraying the fixed and variable running cost of the club. If the membership drops drastically, the fixed overheads will eat into our reserve. More importantly, with a lower membership base, we are unable to negotiate effectively with sponsors that may want to collaborate with us on events. The club needs to work on preventing attrition by using the channels available to encourage members to renew. A written reminder or an email version needs to be sent out 3 months before expiry diligently and should be followed up by emails, SMSs or telephone calls to the members. The 3 years renewal promotion with a gift of a PACM product should be continued as an attraction and should be publicized in the renewal notices. I believe nearly all our existing members have emails or hand phones. The commercial companies are using this low cost mode of communication with their customers, why not a club? In the various runs we organized we have the latest emails of the members, probably more up to date than the membership database. It is a little hard work here but checking the database against the events registration forms is a good way to update the valuable database. The recruitment effort of new members must intensify during the various events we organize as well as members get members program be introduced.

Using the War Chest
Next 2 years, we may face some difficulties in securing full sponsorship for our events, we need to keep our core events going and draw on our war chest (our reserves) to commit on our core events (Pacesetters 15km and Pacesetters 30km). I wrote about the purpose of the war chest back in March 2006 and February 2003 Footloose, we should be ready to use it. I shall not discuss the amount of reserve PACM has as this is privilege information of club members who get the annual accounts of the club, let’s just say we have enough to sustain us for few years without any sponsorship and still keep our core events going.  In the event, Mizuno decides to cancel their Mizuno Wave Run, we should take it over as Pacesetters 10km as this distance is very well received by runners.  

Vary the concept of our events
When we started the Pacesetters 15km in 2003, we were very adamant about having it as a single distance event, for the reason of focus and identity. Our New Balance Pacesetters 15km has sort reached a plateau this year with about 1,600 entries. I think we need to introduce complementary lesser distances like (5km to 7km) to encourage better participation. We could get more beginners to take up running which is an objective of the club about promoting grass root participation. The idea of including a shorter distance is also a financial decision as the entrance fees from the lesser distance categories can help to defray some of the fixed costs. The Malakoff 25km is a case in point that a single long distance event having a small base of runners, especially it is 25km and held in Penang is a difficult financial proposition. In the past we were concern about our ability to manage a larger crowd but with the chip system, this concern is no longer there. During the Great Eastern Pacesetters 30km 2008, other than the 20km category, we have the 10km event for the Great Eastern staff and agents which was pretty well received.

I believe the clubs are more cost efficient in managing events compared to other organizers as we do not spend much on the frills, those nice to have items that may not add much value to the event. Therefore, the clubs are more likely to keep the events going as compared to other organizers. Even then we have to find ways to reduce the cost and avoid a hefty increase in the registration fees.

Use Our Chip System in a Semi-commercial Basis
I was pleasantly surprised when I found out that PACM provided the timing chip service to the Borneo Marathon. As the club has invested in the chip system, we could assist some smaller organizers, those that can’t afford the hefty charges of champion chips to have a more manageable accurate timing device. I use the term semi-commercial as I feel the club can make some money, pay allowance to its support crew but not overcharging. We as a large club should encourage the smaller organizers to have their own events (refer my column boutique events and event organizers dated November 2007). To do this well, the club would need to draw up policies to govern the payment of financial compensation to individuals who operate the chip system on behalf of the club for profit.   

 Looking for the Silver Linings
While the 2009 headwind is strong against event organizers, I believe it is a good opportunity for the clubs to prove that we here to stay, to continue organizing events we love to promote our sports and establish ourselves as the key road race event organizers in the country. I am counting on PACM, PACM Kuantan Group, Kelab Road Runners Ipoh, Klang Pacers, the Pacemakers and Bidor Road Running Club to keep the torch burning in a difficult year to come. My optimism is confirmed when I saw in the 2009 calendar that PACM has confirmed that the Great Eastern Pacesetters 30km 2009 will go ahead on 18 January 2009 while the New Balance Pacesetters 15km will be on 17 May 2009. Last week I received an email from Ling of Bidor Road Running Club that their Bidor Half Marathon will be held on 26 April 2009. On the flip side, there is no news from the KLIM 2009 which is normally held in March each year. I should end by quoting from Billy Ocean’s song “When the going gets tough, the tough get going”   

Live life and run on…………my friends!

Wan Yew Leong
17 Nov 2008  


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