RS Winter Olympics in Sochi The country of opportunities or Is it possible to make money from sports in Russia?

The country of opportunities or Is it possible to make money from sports in Russia?

December 2013

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To disappoint any prospective investors into the Russian sport from the very start, we will answer the question in the crosshead of this article right away: no, now it is practically impossible to make any money from the Russian sport. To encourage them, we’ll add: in the future – yes, this may a very likely prospective. The opportunities for the private capital in this area are quite optimistic. You only need to be patient.

The situation here is very simple. In Russia, the situation is still much the same as it was in the Soviet Union. Sport is a public affair. It should be financed by the state.

And if the state cannot finance it in the contemporary context, it should be done either by the regional authorities or by private companies. The best example is the Zenit football team – the richest team in the country. The money comes from Gazprom and everyone knows about the enormous revenues of this company. That’s the reason why Zenit can afford such superstars as Hulk, a forward from the Brazilian national team.

Another example is the Lokomotiv football club. Once again, a “natural monopoly” – the Russian Railways; once again, actually unlimited expenditures to purchase players. Today, to invest money into this club is simply foolish, just like investing into Zenit. In this case, everything would be managed by the Russian Railways. It’s very unlikely that it will admit any foreign investors as the club’s shareholders in the foreseeable future. Besides, it makes no sense to count upon any dividends now. There simply will be no dividends, only expenditures are expected. Just like in the case of Zenit.

Now it is practically impossible to make any money from the Russian sport, but in the future – yes, this may be very likely

The third example: the Kontinental Hockey League. It was created by Gazprom, more precisely, by its subsidiary Gazprom Export. Alexander Medvedev, Aleksey Miller’s deputy at Gazprom, was in charge of the project. The order, as far as is known, came from Vladimir Putin himself. The actual work was done by one of Medvedev’s colleagues from Gazprom Export.

The results are obvious: a hockey league was created that is able to globally compete with NHL. And not only with regard to the hockey players’ salaries, but with regard to the results of sports matches as well. An impressive result.

Predominance of natural monopolies in the Russian sport caused a quite reasonable protest on the part of the politicians. Only to onlookers it may seem that Russia is a totalitarian country. In fact, this is far from being the case. As a result, we have the initiative on the part of several members of the Federation Council, the upper chamber of the Russian Parliament. They suggest introducing a ban on the financing of sports clubs from budgets of natural monopolies and state corporations.

This idea provoked a strong negative reaction on the part of the leading sports functionaries. According to Viacheslav Koloskov, the Honorary President of the Russian Football Union, “this is a rather strange initiative”. The main point of his objection is that the “sports money” is spent not only on football, which is very popular in Russia, but on other types of sport as well. For example, various ski sports are sponsored by Rosneft, the major Russian oil company. Without such sponsorship they will simply go under.

Moreover, Koloskov is certain that if this initiative is adopted, they will have to say goodbye to very nearly the entire professional sport in Russia. This may be his going over the top when he says that there is no alternative to such financing. As an example, professional biathlon is now under the patronage of multibillionaire Mikhail Prokhorov. Rhythmic gymnastics is patronized by another multibillionaire – Alisher Usmanov, the husband of the Russian rhythmic gymnastics head coach Irina Viner.

As far as we know, members of the State Duma, the lower chamber of the Russian Parliament, disapprove of the initiative suggested by their colleagues from the Federation Council. In particular, they are afraid that this idea will adversely influence both professional and grassroots sports.

In Russia, there is plenty of available money that can be spent on sports. However, it comes either from private companies or from the government institutions, including regional authorities.

According to a leading Russian sports agent Vladimir Abramov, at the moment in Russia only sports agents and sportsmen can make money from sports, but not the clubs: “There is a very peculiar situation in the country. We are ready to pay megabucks to foreign stars, but are not ready to refund them in monetary terms”. Maybe this situation was caused by the oversupply of petro- and gas-dollars. Whichever way it may be, but in Russia there is money to spend on sports, and a whole lot of money. However, it comes either from private companies or from the government institutions, including regional authorities.

It should be noted that private companies are often forced to cooperate with the sports sector by the government itself. The above-mentioned Mikhail Prokhorov, as far as we know, voluntarily agreed to invest money into the Russian biathlon. He became a fan of this type of sport under the influence of his elder former commercial partner Vladimir Potanin. Usmanov, who, by the way, is a co-owner of the very popular London football club Arsenal, being the rhythmic gymnastics sponsor is influenced by his wife Irina Viner. However, in most cases, in contrast to these examples, the government itself forces private companies to sponsor the sports companies.

This is most commonly the case in the Russian regions. Local authorities confront large companies with a dilemma: you either help our teams or we deprive you of the reliefs and advantages in our region. Granted, you cannot call it fair play; however, this persuasion usually works perfectly. Although sometimes this does not lead to a happy ending. For example, in the North Ossetia in the second half of 1990s, local companies producing vodka actively sponsored the Alania football club. And they even brought it once to the victory in the Russian championship. But when federal authorities commenced a serious review of numerous violations committed in alcohol production in the North Ossetia, Alania not merely lost its top position in the championship, but all in all left the premier league. These are the past realities of the Russian sport.

We speak of this as “past’ realities here, because recently the business environment in Russia, including in the sports sector, has changed dramatically. Nobody wants to cheat on potential investors. There are still some problems, but who told you that there were no problems in the American football forty years ago? Russia makes headway much faster than the US in its time, equally so in in terms of the ethical aspect. There is no gainsaying here for an unbiased observer.

At the same time, we are ready to repeat once again: the expenditures on sports in Russia are by no means transparent as yet. For instance, most football teams will hardly meet the fair pay financial requirements of Michel Platini. Well, of all the large teams disputing the football championship of Russia, perhaps only CSKA may be able to do so.

This club is the only one among its Russian peers and competitors that publishes its budget every year. At one time it was unofficially acknowledged that it was owned by the famous Russian multibillionaire Roman Abramovich who now lives in London. However, the President of the club Evgeniy Giner claims that he himself owns 100% shares of the club. And one may believe it, considering how carefully he runs his sports business. At any rate, as to the expenditures, the Moscow club CSKA is totally different from the London Chelsea owned by Roman Abramovich.

Most football teams will hardly be able to meet financial fair pay requirements of Michel Platini. Of all the large teams disputing the football championship of Russia, perhaps only CSKA may be able to do so

At present, the Russian sport is focused on preparations for the Winter Olympics in Sochi. And so are the financial resources allocated for the sport. Those come primarily from private companies. The pressure exerted on them by the government is so heavy that, no doubt, they will fulfill their obligations. In two months to go before the Olympics, the construction activity went on in three shifts, i.e. around the clock.

Besides, a great deal of attention was paid also to the forthcoming world football championship of 2018. In addition to that, the Student Games in Krasnoyarsk should be taken into account. Igor Astapov, Director General of Krasnoyarsk TV channel “7 Kanal”, former Press-Secretary of the Krasnoyarsk Territory Governor, said that local authorities count on support from the Federal Budget: “This is only natural. The federal authorities must extend support to their colleagues in the regions”.

One of the problems of the Russian sport is that proceeds from rights to the TV broadcast are now miserable; the tickets to the sports events are cheap. Without support of state companies, the professional sport will hardly survive.

Apart from the professional sports, investors now pay significant attention to the grassroots sport. In Russia, sports facilities are being built under the Federal Special-purpose Programme “Development of Physical Culture and Sports in the Russian Federation in 2006-2015”. Probably, the most exotic construction project is the creation of a football stadium in Norilsk, Krasnoyarsk Territory. It will be the first football stadium in the world built within the Polar Circle. Of course, in these conditions the field will be artificial.

Ekaterina Ulyanova, Deputy Director of the Economic and Political Research Centre, believes that “at the moment, the sports business in Russia is practically at a zero level. What I mean is that it yields almost no income at all. But in five years from here it may have rather good prospects. This will depend on the situation of the world economy, with which Russia is directly connected. The chances are very good. Let’s see what happens further on”.

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And let us address once again the subject stated at the beginning of this article, i.e. the problems of sports financing in Russia. Let us be honest, it is no use hoping for a speedy return on investments. But it must be understood that in Russia it is difficult to enter into its business sector, but once you’ve managed this, a lot of things become easy. The same happens in the sports sector. Today the sports business in Russia is facing, on the one hand, a funding gap and, on the other – the oversupply of the federal or regional capital. The existence of a niche for the private capital is obvious. The example of Evgeniy Giner mentioned above is quite indicative. He is a very experienced businessman and would not invest his money in any hopeless business. Respectively, the forecast is: anyone who wants to get a large return on his investments in the nearest two or three years should forget the idea of investing into the Russian sport. But anyone who plans to stay in the Russian sports market for at least five - ten years can count on a significant profit here.

Vsevolod Sedoy,
Exclusively for Russian Survey RS