Clearly, then, some of the same dynamics that drive blockbuster bets on creative content also foster investments in superstars. For a host of reasons, it is difficult for entertainment executives to forgo relying on A-list talent—and the more it is obvious to everyone that a certain individual is capable of amazing feats or otherwise likely to capture attention, the more those seeking to recruit that person will find themselves in the kinds of bidding wars that also arise for promising manuscripts and other properties. This phenomenon will likely become even more pronounced over time.
Ever wider product releases and growing international markets in film, television, and other media are driving an increased focus on a select few superstars with global appeal. In sports, the expanding role of television and other media as additional sources of revenue (as opposed to ticket sales only) has significantly increased the income earned by the top-performing teams—and sometimes just the most star-studded teams. The growth in endorsement income, which for superstars now often surpasses salaries or winnings, also adds to the greater concentration. Few players beyond those at the very top receive significant revenues from such endorsements. Even legal decisions (such as the introduction of free agency in European soccer) and wider social changes (such as the public’s ever-increasing fascination with celebrities) contribute to the winner-take-all effect. And as the revenues generated by the biggest hits rise, so do the payoffs for the top creative workers behind those hits.
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For anyone leading an entertainment business, these are challenging conditions. How can executives best invest in and manage creative talent in markets dominated by a small number of superstars? The truth is that few entertainment producers nowadays can build successful, long-lasting businesses without having a strategy that plays to the importance of superstars; there is simply no way to ignore the dominant role that A-list talent plays in every sector of the entertainment economy. Even so, there is a wide spectrum of possible talent strategies.
Real Madrid is a textbook example of a content producer that has chosen to focus on acquiring stars at the peak of their ability—and therefore negotiating power—rather than, say, developing talent from a young age. I call this the “superstar-acquisition” model. “We are buyers more than sellers,” is how one Madrid executive described the approach: in each season since 2000, the team has spent significantly more on acquiring players than it has made from selling players to other clubs. For example, in the 2009–2010 season, the club spent a staggering $370 million on player acquisitions and made only $125 million selling players, leading to a loss on player dealings of nearly $250 million.
Pérez pursued the strategy from the moment he arrived: he personally secured a loan of over $70 million to finance Figo’s transfer, and Real Madrid used the gains from the sale of the club’s former training pitch to acquire other Galácticos in subsequent years. Pérez’s hope was that those acquisitions would set in motion a self-reinforcing trend (or, as business consultants say, a “virtuous cycle”) in which those stars would not only improve results on the field, but also attract new fans and increase exposure for the club among sponsors and advertisers, thus helping to build the brand as one of the world’s greatest clubs. And to Pérez’s credit, that is what happened. Real Madrid’s greater brand value subsequently drove a variety of revenue streams, including ticket sales, television rights, sponsorship income, and merchandising—which in turn gave the club the resources to recruit more superstars. The central idea behind this approach was that, as one club executive put it, “the best players pay for themselves.”
The link with a blockbuster strategy is obvious: the bigger a product’s potential audience and the more revenue windows that can be exploited, the more a company can justify large investments in the product—in this case in the players on the field. In the mid-twentieth century, Real Madrid relied on a simpler mechanism to afford the best players: increasing the size of its stadium. President Bernabéu, chosen as the club’s president in 1943, built what was then Spain’s largest coliseum, capable of seating seventy-five thousand spectators and financed with bonds sold to fans. By building what was essentially the biggest “distribution channel” for the game of soccer—the in-stadium experience, since in those days there were no mass media such as television—Madrid put itself in a position to invest in the most sought-after players. By the early 2000s, the club’s strategy had evolved to include a multitude of channels, from the live game inside the stadium to media such as broadcast television, Real Madrid’s own television station, online channels, the club’s own web site, and a set of club-branded stores. Madrid built an entire marketing infrastructure designed to exploit the club’s core content. The club even insisted that star players hand over half of their income from personal image rights.
A breakdown of Real Madrid’s revenue figures illustrates just how much the focus on superstars fueled the soccer club’s revenues in the past decade. Whereas the club generated around $125 million in revenues in the 2000–2001 season, Pérez’s first in office, revenues were up to $355 million at the end of the 2005–2006 season, the last in his first term. Sponsorship, merchandising, and other marketing income was the fastest-growing revenue stream in this period, increasing from $35 million to $140 million—more so than broadcast revenues, match-day revenues, and, a distant fourth, prize money from international competitions. By the 2004–2005 season, Real Madrid had become the world’s top-ranked club when measured by revenues, overtaking Manchester United, Juventus, and AC Milan. By the time Cristiano Ronaldo had completed his first season with the club in 2010, total revenues had risen to over $600 million. In 2012, Real Madrid still held on to its number one spot.
Individual stars can drive marketing revenues to a remarkable degree. During the weekend of the Beckham press conference in 2003, for instance, Real Madrid sold some 350,000 jerseys in Britain alone at an average price of $80—that’s nearly $30 million in merchandising revenues in a matter of days. A month later, Real Madrid capitalized on Beckham’s popularity in Asia with a seventeen-day tour through China, Hong Kong, Thailand, and Japan, netting the club close to $10 million. Almost overnight, Beckham’s popularity with fans across Asia became a big asset for the club—even if some of those fans were less interested in his soccer prowess than his looks and celebrity status.
If there is one key lesson Real Madrid’s ascendancy to the top of the “football money league” teaches us, it is that a focus on superstars can help insulate a content producer from losses due to a less-than-stellar performance on the field of play. In theory, recruiting star players should help lift a soccer club’s trophy count, which would in turn mean a prize money bonanza; the 2011 winner of the European Champions League, for example, pocketed $70 million. But even if superstars fail to deliver trophies, revenues do not have to suffer: although Real Madrid has not won a Champions League trophy since 2002 and has not had a particularly good record on the field more generally, the club still rose to the top of the revenue rankings and stayed there.
Having a stable source of income is particularly important when the difference between winning and losing is so slim. In Beckham’s last season for the club—when he won his first league title with Real Madrid—the team truly lived on the edge, salvaging three of its last four games in the ninetieth (and final) minute, while its main rival FC Barcelona dropped points by conceding final-minute goals. Sometimes luck can make all the difference, and without A-list talent to drive up marketing revenues, the financial results of a soccer club—or any other type of entertainment business—can fluctuate wildly.
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Much like Real Madrid, the major Hollywood studios also rely on a superstar-acquisition model. Large studios prefer to bet on established stars, ideally those who are thought to have broad audience appeal and have a reputation for being “bankable”—meaning that they have played leading roles in films with high box-office grosses. “People really want to see Tom Cruise in Mission: Impossible,” Alan Horn told me.
“If you exchange Tom for his costar Jeremy Renner, and not have Tom, it will have a different appeal.” When casting their biggest productions, television network executives take much the same approach. When Charlie Sheen had to bow out of the hit series Two and a Half Men after a drug-induced meltdown, the Warner Bros. executives who produced the show did not spare any expense in hiring his replacement, agreeing to pay Ashton Kutcher a reported $700,000 per episode.
Content producers often serve multiple customers: soccer clubs have fans and sponsors; television networks have viewers and advertisers; symphony orchestras and operas have patrons and donors. Superstar-acquisition models can create compelling benefits for fans, sponsors, and the talent itself. Many fans will delight in being able to see the world’s best performers. Advertisers will be gratified to know that their brands are reaching global markets. And for the talent, being a member of a star-studded team can have substantial advantages. “The responsibility here is divided among multiple players,” the Brazilian Ronaldo once explained. “Elsewhere it often rested entirely on my shoulders as the star of the team.” Basketball superstar LeBron James knows a thing or two about that, too: his desire to play alongside fellow stars Dwyane Wade and Chris Bosh was a big reason why he left the Cleveland Cavaliers for the Miami Heat. Real Madrid’s former general manager for sports, Jorge Valdano, once a player himself, made a similar point. “The greatest players aspire to play with Real Madrid, with great talents like them. Players who join us know that they are taking a step forward, in prestige and in satisfaction as a soccer player.”
At the same time, though, a strategy of acquiring superstars has important downsides. For one thing, signing a popular performer often forces a content producer to perform a delicate balancing act. For Real Madrid, a new star player might attract global fans that alienate the existing fans. Real Madrid risks upsetting its loyal members if it caters too much to, say, Japanese schoolgirls crazy about Beckham or Ronaldo, or if it “stretches the brand too far” and is perceived as overexposed or overly commercial. Maintaining the support of the core (and mostly local) fans is critical even if they do not represent a growth market—after all, they help create the experience that millions of viewers around the world watch on television or consume through other media. “The fans are part of the show and are part of the brand,” one Real Madrid executive pointed out.
A second potential problem is that a star player’s brand might come to overshadow the club’s brand, leading to a loss of control over the customer base. If Real Madrid attracts new fans by recruiting the world’s biggest superstars, some of those fans may leave as soon as the stars do. The club’s challenge, then, is to turn fans of players into fans of the club, which is far from easy. Third, bets on individual talent are inherently risky. In sports, the threat of a season-ending or even career-ending injury always looms, but injuries of superstars can have especially devastating effects. And fourth, forging a successful team from a set of stars often proves difficult—serious tensions in the locker room are widely thought to have doomed Real Madrid during Pérez’s first term. Eager to avoid such problems when he returned as president, in 2010 Pérez recruited another star, coach José Mourinho, not afraid to call himself “The Special One.” Mourinho is a lightning rod for attention, but a master at molding star players and big egos into a team.
The biggest problem with the superstar-acquisition model, of course, is the high cost of talent. Especially if the competition for stars increases, bidding wars ensue, thus putting pressure on the model. Real Madrid’s executives experienced this firsthand: “Our competitors have seen what makes us so successful on the business side, and are catching up,” one executive in Calderón’s cabinet of advisers told me in 2007. “Like any content business, we depend on the availability of talent, and we can’t always find or buy the next Zidane, the next Beckham, or another type of player that can become a Galáctico.” The problem is exacerbated by wealthy club owners such as Chelsea FC’s Roman Abramovich and Manchester City’s Sheikh Mansour, who are not always mindful of their club’s bottom line when poaching players. Their actions trigger higher player transfer fees and salaries across the board.
In part because of the escalating bidding wars for talent, Real Madrid itself is struggling with a sizable debt. But as long as the growth in revenues—powered by superstars—continues to outpace the rising expenditures on those stars, as it appears to do for the club under Pérez, the superstar-acquisition model can help improve Real Madrid’s balance sheet. One metric that soccer executives watch closely is the percentage of revenues spent on personnel. For Real Madrid, that figure was as much as 90 percent in Pérez’s first years, when the club was pushing hard to find ways to grow. Since 2005, the figure has reportedly hovered under a healthy 50 percent. This doesn’t mean the club isn’t taking significant risks, but if it were to abandon its strategy of relying on stars now, Real Madrid’s financial challenges would likely only increase.
The superstar-acquisition model is hardly the only possible approach to investing in talent. As it happens, the world of international soccer provides another model, one that has significant strengths of its own. In bustling Buenos Aires, we find a legendary club that, like Real Madrid, is owned by its members and among the most decorated sports teams in the world. But its business strategy could not be more different.
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When British newspaper the Observer asked readers to vote on the “50 sporting things you must do before you die,” the top spot was easily decided: watching Club Atlético Boca Juniors play its city rival River Plate at a stadium affectionately nicknamed La Bombonera (which translates to “the candy box” or “the chocolate box”). Gavin Hamilton, editor of World Soccer magazine, captured the sentiments of soccer lovers across the world when he wrote:
The rivalry between Boca and River Plate is the most intense in Argentine football and, perhaps, in the whole of Latin America: the game is a riot of color, noise and energy. Buenos Aires has the highest concentration of football teams of any city in the world. River and Boca are the two leading clubs. Boca are originally from the dockland area so their support is traditionally more working class. River moved away from the area early on in the league’s history to a more upmarket district, and they have a slightly more affluent fan base, hence their nickname, Los Millonarios.… On the day of the derby [the stadium] is packed with hard-core fans.… There is such passion for this match that it is unsurpassed anywhere in the world.
Juan Román Riquelme, one of Boca’s former stars, agreed: “The field at La Bombonera literally moves on Sundays. It’s an atmosphere you can’t get anywhere in the world.… It is the only place I know in the world where fans sing the entire game and the stadium moves.” Fans were fond of saying that the stadium did not just tremble under the weight of the supporters but that it beat like a heart.
Boca Juniors is the most popular club in soccer-mad Argentina. In a country with more than forty million inhabitants, only two out of ten Argentines consider themselves indifferent toward soccer. Of those who follow the sport, 40 percent call themselves fans of Boca. “We are too big a club for such a small country,” then president Mauricio Macri told me in 2006. Its on-the-field record certainly was impressive: in the century since its founding by Italian immigrants in Buenos Aires’s La Boca neighborhood in 1905, it had amassed twenty-two Argentine League championships and sixteen international titles—tying it for the record with Italy’s AC Milan—including five Copa Libertadores (the South American equivalent of the European Champions League) and three Intercontinental Cups (the world championship for club teams). As a result, Boca was regularly included in worldwide rankings of top clubs. In January 2005, in fact, soccer’s governing body, Fédération Internationale de Football Association (FIFA), voted Boca Juniors the world’s best club, ahead of Manchester United.
Throughout its record-setting first century, the club developed dozens of star players. Boca’s famed youth academy, La Cantera (“the quarry”), was a b
reeding ground for exceptional players. In each of the ten most recent seasons before 2006, an average of eight former youth players made their debut in Boca’s first team. Many of those later moved to the richer European soccer leagues. Widely regarded as one of the world’s best soccer players ever, Diego Armando Maradona started his career at Argentino Juniors but came to Boca Juniors in 1981. He later played in Europe for FC Barcelona, Napoli, and Sevilla, returning to Boca in 1995 until his retirement in 1997. Other former-youth-players-turned-superstars, such as Riquelme, Walter Samuel, and Carlos Tévez, began their careers at Boca and later moved to Europe.
Macri was elected president of Boca Juniors in 1996, and then re-elected four and eight years later. In November 2006, he announced that he would not be running for club president again, requested a leave of absence, and made clear his intentions to enter the race for mayor of the city of Buenos Aires. In his eleven years leading the club, Macri had made his presence felt: he increased Boca’s net worth tenfold to over $120 million Argentine pesos (around $40 million in US dollars at the time) and almost tripled the club’s annual revenues to just under $75 million pesos (about $25 million in US dollars). But despite strong performances on and off the field, Macri faced a constant array of challenges. Not only did he have to keep Boca afloat financially, he also had to satisfy the club’s various constituencies, including its more than fifty thousand members, fifty million fans worldwide, players and coaching staff, and governing board.
Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment Page 11