In the last 6-12 months, “cost-cutting” has been a recent term that has not often been used in the sports industry. However, the NHL, NBA, MLB are among a number of sports leagues that are facing threats to revenue (e.g., RSN collapse, stagnant corporate partnership revenue) and a rising cost base (approximately 20-25% increase in headcount across the organization).
As teams prepare to grow their franchise, reevaluate their spend and bend the cost curve, there are pitfalls to avoid that could harm the organization in the long run. We have seen teams who have initiated poor spend management practices result in:
- Loss of company morale
- Long cost term cost increases
- Jeopardy to long-term growth
- Loss of trust from Ownership and the organization
Here are five commonly overlooked mistakes in spend evaluation for sports franchises.
1. Over Reliance on Benchmarking Data
While benchmarking data, like headcount by department or spend as a percentage of revenue, provides a valuable perspective, it's just one lens through which to view your organization's spend. Remember that sports teams differ significantly based on their market, sport, and strategic direction. Benchmarking can be a guide, but it should not be the sole basis for cost-cutting decisions.
2. Cutting Costs in Unfamiliar Areas
Leaders often gravitate towards cutting costs in areas they are less familiar with, which can be a grave mistake. This approach can inadvertently target areas that offer a competitive advantage or are poised for future growth. Understanding each department's spending needs and their impact on organizational growth will help mitigate this through the cost planning process. Be aware of the bias and retaining “what we know” at the expense of “what could be.”
3. Implementing Short-Term Cost Measures
Short-term cost-cutting measures, sometimes planned for as little as six months ahead, often fail to consider the broader picture. Without effective planning of the cost change, including; changes in roles, responsibilities, processes, and potential investments, these measures are bound to be temporary and can come back. This is not only unsustainable from a cost management perspective, but has wider implications on staff morale and leadership decision making.
4. Set Percent Across the Board
While the “standard“ percent cost reduction approach appears to be a simple, fair, quick method of reducing costs, this strategy is fraught with risks. Different departments within an organization have varying levels of efficiency, importance, and potential for cost savings – it is likely this approach leads to a missed opportunity to identify true inefficiencies. This approach also has the potential to adversely affect essential services or areas that are critical for growth, negatively impacting the organization in the long-term.
5. Lack of Proper Planning for Organizational Change
Sustainable cost management is not an overnight achievement. It requires a thorough and thoughtful look at the organization and its alignment with strategic goals. Some additional change practices involved in organizational change, include:
- Communicating the reasons for change
- Redefining new decision-making principles
- Changing processes, role and responsibilities to accommodate the change
- Setting clear timelines or expectations of change
- Tracking progress
Successful cost management in sports franchises is not just about reducing expenses. It's about how spending aligns with the strategic plan of the organization. Leaders need to approach cost reduction with a comprehensive, informed, and strategic mindset to ensure sustainable growth and a healthy financial future for their sports franchise.
For more information about aligning spend to your organizational strategic objectives click here.