The Stock Market could ease Yanga and Simba’s financial woes

 By Godwin Semunyu

Soccer goes down to the roots of Tanzania's history. Through the soccer fields in Jangwani and Kariakoo, the late Mwalimu Nyerere and the TANU comrades converged with the locals during the freedom fighting days.

In Tanzania, whether you are a sports fan or not, you are somehow expected to support either Yanga or Simba. A friend once joked that we are first Tanzanians, then we mention our tribes, followed by our support for either of the two teams. I see no lie. Each club is estimated to enjoy a fan base of between 15-20 million followers, one of Africa's biggest fan base.

However, with all their mighty brand prowess and lucrative fan bases, Simba and Yanga are still living in a world of financial dependency and relying heavily on funds from sponsors and donors in exchange for advertising values.

Leveraging on their brands' equity, they are undoubtedly the “adverting heavens” to most local businessmen. Perhaps that is their blessings in disguise. As a result, the clubs have developed a tendency of over-reliance on sponsors and individual benefactors, with minimal revenue alternatives, a recipe for the rise of a solo voice, with financial muscles, to take the helm. It is not an entirely bad situation as it has worked perfectly elsewhere.

However, the downside to this situation is that it lacks a going concern and sustainability. When the dominant voice stumbles, so does the entire institution. Yanga fans learned the hard way when their previous benefactor stepped down abruptly. Within three months, they went from being the wealthiest club in East Africa to a club pleading for fans’ contributions to pay salaries.

A few months back, Simba’s main sponsor pressed the panic buttons when he tweeted a decision to quit the club, following a stint of bad results. Though the decision was reverted afterward, the fans already feared the worse.

Lack of sustainable revenue streams that act as shock absorbers leaves the clubs vulnerable in any mishaps. History has taught that over and over again.

The Government has instructed the two clubs to embark on the ownership model where shares are distributed into 51% to 49%. The ordinary fans own 59%, and a mega investor(s) holding the remaining 49%.

This opens up doors for the clubs to start trading shares at the Dar es Salaam Stock Exchange and generate instant capital to fund operations and growth. Apart from investing in squad and training facilities, it could also be ventured into income-generating tributaries like bonds or short-term fixed plans to guarantee working capital.

The move will also amplify the fan bases as many will jump at the opportunity to own a part of their beloved clubs. Furthermore, as a publicly listed company with mandatory transparency practices, the clubs will win many supporters' trust to turn them into active members, hence garner annual membership fees.

Merchandise, TV rights, and Kit sponsorship are football clubs' major cash-cows. With unbalanced books and a desperate need for funds, the clubs naturally lose ground negotiating tables with advertisers. Nevertheless, by becoming financially stable, the clubs will have the upper hand and detect terms.

For instance, the clubs could opt the modern way of kit sponsorship, where multiple advertisers are accommodated. Recently, the English club, Arsenal, signed with Rwanda a three years kit sponsorship deal worth USD39 million to have a “Visit Rwanda” Ad on the sleeves.

Mind you, Arsenal already had five years kit deal with Emirates Airline worth £200m (USD 280mmillion) for the front part of the jersey and around £300 million five years deal with Adidas for the company’s logo on the top left corner, of the same jersey.

It should be clearly stated that floating shares is one thing, but inspiring investors’ confidence is an entirely different ball game. To achieve that, the clubs will have to be appropriately structured and professionally managed.

The clubs also need to invest smartly in the playing squads to get favorable results; game results are an essential driver of the share prices.

In England, for instance, where most Premier League clubs are listed, studies have revealed that share prices reacts asymmetrically to game results. The negative effect being greater and quicker for losers than the positive impact for winners. This is because losing is a stronger predictor of future losing (and hence lower financial performance) and vice versa.

The optimal point is, if the two clubs, which commands the support of close to 30 million Tanzanians, are to make a significant leap forward, financial independence is of the essence. But since mobilizing capital the old way has proved to be a daunting task, floating shares is the only light at the end of the tunnel.

Send your comments to gsemunyu@epicpr.co.tz.