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Red Bull soon team owner in one of the Big 4?

Red Bull has proven it is able to bridge the gap from commercializing obscure niche sports to successfully managing teams in Europe’s mainstream sports. Now the question is whether this concept is transferable to the United States?

One of Red Bull’s largest investments is soccer. The company’s first attempt came with the purchase of FC Red Bull Salzburg in 2005, formerly known as SV Wüstenrot Salzburg, a nondescript first division team in the Austrian soccer league. It only took Red Bull two seasons to become champions and  Salzburg has won four more championships since then.

For feasibility purposes (lack of teams for sale and enormous team values) in Germany, Red Bull purchased Leipzig, a struggling team from the fifth division and a major German city with no Bundesliga team. Because the Bundesliga has very strict regulations in place for ownership and team names, Red Bull was not allowed to name the new club Red Bull Leipzig. However, the corporate owner overcame that regulation in Leipzig by setting up a separate company, naming it “RasenBallsport Leipzig GmbH”. After several promotions RB Leipzig finished its first season in the Bundesliga in second place. This is a tremendous success story, and will allow the team to play in the prestigious UEFA Champions League next season competing with Europe’s elite for international glory. Instead of paying expensive sponsoring fees to random soccer clubs to advertise on their jersey, Red Bull takes ownership of the team to control management, pursue ambitious talent recruitment, and make the club a championship contender as soon as possible. In Leipzig’s case, Red Bull also owns the Red Bull Arena.

Red Bull’s entrance into the MLS came through a $100 million acquisition of the NY / NJ Metrostars. Although, Red Bull had historically erased past records of its professional sports acquisitions, the Metrostars had very little to cherish. The upside of the deal was immense as the Metrostars represented the only MLS team (at the time) in the country’s largest media market.

The same year that Red Bull took over the soccer team in Salzburg, they also gained control of the major local ice hockey club, now called EC Red Bull Salzburg. Just like the soccer team, the ice hockey club celebrated its first championship in 2007 and has won four titles since. In the German professional ice hockey league (DEL) Red Bull chose to get involved with former EHC München, which at the time was struggling financially and competitively. EHC Red Bull München launched 2013 and now have won the championship in two consecutive years.

The common ground across all sports mentioned above is that Red Bull will typically select a team that is struggling financially and competitively (if available). Once purchased, Red Bull aggressively invests in new talent, the club’s youth academy structure, and possibly owning the arena or stadium as well as its naming rights. Of course, Red Bull also provides the jersey sponsorship for its teams.

The acquisition of a professional sports organization is a difficult endeavor with a variety of hurdles such as scarcity of assets, regulations, and approval from owners and leagues to name a few. Owners may move to prevent such an acquisition in order to deter other major corporations from buying teams. However, Disney was able to overcome that obstacle with the Mighty Ducks. Furthermore, the inclusion of Red Bull could create conflict within venues that hold sponsorships with other beverage companies. Considerations in regards to league, location, and team will be key to match Red Bull’s “story” to this new asset.

The NBA doesn’t seem to fit Red Bull’s strategy for team ownership. While the energy drink giant sponsors individuals or teams within the league, an acquisition would be well beyond its traditional check size. Take for example the over $2 billion Clippers’ sale price, which is much more than what Red Bull has invested in the past. The upcoming sale of the Houston Rockets is expected to be no less. The NBA poses an additional challenge because the Chicago Bulls trademark logo would prevent Red Bull from fully monetizing their brand in conjunction with a team name.

As for the MLB, America’s national pastime, baseball has often been resistant to change. The addition of a monstrous corporate owner like Red Bull would likely be a tough pill to swallow for many ownership groups. Additionally, MLB’s fan base does not necessarily align with the target demographics of Red Bull’s existing portfolio. Not only are MLB fans older than other major sports leagues, they are also declining in number. In this case, Red Bull would be better off sponsoring a stadium or endorsing more MLB players than acquiring a franchise given their unlikely success navigating the politics of baseball.

What appears to be the most realistic expansion route, is the NHL. The Red Bull brand is more aligned with an action packed sport like ice hockey, given its extreme image and current endeavors into niche sports like the Crashed Ice Challenge.

There are numerous factors to consider when discussing the possible sale or relocation of a NHL team: poor ratings, struggling ownership, arena issues, and market penetration come to mind as key focus points.

The Islanders would be a legitimate candidate for Red Bull to purchase. While the Islanders currently rank in the bottom 6 for ratings for the entire league, they have had a terrible past few years (31% decline from last season). In desperate need of a new arena, the Islanders requested $400 million from voters to finance a new arena but were soundly rejected. Shortly after this vote, it was determined the Islanders would move to Brooklyn and share the fancy-new Barclays Center with the Brooklyn Nets. Currently, the Islanders are now in need of a new home as Barclays has officially announced that the Islanders will no longer be welcome at the Barclays Center after the 2018-2019 season, as financial projections show that the Islanders will not contribute any revenue after that season. What is perhaps most problematic about this move, however, is that the Islanders have relatively new owners (Jon Ledecky and Scott Malkin acquired primary ownership in 2016). It is unlikely that the Islanders current owners would be willing to sell so soon.

Aside from the Islanders, Arizona Coyotes and the Colorado Avalanche are additional potential options as they also have poor records, low ratings, and ownership from both teams has expressed interest in selling. Alternatively, Red Bull could enter the NHL via expansion. With the addition of the Vegas Golden Knights in Las Vegas, the NHL now has 31 teams. It is likely that another expansion team will be added in the near future in order to bring the number of teams in the league to an even number.

The US leagues have a very different structure that makes it more difficult for wealthy investors to automatically win championships. Red Bull has experienced exactly that with the New York Red Bulls. Drafts, salary caps, and more even revenue sharing make this endeavor less plannable. The NHL certainly comes with challenges, such as the relatively tight salary cap that is tied to the fixed portion of league-wide revenues. However, if Red Bull decides to take its team ownership strategy to the next level, the NHL seems to be the most sensible and feasible target. Team ownership in a major league in the US may even help Red Bull to solve another pain point: Monetizing from its existing media channels.

12 comments on “Red Bull soon team owner in one of the Big 4?

  1. Aarti Sharma

    Interesting insight! Great article!

    Like

  2. Michelan Willie

    Fascinating! Amazing article!!

    Like

  3. Barbara Leyman

    Very informative article!!! 👍🏼

    Like

  4. Anu Parasher

    Excellent article! Very well written.

    Like

  5. Interesting facts but I don’t think they should invest in another MLS team anytime soon. Instead they should do the same they have done before… in other words, invest on the new smaller/lower division clubs. For example, the new Soccer team in San Antonio, Texas, that is part of the United Soccer League. The second tier league is up an coming in many cities and much much cheaper…

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  6. Great article with interesting facts!!! 👍🏼

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  7. I agree with Jc. I also think it would be difficult for Red Bull to get into the NFL, NBA and MLB given Gatorade’s dominance in those sports.

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  8. JC & Rob, I agree, not a good idea for RB to go for MLS, NBA, MLB or NFL. But the case in this article is to invest in the NHL, not in the MLS, NBA, MLB or NBA….

    That being said, the prospect of RB investing in an NHL team is an interesting and intriguing one, there is definitely an opportunity there as the ‘sponsorship monopolies’ aren’t as dominant as they are in the other US Sports Leagues. NHL could give RB an window into a comparably “open market” (“open market” being the NHL fan base…). NHL does line up with RB branding..

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  9. Well put together article Stefan. Based on their prior investment model overseas, doesn’t seem like the US ‘Big 4’ would fit this model.
    Maybe an up and coming ‘alternative sport’ such as Major League Lacrosse, for example, would make more sense where the upside is huge and investment is nominal compared to investing in the established sports.
    From a self-interest standpoint, would be GREAT if they pattnered with beach volleyball circuit! 😎

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  10. A well-researched and very informative article.

    Like

  11. Thanks for educating me on Red Bull’s value approach to professional team ownership. I am always impressed with organizations that have an educated, strategic approach to solve challenges and commit to a long term goals over decades versus quarters or years. e.g. NE Patriots

    I agree about your take on baseball. Too old school. Although that demographic could benefit from consuming energy drinks (see the movie Cocoon).

    Like

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