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Put your money where your goal mouth is

You may have heard that football is up for a Nobel Prize for Peace. Thankfully, though, it's not up for a Nobel Prize for Economics.

A Swiss company, International Sports Media and Marketing, ponied up a massive sum of money - US $1,620,000,000 - for the marketing rights of the 2002 and 2006 FIFA Men's World Cups. You may be asking yourself, "How can a company even have that much money available?" In ISMM's case, the answer is: It didn't.

The contract, which could well go down as one of the most ill advised moves in the history of sport, will leave a lasting lesson: Relationships don't get you everywhere. Or, to put it another way, love's a bitch.

FIFA's president, Sepp Blatter, has described the international football federation's relationship with ISMM's subsidiary, International Sports Licensing, as a steamy night in Venice. If so, the wife must be calling. ISL will soon face bankruptcy proceedings, with its creditors seeking over US $400,000,000, and the fallout is playing havoc with preparations for the World Cup next year.

ISL had held marketing rights to all FIFA events since 1982, when the company was created and promptly got on the good side of João Havelange, then president of FIFA. It has been receiving special treatment ever since, most notably in 1996 when the massive deal was signed. ISL was bidding opposite IMG, a company that was willing to grab the World Cup rights at any cost. The trouble was, so was ISL. And there was room for only one teacher's pet.

Blatter, FIFA's secretary general in the 1990s, had a particularly soft spot for ISL; Horst Dassler, the late head of Adidas and founder of ISL, set Blatter up at FIFA over twenty years ago. When IMG sent in a bid for US $1,000,000,000 in summer of 1995, Blatter put a lid on negotiations - whilst at the same time secretive talks were going on with ISL. By the end of the year, IMG was willing to top any offer - in writing. Finally, when Blatter opened the floor to final offers, it was MAY 1996, the deadline was only a month away, and furthermore, marketing rights to the 2002 World Cup were only offered in combination with those to the 2006 tournament. IMG was furious, and frantic, whilst ISL was in bed with FIFA.

However, not everyone was keen on ISL. Five of the twenty members of FIFA's executive committee did not make their voices heard: two were absent and three abstained from the vote, which went 9-6 in ISL's favor. In the meantime, ISL, having lost the rights to Olympic marketing less than a year previously, was trying to fill the gap, and did so enthusiastically - perhaps too much so.

Though ISL and FIFA were relatively chummy, ISL still needed to put up a ridiculous sum to beat out the newcomers IMG. All the while, as it was busy negotiating large deals with other sporting ventures, it was sinking into debt. What do companies do when they need money? They go IPO, of course! These contracts existed primarily to entice investors into its public offering, planned for this year. But the markets are in a rough spot, and the IPO was off. ISL's books still had a big hole next to "Revenues" and big numbers next to "Expenditures", with no change coming anytime soon.

In the meantime, FIFA has been creating its own PR firm to handle the marketing, and television rights, which were also part of the package, will probably go to Kirch of Germany. With any luck, networks won't have to pay the absurdly exorbitant fees that ISL had been asking for. For example, British television networks BBC and ITV, who paid US $6,500,000 to show France 98, are now looking at a catalogue for Korea/Japan 2002 coverage. There's only one color, one variety, one size, and one price: US $250,000,000, up by a factor of 40. Why?

Irrationality. ISL and IMG both wanted to market the World Cup. They wanted it really badly. You might have heard people say that they'll get something they want, even if it kills them. That's exactly what happened to ISL, except that the company probably figured it would at least live through the World Cup that it was bidding for.

Bad luck. ISL had been planning to recoup its losses this year, when it went public. The market, though, isn't in a state to support it right now.

Bad planning. What kind of business model assumes six years of bull markets? A business model that sucks.

Closed mindedness. You shouldn't do business with somebody you don't trust. But that doesn't mean you shouldn't do business with somebody you don't know. Blatter, from the look of it, wasn't willing to entertain offers from ISL's competitors, which defeats the purpose of the entire bidding procedure. You find out who wants to market your tournament, how much they'll give you to do it, what they'll do, how they'll do it, and how far they'll go for you. Most importantly, you find out whether the company will go under by the time your event happens.

Nice friendly relationships with certain people might have gotten ISL its big contracts, but no amount of companionship substitutes for useful work and money.