|Should We Be Careful What We Wish For?|
|Should We Be Careful What We Wish For?|
|Written by The Tic Doc|
|Saturday, 29 October 2011 18:16|
In the study of economics (yes I used to be an economist but I’m alright now), there is a term known as opportunity cost. Simply put, it means the cost of any activity measured in terms of the value of the next best alternative not chosen. Basically, it is what you give up by choosing one option over another.
The opportunity cost of a good night out is the £50 or so that you could have spent on something else. The opportunity cost of 3 Celtic Season Tickets, plus attending all away games, is …… well let’s not go down that route in case the wife is reading this but hopefully you get my drift (see note to Mr Keevins below).
In economic accounting, an assessment of opportunity cost is fundamental to evaluating the real performance of a company, it’s Board of Directors and senior management team. Ignoring opportunity costs may produce the illusion that all is well; the unseen costs of choosing a particular course of action are ignored in the Annual Report.
Many of us would have started to think about lost opportunities during the recent AGM. Even though we were warned to ‘be careful what we wished for’ and to ‘be grateful for what we had’, I started scribbling down some opportunity cost calculations.
Let’s start back in the transfer window of January, 2009. Most Celtic fans would agree that the failure to sign a striker not only cost us the 2009/2010 league title, but also the chance to move streets ahead of our financially strapped rivals. It is not an unreasonable assumption to think that investment in the team at that time could have guaranteed us participation in the Champions League for maybe the next four seasons. In monetary terms, this could equate to an opportunity cost of £60 million in lost Champions League revenue i.e. 4 seasons x £15m per season.
Let’s also assume that our Board had the foresight back then to see how tight things would become financially and the strategic vision to do something about it (I know this is a big assumption). They make the courageous decision to go down the crowd funding route by opening up ownership of the club to the ‘best supporters in the world’.
Using the power of social media to unite the Celtic diaspora, 100,000 Global Celts contribute £10 per month to part own the club. Decisions are made on a crowd sourced, democratic basis (including fans who cannot afford to contribute financially). Over the same four seasons mentioned above, this would contribute a further £48m to the club i.e. £1m per month x 48 months.
So in total, the opportunity cost of the Board’s narrow minded obsession with balancing the balance sheet could be as high as £108m over 4 years. Even if we discount that by 50%, it is still a very sizable loss of much needed revenue.
Compare the above sums with the investment made by DD and you will see where I am coming from. Over the last decade, a crowd funded ownership scheme, as described above, would have contributed £120m to Celtic. How much has DD invested over the same period?
‘Be grateful for what we have and be careful what we wish for’ – I don’t think so Mr Reid. There is another way. It’s called the Celtic Supporters’ Way.
Note to Sir Hugh: Mr Keevins, the next time you adopt an arrogant and condescending attitude towards a Celtic fan just because they ‘only spend a few hundred quid on a season ticket’ compared to the ‘millions invested by DD’, there is another concept that you should learn about – it’s called the life time value of a customer i.e. the amount of money a customer spends on a brand over his/her lifetime.
Consider this: a typical Celtic household/family might have 3 season tickets. To keep the maths simple, assume a season ticket price of £500. The season tickets have been in the possession of the family for 20 years – that’s a total family expenditure of £30,000 i.e. £1,500 per season for 20 years. Assuming that the family retain possession of said season tickets for another 20 years, their life time expenditure becomes £60,000 (not including travel, merchandise sales etc). This is serious money, Mr Keevins and a massive investment in Celtic so please show some respect. If said family also attend most away games then the amount of money spent becomes even more frightening, approximately £120,000 for the above family over their Celtic life.