A Push For Promotion Into Asia

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Summary

This is a preliminary report on the Japan Football League club Kagoshima United (recently won promotion to J3) and its suitability for investment by an overseas club/group. The report will look at various factors which make Kagoshima United an attractive proposition for an investor from demographics, history, culture, club structure and more.

Kagoshima United are an ambitious club, newly-formed in 2014 from the merger of older clubs Volca Kagoshima and FC Kagoshima who were both playing in the Kyushu Soccer League. A shared desire to see a Kagoshima team enter the professional football ranks for the first time has seen this spirit of cooperation manifest.

The city of Kagoshima has the population to support a professional team, the history in the game at a grassroots and the elite level, the facilities, and no direct competition within the prefecture all of which make it an ideal choice for investment and growing a professional team and brand.

Introduction

Kagoshima United FC were formed in 2014 after the merger between Volca Kagoshima and FC Kagoshima. The two clubs merged with the express purpose of pushing for promotion to the Japanese professional ranks.

Currently the club plays in the fourth tier of Japanese football, the Japan Football League which is an amateur competition. Kagoshima prefecture and Kagoshima city – located on Kyushu Island – have a strong history in sports and football. Despite not having any professional team they have provided many players to the professional teams including Japanese internationals for the Nadeshiko and Samurai Blue.

Overview

In this report it will be shown that the infrastructure is already in place and that Kagoshima Untied meet many of the criteria of Japan’s 100 Year Plan club status. Minimum investment will be required to help Kagoshima reach the professional ranks.

The city has a long history of a love for sport and football as can be seen by their achievements on the national and international stage. Japan and Kagoshima are open market places for foreign investment with a number of initiatives to make entry into the market of foreign groups an easier transition.

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Why Kagoshima United?

Kagoshima United is located in Kagoshima city, Kagoshima prefecture. As of 2010, the population of Kagoshima city was 605,855 and Kagoshima prefecture 1.7 million (2014). Kagoshima is located in the southern area of Kyushu island and is about 1.5 hours by shinkansen from Fukuoka city.

There are no competing professional football or baseball teams in the prefecture despite having a strong pedigree in sports. Around sixty men and women from Kagoshima have played in the top football leagues in Japan including Japanese Internationals Yasuhito Endo, Junichi Inamoto, Masakiyo Maezono and German based Yuya Osako.
Kagoshima has a proud history of innovation too. It is said to be the birthplace of Japan’s industrial movement when 17 students broke the ban on foreign travel during the Tokugawa reign to head abroad and learn about Western science and technology. They are now honoured by a statue outside the train station.

Kagoshima also has twin city relationships with Naples (Italy), Perth (Australia), and Miami (U.S.) and have streets named after these sister cities. The people are described as friendly and humble and have an openness to foreign visitors and influence.

The weather is moderate for Japan with the only concern being during typhoon season yet this does not impact city life so much so would not be an issue throughout the season apart from a potential rescheduling of a fixture or two as it only lasts a few weeks. There is the odd eruption by a volcano on an island to the west of the city and this can see light ash fall over the city. However according to anecdotal evidence from locals this falling ash is said to be rare and not have a substantial affect on daily life.

Kagoshima prefecture is only three quarters the size of a city like Sydney which means it has a large population within a small area which will make it not so troublesome for local supporters to get to the games. The Shinkansen now has a line that goes all the way to Kagoshima which makes it better for traveling fans too.

Kagoshima United and Kagoshima Football: A brief history

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As touched on earlier, Kagoshima has been able to produce a number of elite footballers who have gone on to represent Japan at the highest level.

In the All Japan High School Soccer Tournament their high schools have twice been champions (Kagoshima Jitsugyo x 2 aka Kajitsu FC) and five times runners-up. Famous international, Daisuke Matsui although born in Kyoto, attended Kagoshima Jitsugyo HS.

With investment and reaching the professional ranks these local players will finally have a direct pathway to professional football in their hometown. Considering Endo, Matsui, and Inamoto are the same generation you can imagine the potential of a team with such quality.
The stadium they use is owned by the government and has a capacity approaching 20,000. It is located about 15 minutes by car from downtown, near the port area. Within walking distance to the stadium is at least two dozen schools from Universities down to kindergartens. The International University of Kagoshima has 4000 students and Kagoshima University has 9400.

They have an U18 and U15 team as well as soccer schools catering to all ages. United’s ten soccer schools are located around the Kagoshima region in a number of districts with 323 adult and kid students in 2014. The aim is 400 in 2015.

Rates and admission fees are 5,000 yen (54.70 AUD) per person (tax included) [including insurance premiums and shirt fee]. There is also a tuition of 5,000 yen (tax included) [siblings per person +1,000 yen (11.00 AUD) (tax included)]

E.g. If 2 brothers join, admission fee of 5,000 yen × 2 persons + Tuition 6,000 yen (65.00AUD) = 16,000 yen (175.00 AUD). The following month only the tuition fee is paid so it would be 6000 yen or 65.00 AUD a month for two children.

There is also a Kagoshima United cafe located near the main shopping and business district downtown which is also used to sell merchandise.

They have four (4) official partners which are the highest level of sponsorship and forty two (42) official sponsors with many more lower level sponsorships broken up into four (4) tiers, (platinum, gold, silver, bronze). In 2014, they had two hundred and fifteen (215) commercial partners and are aiming for three hundred (300) in 2015. Their kit supplier is Mitre and they have a media partnership with seven (7) local and regional papers, radio stations and TV channels.

Their average crowd for 2014 was 1455 with a high of 3542. Over the whole season they had a total 23,722 spectators and 1007 club members. Ticket prices for adults were ¥3000 (32.50AUD); for children ¥1000 (10.85AUD). Total gate revenue for 2014 was $130,167AUD. In 2015, the season pass which is for 15 home games is just ¥10,000 ($109AUD).

The Kagoshima Prefectural government and Kagoshima City subsidised the club with around ¥33,000,000 (357,647AUD) each.
The Kagoshima total budget for 2015 is $2.7 million AUD.

 Criteria for J3 and 100 Year Club Status

Below are the requirements for getting a 100 Year Club Status and for entry into the professional J3 competition.

Club Organisation

Must be organized as a public corporation or NPO solely devoted to football and exist in this status for no less than one year.

The majority of the shares or stock must be Japanese owned.

Must employ at least four administrative employees, one of whom must have managerial position.

Must have proper payroll system according to Japanese law

Must have proper financial management and conduct annual tax audit

Must hold intellectual rights for the club name, logo, and all associated trademarks

Home Town and Stadium/Training Facility

Must be approved by respective Prefectural Football Association.

Must be approved by the hometown government in writing.

Home stadium must be located in the proposed hometown.

Must secure training facilities within the proposed hometown.

Other

Must currently play in JFL, Regional League, or Prefectural League.

Must aim for eventual admission to J. League.

Must have a working soccer school/youth system that exists for no less than one year.

Getting Promoted to J3

Must hold a 100 Year Plan status.

Must have a stadium that complies with J3 standards (capacity 5,000 or above) and passes the league examination.

Must pass a J3 licensing examination by the league.

Must finish within top 4 of JFL, and either 1st or 2nd among other 100 Year Plan holders.

Must have average attendance of home games no less than 2,000 spectators, with significant effort demonstrated to reach 3,000.

Must have annual revenue of at least ¥150 million, and no excessive debt.

*Taken from Wikipedia

The Foreign Investor

So what can the foreign investor offer Kagoshima United? First and foremost, SECURITY.

The J-League rule of no majority ownership of clubs by a foreign group protects the identity and ownership of Kagoshima from any fundamental changes to it’s roots. Security also from worrying about the financial issues which comparatively are low compared to many football clubs around the world.

One requirement for any professional Japanese club is to have a minimum annual revenue of 150 million yen or roughly $1,700,000 Australian dollars. For the pro licence an initial five (5) million yen (approx. $60,000AUD) fee will also have to be paid.

A dual membership package between the two clubs would be one way in which the revenue requirement could be met. Supporters of each club could buy memberships with an international option with a percentage going to the foreign based team.

Foreign investment in Japanese clubs already exists – albeit rare – with the City Group who currently own around twenty percent (20%) of J1 club Yokohama F Marinos, the first of its type in Japanese football. The J-League’s expansionists plans include to have as many professional clubs as possible under the 100 Year Policy. Japanese football officials have identified this as an important step to providing more pathways for elite player development and subsequently a stronger Japan national team. For this reason it is believed that foreign investment will be welcomed as long as it is accompanied by Japanese investment.

The City Group have already helped Yokohama with finding their new manager and are actively pursuing recruitment of their foreign players. This is an area where a foreign group can help with providing a wider network than Japanese teams traditionally have which can be largely down to language restrictions.

Also as mentioned before there are some well-known players from Kagoshima so attracting them back to the club in some capacity would be a huge boost for the club and town.

With one of the main issues being the requirement to have a home crowd average of at least 2000 the extra financial assistance could be spent in areas such as promoting and advertising. Last season’s average was just under 1800 so not even 300 more fans would be enough to meet requirement. Of course the aim would be for much more than this but the initial target should be 2000 to qualify for promotion to J3.

From direct communications with the J-League on the matter of foreign investment:

“Under the “J.League Statute”, the majority shareholder(s) of the management company of a JLeague Club must be a person/persons who has a Japanese nationality or (a) domestic corporation/corporations.

[J.League Statute Article 12 – Article 14]

>> It is understood foreign investment into J.Clubs must be minority. The “J. League 100 Year Plan club status” has the same rule of the above.

[J. League 100 Year Plan club status Article 2]

>>> Foreign investment into a 100 Year Plan Club also must be minority.

In terms of the shareholder rule of J.Club, J.Club must pre-report to J.League Secretariat whenever they issue new share or change the shareholder.

[J.League Statute Article 25]

Furthermore, J.Club must get the permission of the J.League Board of Directors whenever they issue new shares or change the shareholder of more than 5% of the issued share.

[J.League Statute Article 25]

It is the aim of the J.League to protect our league from certain shareholders such as short-term investors who have a different vision of J.League 100 Year Plan (eg. a shareholder who is just interested in the profit from football games and neglect the promotion of sports culture including other various sports).”

Mutual Benefits

The mutual benefits could extend to both cities and clubs. The exposure within the two countries and Asian region will be huge as well as on the global football stage. The first partnership of its type between an Australian and Japanese club is a headline maker.
This will lead to tourism benefits, opening of business markets for sponsors, and increased brand recognition for both clubs. As the club moves up the pyramid this exposure and recognition will only increase.

The trade of footballing expertise – from the Australian club’s experience at the top level and resources to Kagoshima’s excellent record of producing quality footballers. The strengths of each nation is something that the other traditionally lacks – the physicality and tactical nous of Australian football to the technique of Japanese football – so a partnership could address these issues to create better all-round players.

Without question there could be an exchange of players between the clubs. The Australian club could have first option on any exciting talents and Kagoshima in the initial stage could have access to Aussie players on the verge of first team football but need a strong senior league to be tested in. The further up the pyramid Kagoshima move the more benefit to both clubs through an exchange of a higher calibre player.

Goodwill is an underrated commodity with no monetary value able to be attached but is priceless nonetheless. Japan and Australia are arguably the two strongest national teams at the moment yet face stiff competition from the big spending China and Middle East leagues as well as the perennially strong Koreans. Teamwork and cooperation between the two which would grow and develop from the goodwill of such initiatives would be a way to ensure each other’s position in the region doesn’t change.

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Professional Football by the Numbers

From the top flight of football in Japan – J1- there is effectively no salary cap and budgets can vary greatly between the teams.

J1
The overall budget from 2012 for a J1 team was $34,190,687AUD. Urawa Reds had the highest budget at just over $58million AUD while Sagan Tosu had the lowest budget at $15.7 million AUD. The average wage bill for players and staff in 2013 was $15.1 million AUD. As of 2015 the average wage in Japan for a player was $216,946 AUD. The average age and squad size are 26.5 and 28.6 respectively.

J2
The average J2 total budget for 2012 was $10,153,072 AUD.

J3
The J3 is only in its second year. There is a minimum budget requirement which is set at $1.63 million AUD. The average total annual budget for J3 clubs is $2.17 million AUD a year.

Player Contracts

There are three (3) main contract types for players in Japan,
Contract A: The maximum salary for an A contract is $75,931AUD and all Japanese players are paid up to this in their first year but from second year on there is no salary limitation.

Contract B: The minimum is$ 52067AUD and must be held by a player for three (3) years before they can move up to the A deal. This is a development deal for youth players.

Foreign Player Contracts: There are no limitations.

Below is the reigning J1 champion Sanfrecce’s playing roster and their player salaries as of 2015.

Total Salary:6億3620万円

Average Annual Salary:2193万円

Average Age:26.95歳

Registered Players :29人

(Rank, squad number, name, age, club, position, salary)

1位 11 佐藤 寿人 33歳 サンフレッチェ広島 FW 6000万円

2位 8 森﨑 和幸 34歳 サンフレッチェ広島 MF 5000万円

2位 14 ミキッチ 35歳 サンフレッチェ広島 MF 5000万円

2位 6 青山 敏弘 29歳 サンフレッチェ広島 MF 5000万円

5位 4 水本 裕貴 30歳 サンフレッチェ広島 DF 4500万円

6位 1 林 卓人 33歳 サンフレッチェ広島 GK 4000万円

7位 5 千葉 和彦 30歳 サンフレッチェ広島 DF 3500万円

7位 33 塩谷 司 27歳 サンフレッチェ広島 DF 3500万円

9位 7 森﨑 浩司 34歳 サンフレッチェ広島 MF 3000万円

10位 30 柴﨑 晃誠 31歳 サンフレッチェ広島 MF 2500万円

10位 9 ドウグラス 27歳 サンフレッチェ広島 FW 2500万円

10位 18 柏 好文 28歳 サンフレッチェ広島 MF 2500万円

10位 16 山岸 智 32歳 サンフレッチェ広島 MF 2500万円

10位 15 工藤 浩平 31歳 サンフレッチェ広島 MF 2500万円

15位 19 佐々木 翔 26歳 サンフレッチェ広島 DF 2400万円

16位 27 清水 航平 26歳 サンフレッチェ広島 MF 1200万円

17位 24 野津田 岳人 21歳 サンフレッチェ広島 MF 900万円

18位 13 増田 卓也 26歳 サンフレッチェ広島 GK 800万円

18位 28 丸谷 拓也 26歳 サンフレッチェ広島 MF 800万円

20位 21 廣永 遼太郎 25歳 サンフレッチェ広島 GK 700万円

21位 38 吉野 恭平 21歳 サンフレッチェ広島 DF 600万円

21位 29 浅野 拓磨 21歳 サンフレッチェ広島 FW 600万円

21位 22 皆川 佑介 24歳 サンフレッチェ広島 FW 600万円

21位 3 ビョン ジュンボン 24歳 サンフレッチェ広島 DF 600万円

25位 37 宮原 和也 19歳 サンフレッチェ広島 MF 500万円

26位 36 川辺 駿 20歳 サンフレッチェ広島 MF 480万円

26位 34 高橋 壮也 19歳 サンフレッチェ広島 DF 480万円

26位 25 茶島 雄介 24歳 サンフレッチェ広島 MF 480万円

26位 26 川﨑 裕大 23歳 サンフレッチェ広島 DF 480万円

Sato Hisato (33yo) is the top earner at $657,313.80AUD. The lowest earners are on the minimum wage as mentioned previously. Sanfrecce’s average salary is 241,000AUD and the total player budget is almost 7 millionAUD.

Business Off the Pitch

Business off the pitch is a crucial aspect for both parties in achieving sustainability, promoting growth of the club and also the region. Not every endeavour to give back to a region need be restricted to charitable exercises. Raising revenue is necessary for any organisation to do be able to function at it’s best.

The creation and promotion of employment opportunities for locals is always an attractive carrot to any government and community bodies.
For the local club, it helps with brand recognition, has the attachment of goodwill from the positive influence on the local economy, it provides crucial revenue for the club to be able to run the football side of things with football factors being the sole and primary focus, and the accruing of assets with profit making potential takes the pressure off of relying on the traditional crowds, memberships and merchandise sales as the sole revenue streams.

For the foreign investor, it shows the JFA and Japanese government officials a commitment to the region beyond just football, it allows for strengthening of the position of the foreign investor – if leverage in football issues were a concern – and like with the local club the potential profit making ventures can ease the burden of running the club.

Foreign ownership laws for the commercial world are much more open in Japan than currently seen in the JFA. By the foreign investor being the majority owner in the off field businesses they strengthen their position in the overall partnership. There are even subsidies available in Kagoshima for foreign businesses looking to set up in the area.

The football related revenue (memberships, gate, merchandise, sponsorship etc) will increase as the team itself grows and rises up the football pyramid. By making smart and strategic business investments off the field it not only builds the asset portfolio of the club but also leverage within the region when dealing with the local and regional governments. This leverage maybe ideal when it comes to negotiating things such as stadium costs and expansion, and accessing subsidies and grants for future developments within the club.

“Foreign retailers have achieved broad acceptance in the Japan market by introducing products that meet the preferences and style of Japanese consumers. Entry into Japan’s domestic market by foreign retailers typically follows three models:

1. License tie-up with a Japanese firm

2. Establishment of a joint venture with a Japanese firm

3. Establishment of a wholly-owned subsidiary

There have also been many successful cases in which foreign retailers have utilized all three models: first entering the Japan market through license tie-up, then—after attaining market knowledge, sales, and marketing capability—forming a joint venture, before finally making the transition to a wholly-owned subsidiary of their parent company.”

* Taken from a report by the Japan External Trade Organisation (JETRO).

As of 2014, the average cost of setting up a subsidiary company in Kyushu is around $173,276 AUD.  Setting up a branch can cost as much as $107,056 AUD.

Conclusion

This is a perfect opportunity for a foreign investment group to get in on the ground floor. It is inevitable that this type of commercial and football partnership between clubs within Asia will take place as clubs seek to grow not only as a local sporting organisation but also a regional brand.

Kagoshima has a long history and tradition at the grassroots level of being a breeding ground of talented footballers. It has the the corporate and media support, as well as the demographics to be home for a professional football club. More than anything though, is their desire not only from the Kagoshima United club and Kagoshima people, but also the JFA and JLeague for further expansion of professional clubs.

A recommended initial investment would be to purchase a twenty percent (20%) share in the football, much like that of the City Group’s deal with Yokohama F Marinos, with the view of increasing this in the future. Investment in other business opportunities tied to the club’s brand could see a larger percentage of investment and therefore a stronger position in the partnership.

Kagoshima are already able to earn promotion for their on-field endeavours after finishing second in their first season so investment in playing squad doesn’t need to be too significant at first. The investment most needed will be in promotion and marketing through community engagement as well as media outlets.

Recommendations

A ten (10) year plan in place with the aim to reaching the top echelon of the J1. This would indicate a long-term commitment that would act as a sign of good faith to the J-league.

An initial investment of a twenty per cent (20%) share, much like that of the City Group’s deal with Yokohama F Marinos would be ideal, with the view of increasing this in the future. As mentioned above, a five per cent (5%) share would mean less barriers to entry but would not be ideal for implementing some of the recommendations put forth.

Famous Kagoshima footballing products should be lured back to the club in order to offer their expertise and experience plus send a strong message that this is a true Kagoshima brand. The exposure an Endo or Inamoto could give the club in Japan and Asia would be priceless, even as ambassadors.

Investment in community projects which can benefit the area in more than just football terms. Again this will show the J-League authorities a willingness to be more involved than merely as a commercial partner only wanting to profit from the union financially. The transition from a football club to a sporting club in the mould of clubs such as Barcelona and Benfica would satisfy authorities.

Mutual respect and cooperation is key. Both sides need to act as equal partners and learn what they can from each other while assisting in the development of both parties.

Setting up a business arm of the Kagoshima United partnership would allow for increased influence within the running of the club. Japanese business law regarding foreign ownership is more liberal than in the JFA. A club shop, an Australian-Japanese Kagoshima United fusion restaurant, football academy, fitness club etc are some examples.

The design of a mascot that reflects both Australia and the Kagoshima region. As shown in a 2014 CNN report, mascots are a hugely popular form of creating brand awareness and can develop celebrity status that reaches beyond the industry or product they represent. Kagoshima Prefecture has a mascot, Guribu an earth-friendly piglike character.

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