Gazprom and Football - A match made in heaven?
A story of post Cold War Russia, a gas giant and football.
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Welcome to Issue #8 of Your Weekend Beer - a weekend newsletter that hits your inbox every Sunday. We are a community that helps you make sense of the business world of football - with a pint of Beer.
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Friends,
It's 1991 in Russia - the Soviet Union has collapsed giving rise to a new Russian order. Unsurprisingly, football was to play a big part in this Renaissance.
Perestroika and Glasnost meant that football clubs in Russia were embracing capitalism for the very first time. For instance, Sparta Moscow - a club that represented white-collar workers began to favor the privatization of sports. So did Locomotiv Moscow - a team of railway workers.
On the other end of the spectrum were fierce nationalists who wanted nothing to do with their forced Russian identity. Take for example Dinamo Kiev who decided to play in the Ukrainian League. Or Tbilisi Dinamo who chose to play in the Georgian League. There was a new cultural, social, and economic order in Russia.
It was in these tumultuous times that in 1989 the Russian Ministry of Gas Industry changed its name to State Gas Concern Gazprom. Four years later in 1993, Russian President Boris Yeltsin turned the state-owned Gazprom into a joint-stock company. Yeltsin went a step further, appointing Gazprom’s chairman Viktor Chernomyrdin as his Prime Minister in 1992.
By 1994, Gazprom had over a million shareholders who owned approximately 49% of the company. Ten years later, in 2004, the Russian Government increased its stake from 39.4% to 50%. The remaining 1% was offered to foreign investors.
It was no coincidence that Gazprom opened up its stock to shareholders outside Russia. In the 1990s, the European Gas sector was progressively liberalized. Europe was warming up to post Cold-war Russia.
It wouldn't last for long though.
In the 2000s, the EU and Russia were busy locking horns. The two incidents involving Russia and Ukraine in 2006 and 2009 did not help things. This tension however didn't stop Gazprom from stamping its authority across the whole of Europe.
The Russian Goliath
The world's largest gas company, Gazprom accounts for 12% of the total global production with a market cap of $80.56 billion. Their overall energy reserves are the biggest accounting for 16.3% of the total gas reserves in the world.
Gazprom accounts for nearly 8% of the total Russian GDP having accounted for more than 25% of Russia's entire tax revenues. Over 90% of Russian citizens depend on Gazprom for heating.
In short, Gazprom is an extremely powerful company with Jurgen Roth calling it "The political, economic and intelligence arm of the Kremlin”. And for good reason.
Ever since its inception, Gazprom has always been closely linked with the Russian Government. For instance, former Russian Prime Ministers Viktor Zubov and Dmitry Medvedev have served on the Gazprom Board. It's no surprise therefore that the Russian Government has used its Gazprom card in many "non-economic" situations.
The scope of such "non-economic" situations is unfortunately beyond the scope of this essay.
Making Inroads
One of the strategies that make Gazprom so powerful is its acquisition strategy. By acquiring assets and creating subsidiaries Gazprom penetrates as close as possible to their end customers.
As you can see from the graphic above, Gazprom has made acquisitions across Europe - from the UK to Vienna to Leipzig to Zurich. The company has extended this success strategy into the football industry too.
Gazprom has been a UEFA Champions League Sponsor since 2012 and will continue to be till at least 2021. It was also in 2012 that Gazprom became Chelsea's official global energy provider. A year later, it had entered into a $90 million dollar sponsorship deal with FIFA.
But it was in 2005 that Gazprom made a statement in the football world when it became the majority owner of Russian club Zenit St Petersburg. The process of the takeover had been continuing for 7 long years starting with Gazprom becoming the club's official sponsor back in 1999. Since the takeover of their hometown club, Zenit has won three domestic titles and became only the second Russian club to win a major European trophy.
A year later, it made another ripple in the footballing world becoming German club Schalke's official shirt sponsor.
These acquisitions though look massive on paper are extremely strategic in reality.
Germany is Gazprom's largest foreign market supplying around 35% of all German gas imports. Gelsenkirchen - the area in Germany where Schalke plays is where much of Germany's energy industry is based. It is also close to the town of Rehden - home to Western Europe’s largest natural gas storage facilities.
So when in 2006, Gazprom came to the aid of a financially struggling Schalke, the local fans were hailing the Russian giant for saving their club. In order to celebrate, Schalke even played Zenit in a friendly match in Russia. In 2011, both Gazprom and Schalke had cause to celebrate. Schalke won the prestigious DFP Pokal while Gazprom celebrated the completion of the Nord Stream - a pipeline in the Balkans connecting Russia and Germany.
Just a year before, Gazprom had made another strategic acquisition, this time in the Balkans, signing a $19 million deal with Serbian club Red Star Belgrade to become their main shirt sponsor. Gazprom was hailed as the hero once again as it saved Red Star from the clutches of bankruptcy. Red Star was about $25 million in debt when Gazprom signed to become their jersey sponsor.
Gazprom is a fitting example of a corporation using strategic sports investments to build attraction, garner support, and make the Gazprom name a household one. It's important that it does. For better or worse, Gazprom has always been linked with the Russian Government. Add to that its controversial drilling in the Arctic Circle - not everybody sees Gazprom as a savior.
Be that as it may - one thing is for certain. Gazprom isn't going out of business anytime soon.
Credits: A special word of thanks to Swen Lorenz who was kind enough to go through the essay and offer his inputs.
For Your Eyes Only…
The Estadio Centenario during the 1930 World Cup Final between Argentina and Uruguay.
It’s come back home- Jack and Bobby Charlton returning to England after England win the 1966 World Cup.
Eusebio tearing up after Portugal lost to England in the 1966 World Cup Semi-finals.
What Else Are We Reading…
Honestly, this entire week we have just been reading up on Gazprom and Russian football and everything related. So this week, I’ll be sharing links to essays and papers by authors that I found to be interesting and extremely informative. This essay would not have been possible without their contributions.
- This magnificent report by Harvard University Lecturer Miss Aurelie Bros on Gazprom and how the company has navigated the tricky time period during the Cold War and the Liberalisation of the natural gas economy in Europe.
- This masterful essay by Professor Simon Chadwick of Emlyon Business School on how Gazprom uses football to stamp its authority.
- This extremely comprehensive report by the legendary Swen Lorenz detailing the history, business model, and growth strategy of the company.
- A quite wonderful paper by the late Jim Riordan on the history of football in Soviet Russia and how the fall of Communism impacted the football-frenzied nation.
- An extremely well-researched piece on Gazprom and how it has used football as a means to a much larger end - published by These Football Times.
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