With all eyes riveted to the down-to-the-wire negotiations between Bayern Munich and David Alaba, many have concluded a deal cannot, or should not, get done. In order to offer a quality BFW analysis of the home stretch I am lucky enough to be able to draw upon the experience of two friends/colleagues who have closed a multitude of significant deals in the sporting world. So, with my eternal gratitude to them, let’s get down to business.
The Media as Mediator
The first clear move in the public eye by one of the parties was Uli Hoeneß’s outburst suggesting that Pini Zahavi was a “greedy piranha” and the reason the deal had not been closed. It seems clear that this was a calculated move on Bayern Munich’s part to drive a wedge between Alaba and Zahavi. A typical divide and conquer. Combined with the charm offensive (Karl-Heinz Rummenigge’s somewhat ill-advised “Black Beckenbauer” comment being the clearest example) being put on with the club this tells us a great deal about how Bayern Munich’s negotiating team views Alaba.
These tactics tell us that the Bayern Munich negotiating team have concluded that, at least for Alaba, that money is not the only thing that will impact his decision. The amount of time that Alaba has spent at Bayern Munich is part of this calculus. He has come up through the youth ranks and spent many years with the club. The club team knows Alaba inside and out, as a player and a person. The team believes that they can make a sentimental or emotional argument to persuade the Austrian and they have given that a good shot. So far that has not been successful. Whether it has moved the negotiations at all, we cannot tell, but the power of emotion in negotiating cannot be ignored.
Many negotiations can be handled more effectively with an intermediary involved, such as a mediator or broker of some sort. While the parties have not formally engaged anyone in this role, it looks like the club has decided to skillfully use the media instead. They are using the media to deploy tactics or deliver messages that might be risky to deliver in person. It appears they are trying to arm their negotiators (probably Brazzo and Kalle) with two tools to make their job easier.
The first is setting up the typical good-cop/bad-cop scenario between Kalle and Oliver Khan. By leaking information that there is a conflict between the two leaders they allow Kalle to assume the rule of good-cop when dealing with Zahavi. How was this achieved? By communicating that Kalle had made it a personal quest to sign Alaba, but that Khan has doubts. Understated and flawless execution.
The second is using the external authority ploy as part of the negotiations. The press has reported that the Supervisory Board at Bayern has set a hard limit on what can be offered to Alaba; and that limit has been reached in the negotiations. This particular ploy is best executed through a third party rather than directly. If you execute it directly, you risk losing credibility as a negotiator and getting cut out of the process. Let’s look at the subtle but important difference in the two approaches. PZ will be Pini Zahavi and KHR will be Karl-Heinz Rummenigge. The first approach is KHR trying to deploy the external authority ploy directly, the second is PZ raising the issue after Bayern puts it out via the media:
KHR: “That was our last offer. The supervisory board has drawn the line and while I love David, we have no more room to move.”
PZ: “If you don’t have authority to negotiate this thing, why am I talking to you? Book me a meeting with the supervisory board or someone who can get his done.”
PZ: “I have heard that the board has drawn a line in the sand and that you have no more room to move. What is left to talk about?”
KHR: “Every organization has its limits, but I have the authority to move this deal forward. Let’s review some new proposals I have with respect to the bonus structure.”
Subtle difference in approach, totally different tactical result. Well played Bayern!
The current state of play
There are three potential scenarios as to where we are now:
- Alaba is willing to take the offer from Bayern currently on the table and is just grinding away as long as possible to squeeze out a few more dollars as the deadline gets closer.
- Bayern are willing to pay what Alaba has asked for if they have to, but are just grinding away to save as much money as possible as the deadline draws closer.
- The “Zone of Potential Agreement” (ZOPA), if there is one, is quite small, and the parties are still a significant distance apart, or perhaps even at an impasse. The evidence points to this alternative being the most likely.
Keep in mind a negotiation is like two men crawling around in a dark room trying to find a small object (the ZOPA). Neither side knows the other side’s bottom line, and is trying various means to determine if they can meet it, without giving away a pfennig more than they have to. The smaller the ZOPA, the harder it is to get a deal done.
Our assumptions for the end game
For the purposes of illustrating how the gap might now be tackled and what steps can be used to do it, we used the following assumptions. Bayern has made an offer of eleven million plus six million in potential bonuses a year for four years. Bayern has announced through the media that the supervisory board has limited the funds available to do the Alaba deal and all those funds have been offered. Alaba’s team has asked for €20 million per year for five years. The ball is in Bayern’s court.
So if the parties are far apart and at an impasse is it time to pack, go home, watch the window close and start planning for next year? No chance. The real deal makers come to life when it seems a deal is impossible to achieve. Like the last two minutes of the basketball game, a top-notch negotiator gets more done after the impasse has appeared then during the entire process leading up to it.
Zen and the art of negotiating
The way forward appears to be through a combination of Bayern creating value without spending money, and the parties compromising their positions without making offers. Simple, right?
First off, no one on the team gives any weight to the supervisory board — negotiating team distinction. It is just a ruse. We believe that Bayern is operating as a single unit with no functional daylight between them on any issue. Nor do any of us believe that the supervisory board number really represents Bayern’s bottom line. We see this ruse all the time, “there is no more money to spend” and miraculously more money appears to close the deal. The external authority ploy just allows one side to send a message that they are near the end of their rope and more money will be hard to come by.
So, how does KHR keep things moving forward without spending money? By converting risk into value for Alaba. The conversation goes something like this:
KHR: We can’t add any funds to our offer at this stage, but would David be willing to moderate his wage demands if I could turn €2 million of that bonus into base salary? What could you give me in return for that concession?
PZ: Well by offering eleven plus six we have assumed you will pay €17 million for a good year so that is not much of a concession. In any event, the first €2 million in bonuses is so easy to earn it might as well be salary. However, if you could turn all six of that bonus into base salary, we could see the value in that and come off of our €20 million position...(and so on).
Then KHR can try to create further value for Alaba by offering to extend the contract to a fifth year, giving the player even greater certainty about his future. For the club, this may increase the overall cost of the player retention and it has three things to commend it. Firstly, a euro five years from now is worth less than a euro today. Secondly it does not change the “burn rate” of the deal, which for an ongoing concern and long-term relationship is often very important for the club side. Thirdly, if the club projects ongoing significant wage inflation (and by their comments they do), the fifth year of a top year salary now may turn into a mediocre salary in the new environment of five years from now.
Finally, KHR can probably pull in some value from shareholder Adidas, who just happen to kit-out Alaba to make the deal even more appealing for the club stalwart.
But what happens if after all that we are still left with a real money gap? For instance, Alaba is at €18 million per year and the club is at €17 million per year. How does Rummenigge close the deal in the face of a supervisory board edict? He needs a little help from Zahavi.
Fill your hands...
To break the last impasse the two negotiators need to explore ways to close the deal without changing their formal position. And at the end of the day somebody has to pull the trigger on a move without losing face. It looks something like this:
KHR: Well we are still one million apart and I have expended all the authority that the supervisory board has given me. Can you get David to move that last million?
PZ: We would all be idiots to let this deal fall apart over a million euros. You are going to have to call the board and get some more money to get this done. David is not going to bridge this last gap all by himself.
KHR: You know I love David, and I might be willing to call the board to get a little bit more money for him. But I am not going to call them three times and make a beggar of myself. You have to give me something that I can sell to them, so that if I make one last call we can be confident that the deal will get done.
PZ: I understand your position. But I don’t want to David to commit to any more compromise without knowing it will be accepted by the board. I don’t have final instructions from David yet, but if I get him to move another €600,000 euros, will you recommend to the board that they cough up another €400,000 to get it done?
It’s hard to tell without knowing the field but the guns have now been drawn in a big way in Zahavi’s last statement. Once he asks Rummenigge to “recommend” something to the board, he is basically bringing everything to a head. If Rummenigge says he won’t recommend that figure, the discussion is over and Zahavi has not committed Alaba to the final compromise. If Rummenigge says he will recommend it then he has to deliver on his recommendation. If he fails to do so his reputation and authority are shot. You don’t ever want to be known as the guy who recommends things and can’t deliver them. It is professional suicide.
So it looks like there are several more episodes still to come in the Alaba saga. Bayern Munich has given its negotiating team plenty of tools to work with, but we would be foolish to believe that Zahavi doesn’t have multiple counter moves available to him. Keep your eyes focused on the home stretch and we hope you enjoyed getting some insight into how cutting a deal in the sports world looks from the inside.
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