Global assessment of the business side of football (2)

Money has had a huge impact on football in the last 50 years. In reality, football clubs in the United Kingdom are more than just businesses – they are community assets. A local government usually will not allow a stadium to be sold off without providing a new one for its local club. As a result, club managers know that they can risk financial failure without risking the life of the club itself. This is a version of the ‘too big to fail’ problem that affects the banking industry. UEFA introduced the system of ‘Financial Fair Play’ (FFP) to try to limit the spending of clubs. However, it is not clear that these regulations are really benefiting the fans. Given that community clubs never disappear, it is not clear why making losses is a problem to football, and there is a peril that restricting spending will just reinforce the power of already dominant clubs.

Egon P. Franck proved a business model for FFP in 2013, in “Financial Fair Play in European Club Football – What is it All About?”, whilst Thomas Peeters and Stefan Szymanski in Economic Policy, Volume 29, Issue 78, 1 April, 2014, presented the case against it. Some people look at the business model of sports leagues in the United States, where clubs have ruled on issues such as salary caps, the draft system for recruiting players and wide-scale revenue sharing. US leagues are certainly profitable, and a significant contributor to this is the absence of a system of relegation, which means that the consequences of sporting failure are quite limited. However, many fans of weak teams complained that their teams will never improve in that their owners have no incentive to compete, and many cities lack the opportunity to play at the highest level since there is no feasible mechanism to enter the league.

In comparing the American and European systems, it has been established that owners of American teams are often seen as “profit-maximisers” who view  professional sports as businesses and avenues for making money. In Europe (and most of the world) football clubs have generally been seen as “win maximisers” – spending as much as possible on the success of the team subject to breaking even. In 1971, Peter James Sloane wrote on “win maximisation” in “The Economics of Professional Football Revisited”. Stefan Késenne developed the concept of win maximisation in 1996 in “The Win Maximization Model Reconsidered – Flexible Talent Supply and Efficiency Wages”. This may just be a reflection of the competitive nature of the European system, but it also reflects a different attitude to the purpose of clubs.

While some clubs like Manchester United are run like businesses with shares sold in the stock exchange, some clubs (notably Barcelona, Athletico and Real Madrid in Spain and most of the clubs in the Bundesliga like Hertha Berlin, Bayern Munich and Hamburg) are not businesses only in the normal sense but membership associations which elect their management board. These clubs have other departments for basketball, athletics, chess, table tennis, lawn tennis, bowling and handball. Some clubs are sponsored by companies. These companies include Opel which sponsored Borussia Dortmund between 2017 and 2022 and GLS, the current sponsor since 2022. Even in England where clubs have long operated as limited liability companies with shareholders, the owners seem more interested in the prestige of ownership than making money. Football is a veritable tool for the advertising community (e.g. West Ham), individual owners of clubs (e.g. Roman Abramovich, the former owner of Chelsea) and companies (e.g. Qatar Investment Authority, the owners of Paris Saint Germain).

In 1998, the German Football Association (DFB) allowed the clubs of the Bundesliga, which are traditionally run as member associations, to transform their professional football departments into commercial companies. However, at the same time, provisions were made to make sure that majority of voting rights (50 plus 1) were within such companies and not in external parties or investors. This is against the principles of business. The non-business angle to football administration might change as Americans have started to buy up clubs in England – notably the Glazer family at Manchester United have taken a lot of money out of the club. There is a possibility that the European model might eventually be replaced by the American model, especially if the larger clubs decided to break away and form their own league. However, any such change may not be in the interests of fans, and could expect to meet widespread resistance, not least from politicians.

Football is globally seen as the biggest entertainment industry and can be political. One can imagine the re-emergence of the rivalry between football clubs like Stationery Stores, Enugu Rangers, Shooting Stars of Ibadan, Leventis United, Abiola Babes, Kano Pillars and Bendel Insurance in the Nigerian local league or Mighty Jets of Nigeria, Cotton Sport of Cameroon and Ashanti Kotoko of Ghana or Wydad Casablanca of Morocco versus Esperance de Tunis in African Champions League. Apart from the game of Rugby which has 15 team members, football is the game with the biggest team members with 11 players. It has the largest fans and because it is not easy to predict matches, football has the greatest fans in the world. This great fans means there are good business opportunities in selling tickets and sports souvenirs.

Football teams also sell advertising rights to companies and have hotels, restaurants, gyms, meeting rooms and sports stores around their stadium for income generation. Some have training schools for junior and feeder teams and trade their players to make money. Remo Stars Football Club, owned by Naijabet (pool-betting) sponsor, Kunle Soname, makes money selling their players to international leagues. Football is not only a game but a business, income and employment generator to any country that can develop it as a business concern. For corporate organisations, sport is tax-efficient as it can serve as a veritable advertisement tool while reducing profit before tax and eventually, tax paid to governments.