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ISSN: 2280-3866

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Business Systems Review

Volume 2 – Issue 2, 2013
Special Issue - Selected papers of the
1st B.S.Lab International Symposium

Systemic value and corporate governance.
Exploring the case of professional
football teams
Arturo Capasso, Ph.D.
Full Professor of Corporate Governance. University of Sannio, Italy.
e-mail: capasso@unisannio.it. Corresponding author
Matteo Rossi, Ph.D.
Assistant Professor of Corporate Finance. University of Sannio, Italy.
e-mail: mrossi@unisannio.it
Published online on April 1, 2013.
DOI: 10.7350/BSR.V11.2013 – URL: http://dx.medra.org/10.7350/BSR.V11.2013
ABSTRACT
This paper aims to analyze how systemic thinking might contribute to investigate the interaction
between company internal organization, financial structure and corporate governance. We focus
our analysis on professional football teams as this special business combination provides an
evident example of companies whose performance cannot be evaluated considering only
financial returns or shareholder value. The investments of a professional football team are
mainly in intangible resources, first and foremost in the skills and the competences of players,
coaches, the general manager, and the medical staff. At the same time, the final outcome will
include, both financial income, and intangible assets, like experience, popularity, reputation. The
latter will pertain not only to the shareholders but to all the professionals involved, who will
benefit of a higher market value for their services. Furthermore the supporters are an important
component of the firm’s value too, because a substantial portion of future cashflows depends on
the presence of a loyal customer base, whose claims cannot be disregarded without
consequences on the economic value created by the organization. The traditional economic
approach, correlating residual claimants with residual control rights and therein corporate
governance, cannot be applied in presence of residual claimants who are different from
shareholders. A professional football team strategy requires a multi-constituency systemic
approach to be effectively implemented and to correctly evaluate its performances. Nowadays
football is a business and several professional football teams are listed companies. Nonetheless
many of them are experiencing financial losses, high debt and difficulties in funding their
investments. Are these symptoms of a failure in creating economic value? Financial statements
only give a true and fair assessment of value reporting assets and liabilities at their historical
value, but where is the real value? How can we reliably assess the economic value of a football
team? And who really owns those intangible assets that represent the largest fraction of its
economic value? Moving from these considerations, can we reasonably imagine that a good
corporate governance model should take into account only shareholders’ interests? According to
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Business Systems Review, ISSN: 2280-3866 Volume 2 – Issue 2, 2013
Special Issue - Selected papers of the 1st B.S. Lab International Symposium

our conclusions this is not the case, not only for professional football teams but also for many
other businesses whose underlying logic cannot be understood without the lens of a systemic
approach.
Keywords: Corporate Governance, Football Teams, Systemic Value.

1. INTRODUCTION
In line with the mainstream business economics analysis, firm financial structure determines not
only the allocation of legitimate claims on its future cashflows but also the distribution of
governance prerogatives. In a simplified perspective, the unlevered enterprise value belongs to
equityholders and debtholders. Debtholders, on one side, have a seniority in cash-flows but their
inflows are limited to the face value of debt and interest payments, all the value exceeding that
amount pertains to equityholders that, for this reason, are considered as residual claimants.
Since firms’ value maximization is generally regarded as a suitable goal for the economic system
as a whole, the company law typically assigns to shareholders the residual decision rights (the
right to take all those decisions that are not already settled on in the contracts signed by the firm).
The underlying rationale is quite evident, shareholders, being the residual claimants, have the
most substantial interest in pursuing firms’ economic value maximization. This way of thinking
was quite obvious, assuming a simplified model of the firm but, in the last decades, business
combinations have become more and more complex. The growing importance given by the
evolution of competitive scenarios to intangible assets demand a different approach to the
analysis of the economic essence of the firm. If the economic cycle of a firm is based not only on
providing goods and services but also on building intangible assets - like knowledge, relational
capital, customer appreciation - that are the basis of a sustainable competitive advantage,
attainable results will no longer be so appropriable and transferable as either monetary or
monetary-measurable quantities are, and their allocation will not be so straightforward.
Business scholars have traditionally focused their attention on the shareholder value and the most
popular profitability indicators - such as net income, operating margin, ROE - measure the
company performance in this perspective. Even if it is not fully appropriate to claim that these
approaches belong to an obsolete stage of the industrial development, we cannot ignore that, in
many industries, intangible assets are not only critical factors for success but also, to a certain
extent, a relevant result of the firm’s economic activity. In some industries the skills accrued as a
consequence of the learning curve (internal knowledge) or the relations developed with clients,
suppliers or financial markets (external knowledge) represent a significant component of the
economic value created. Problems arise when the economic value of the intangible assets does
not pertain entirely to the firm; in many cases it is shared with other relevant stakeholders. Quite
often intangible assets are embedded in managers, personnel, partners, clients or suppliers and it
is not possible to consider them as the tangible assets that can be, without restraint, bought or
sold in efficient markets. As some stakeholders participate to the results of the firm production
process and their returns depend on the success of the firm strategy, we can conclude that there
could be residual claimants different from the shareholders. This conclusion has important
implications, in terms of firm value and corporate governance, and systemic thinking could
provide a suitable framework to analyze them. Ideally we could imagine, beyond the
shareholders equity, a systemic equity that includes the capitalization of those advantages
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but there are also significant intangible assets whose economic effects will increase the wealth of other stakeholders. visit http://creativecommons. The players. shareholders) and stakeholders served or affected by the organization (customers and local communities). Furthermore the supporters are an important component of the firm value too. suppliers. Nowadays football is a business and sometimes professional football teams are listed companies. Therefore. executives or employees such as: managerial perquisites. of a higher market value for their professional services. and we will eventually conclude with some considerations to achieve an higher coherence between football business. as a consequence of a reliable and trustworthy cooperation. only in recent years. 1996). In our paper we focus on professional football teams as this special business concern provides an excellent example of a production cycle whose results cannot be reduced to mere net income or shareholder value. fringe benefits. corporate governance scholars explored a broader set of relationships to embrace the main agents involved with the organization (employees. the main managerial models of football teams. above-market wages.0/ 218 . 2013 Special Issue . Their legitimate expectation cannot be disregarded because a substantial share of future cash flows depends on the loyal customer base formed by the supporters. the general manager will benefit.0 Unported License. residual claimants (Capasso. The question arises then: what are the governance elements that add value to organizational performance and how can these be measured? This work is licensed under the Creative Commons Attribution 3. the coach. GOVERNANCE AND PERFORMANCE IN PROFESSIONAL SPORT TEAMS: A LITERATURE REVIEW The corporate governance literature traditionally focused on the managers-shareholders relationship. Under this point of view. we will describe the football industry. governance and organization of professional teams. but also those benefits provided to customers and suppliers. In the following chapters. To view a copy of this license.Business Systems Review. and tickets. the critical factor for success in several success histories. ISSN: 2280-3866 Volume 2 – Issue 2.Selected papers of the 1st B. not only for a professional football team but also for many other businesses whose rationale cannot be understood without the lens of a systemic approach. the main stakeholders can be described as a virtual shareholder. broadcasting rights. in terms of reduced transaction costs. overstaffing.org/licenses/by/3. after a review of the existing business literature. and their satisfaction is linked to the performance of the team. Lab International Symposium obtained by major shareholders. in the near future.S. The net profit deriving from these revenues pertains typically to shareholders. more recent definitions of “good governance” emphasize the potential contribution to improved organizational performancei. A successful season for a football team certainly implies high revenues due to prizes. But how can we assess the economic value created by a football team? Financial statements only give a true and fair assessment of value relative to accounting rules. 2. contributing the most part of the systemic equity and getting a share of the economic value created by the company as a consequence of their being. executives. to a certain extent. Where is the real value? Who does really own those intangible assets that represent a significant fraction of value created? Can we reasonably state that a good corporate governance should take into account only shareholders’ interests? According to our conclusions this is not the case.

image and reputation. On these statements it is possible to describe the potential tradeoff between profit and utility maximisation. - athletic program ethics (absence of league violations). and - financial performance (surplus or deficit). Their study examined any link between RBV and the athletic program success. For those sport organisations without a value maximising objective. Their study was based on analysis of a college football program and they measured outcomes over a period of ten years.Business Systems Review. The customer. financial considerations still have some priority and may well determine the sporting performance outcomes. This was of interest to this thesis with regard to the potential definition of the boards as a resource and their ability to protect intangible resources such as club culture. sporting organizations don’t seem to operate on a basis of maximizing value for their owners.Selected papers of the 1st B.org/licenses/by/3. this highlighted one important performance issue. To view a copy of this license. culture since these resources are hard to imitate exactly. roles and relationships inevitably leads to attempts to link those elements considered as the most significant to company performance. A further similarity is the integrative and participatory nature of the services provided. including board structure. in many cases. It was also of interest in offering some examples of success measures albeit in a different sport context. ISSN: 2280-3866 Volume 2 – Issue 2. composition. Football teams could have different approaches to strategic planning. this participation is the reason for the existence of the organization. Shilbury (2000) suggested that the sports environment has changed and the challenge has to be financially sustainable. Cousens (1997) compared ‘traditional’ sport organisations and business-centred sport organizations. it is too simplistic to assume that traditional sporting organisations focus solely on team or athletic performance. Switching the attention from ordinary businesses to professional sport teams the problem becomes tougher being even more difficult to establish a hierarchy among financial objectives and sporting performances. Traditional organisation focused on team performance whereas business-centred organization were profit oriented. share some of the multi-dimensional success criteria prevalent in the increasingly commercialised non-profits. Smart and Wolfe (2000) considered the sources of competitive advantage of a college Athletic program in line with RBVii. Lab International Symposium Evaluation of various governance elements.0 Unported License.S. supporter or service recipient all participate directly in the main ‘product’ or service provided and indeed in most cases. established the This work is licensed under the Creative Commons Attribution 3. They suggested that sources of competitive advantage were often tied to intangible resources such as reputation. They identified the percentage of games won. visit http://creativecommons. Smart and Wolfe (2000) underline four outcomes that could be perceived as program success: - success on the field (win/loss records). Smart and Wolfe (2000) and Gerrard (2005) focus their attention on sport organisations’ effectiveness. Both papers were theoretically rooted in the resource based view (RBV) which gives insight into an organisation’s likely competitive advantage and performance. 2013 Special Issue . considering sporting competitiveness rather than shareholder value as their main goal. customer loyalty. Sport organisations therefore. Even if the increased commercialization of the sport suggest that not for profit organization isn’t the realistic view to study these teams. While Cousens recognized other differences. However.0/ 219 . - student athlete graduation rates.

he examined links between owner status and performance. Tenure of the coach was important for strategic advantage. and a This work is licensed under the Creative Commons Attribution 3. team playing quality. He noted that while instructive. The study used two variables as inputs to the ‘production’ process (that is the process of engaging in football competition) and defined two key outputs from that process. as the program itself did not record revenues. wage costs. Gerrard (2005) presented the argument that professional sport teams must potentially negotiate trade-offs between financial and sporting performance. Gerrard conducted his study using two methodologies. relationships possessed by a group of individuals). Overall. he carried out a study of English Premier League teams. culture. The methodology involved calculating an efficiency score. Lab International Symposium graduation rate. First. This was developed using complex mathematical relationships and is not discussed here.0 Unported License. he developed a resource utilisation model for professional teams which could highlight resource allocation differences between profit maximisation teams (the implication is that this consisted of listed teams) and those which placed more emphasis on sporting performance. using a mathematical methodology similar to Gerrard. Pant and Slack (1997) and Smart and Wolfe (2000). visit http://creativecommons.» (Gerrard. he concluded that there was strong evidence of a relationship between ownership status (listing) and financial performance. 2005: 167). so the actual source of competitive advantage was organizational resource. He extended previous studies by Sloane (1971) and Noll (1982): teams should have objectives to maximise number of games won and profit. Haas (2003). training facilities and equipment). «Financial efficiency gained allowed the listed teams to improve financial performance without any significant impact on the accumulated stock of playing talent and sporting performance. Gerard (2005) addressed not only resources which potentially achieve competitive advantage. using data on playing records and player rankings together with published financial results. Gerrard then empirically studied performance within the Premier League. To view a copy of this license. organizational resources (history. revenue. the results showed that listed teams had higher revenue efficiency than non-listed teams. profitability.S. Their findings argued that the physical and human resources were replicable by other teams. but merely recognised the validity of both. based on outputs divided by inputs. In terms of wage efficiency there was no significant difference. to determine whether ownership status (listing) had an impact on effectiveness.0/ 220 .org/licenses/by/3. In terms of the financial ratios. team fan base and team ownership status. but the efficiency with which these resources are used. these studies did not address owners’ preferences for sporting success over financial performance.Business Systems Review. Starting from Amis. 2013 Special Issue . coaches). Second. ISSN: 2280-3866 Volume 2 – Issue 2. Listed teams had lower wages. The two financial ratios considered were: - Revenue efficiency = Total revenue/average league gate - Wage efficiency = Total wage costs/league points. Using RBV. higher revenues and higher profits. managers. The regression analysis used several key variables: current sporting performance. They undertook a comparison of outcome measures for three teams to illustrate this point. subject to a minimum profit constraint. human resources (players. using financial ratio analysis and regression analysis.Selected papers of the 1st B. focused on production efficiency of English Premier League clubs in terms of meeting the expectations of supporters and sponsors. previous sporting performance. determined the number of league sanctions and violations and used a proxy of attendances for financial performance. They identified – in terms of RBV – physical resources (stadium.

whether the processes (or means) really matters. 1998) had analyzed Sport Organizations with a Strategic Constituencies Approach. They studied 20 Hellenic National Sporting Organizations (NSOs) to determine their effectiveness. Firstly.S. He recognized the limitations of the use of proxies. There are two aspects to the economic efficiency approach. Lab International Symposium comparison to other teams’ efficiencies scores. He also noted that several of the more prominent teams were found to be inefficient. Robbins (1998) suggested that as both the goal attainment approach (focus on ends) and the systems approach (focus on means) have goals. The human resource focus was on the quality of the human resource processes such as teaming. and he noted that the results of these teams were good relative to the moderate expenditures on players and coaches. Papadimitriou and Taylor presented contradictory evidence relating to the usefulness of the multiple constituency approach as a means of determining effectiveness in a sporting context and avoided continuance of the debate by deferring that consideration for further research. it can represent financial health in terms of earnings and sales while also evaluating fiscal policies.org/licenses/by/3. However many of the measures would be difficult to operationalize. and football success. reward and recognition policies. Robbins. sharing information. visit http://creativecommons. Haas determined two input variables as playing talent and coaching expertise. In a sport context.0/ 221 . The authors also suggested that the four perspectives of the competing values model limited the effectiveness criteria. 1983) by asserting it was difficult to operationalize the latter model without a definitive knowledge of the values of each constituency group and the relative weighting of those values. Organizational effectiveness in sport was further considered by Papadimitriou and Taylor (2000) using multiple constituency theory (Miles. and staff development. firstly. Rohrbaugh. 1980). while also providing a focus on the important factor of human relations. sponsorship for example were often dependent upon outputs like team success. They then could establish which clubs operated outside the efficient frontier. which he set as the second proxy measure. Haas included both total revenue and premiership points as measures to allow for the fact that several teams participate in European competitions which generate revenue but do not earn competition points. this study is a useful input to this thesis by discussing appropriate performance measures. as measured by total revenue. The second aspect related to effectiveness based on ratios of inputs to outputs and throughputs.Business Systems Review. 1997. creating an efficiency frontier. calculated by league points won. He operationalized these inputs with proxy measures in total wages and salaries less the salary of the head coach. Robbins (1998) discussed two problems with the systems approach. that is the goal attainment approach. To view a copy of this license. Again. a further complication was discussed by Slack (1997) who reiterated that it was too simplistic to concentrate only on inputs and that inputs in terms of gate receipts. Slack (1997) described a variation of the systems approach through identification of key internal processes underlying effectiveness: the human resource processes and the efficient use of economic resources.Selected papers of the 1st B. A focus on internal process enabled comparisons of similar organizations which have different inputs or outputs. He found that only two teams were efficient under all versions of the model.0 Unported License. whereas a focus on constituents allowed the criteria to be unrestrained. Other scholars (Slack. 2013 Special Issue . in that the wages and salaries were high relative to their success. the problem of measurement of the process and secondly. it was perhaps preferable to use a method where the goals are more meaningful. Although the validity of the This work is licensed under the Creative Commons Attribution 3. It is instructive to consider how the author determined effective measures for the inputs to the production process and the outputs from that process. The two key outputs from the production process were deemed to be commercial success. The authors justified their use of the multiple constituency approach to determining effectiveness rather than the more rigorous competing values approach (Quinn. ISSN: 2280-3866 Volume 2 – Issue 2.

Slack (1997) considers the strategic constituencies approach as more integrative because it considers the requirements of key stakeholders and evaluates performance against each of these stakeholders’ criteria (Table1). Strategic Constituents Approach (adapted from Slack. 2006: 16). increased value of team Players Adequate salary. It is consistent with stewardship theory which focuses the role of the board on the provision of structures and processes (Davis et al. 2013 Special Issue . and the measurement of constituent criteria. Shilbury & Moore (2006) conducted an empirical study of the effectiveness of 28 Australian National Olympic Sporting Organisations using the competing values approach. effort to promote a positive image of the game Media exposure.0 Unported License. They also noted that the focus on effectiveness was largely driven by increased government funding and the implied requirement for accountability. The results also indicated the importance of organizational processes through the rational goal and This work is licensed under the Creative Commons Attribution 3. They firstly noted the confusion over a definition of effectiveness but did little to clarify the issue. the importance of constituents changing over time. Table 1. concessions Community Visibility through team activities. Stakeholder Criteria Owners Profit. Moore. and the contradictions between nonprofit and commercial cultures. good working conditions Supporters Entertaining games. They discussed the inherent tensions within the competing values model and described these as: « […] tensions between professional staff and volunteers. He did suggest however. Lab International Symposium systems approach has been questioned. providing resources is an identified role of the board. economic benefits for local businesses Media National Association Sponsor Newsworthy coaches and players Compliance with rules. support for elite athletes versus promoting mass participatory programs.S. The extent to which the sport organization meets the specified criteria is the measure of effectiveness.Selected papers of the 1st B. visit http://creativecommons. particularly in the non-profit and sports context. 1997).. reasonable priced tickets. that this approach is becoming more popular and recommended it as a superior approach to determining organizational effectiveness.Business Systems Review.0/ 222 . 1997). the difficulty of establishing their expectations. it has some resonance with governance in that. To view a copy of this license. ISSN: 2280-3866 Volume 2 – Issue 2. Their findings indicated that flexibility was important in the determination of effectiveness. the need for both government support and private funding. The problems associated with this approach include the difficulty of identifying the constituents.» (Shilbury.org/licenses/by/3. high attendance Slack indicated that the advantage of this approach is the recognition of the complexity of multiple dimensions of an organization.

2009). stadium management. ISSN: 2280-3866 Volume 2 – Issue 2. and coaching staff. broadcasting revenues. other production costs. 2012b) but only a relative small number of teams own and operate a stadium. These revenues were characterized by an inelastic demand that differentiated itself from corresponding consumer behaviours in other types of entertainment. 2007. Football teams became competitive businesses. Thrassou. Economic and financial analyses of European football industry show a structural disequilibrium between costs and revenues.0/ 223 . More importantly. In the past. to enhance their market communication and customer awareness. revenues continue to rise – in 2010.org/licenses/by/3. increasingly impacting on the total revenues of football teams. the performance measures were again compromised through lack of objectively derived data. The statistics indicate that the most important teams. Thrassou. Baroncelli et al.Business Systems Review. merchandising. In fact. THE FOOTBALL INDUSTRY: COMPETITIVE DYNAMICS AND FINANCIAL PERFORMANCE In the last decades. where stadium management represents a significant source of revenue for teams. Lab International Symposium open systems quadrants. football players became professional athletes and their costs and media attention grew substantially. the consumer-spectator-fan.6% to reach a record €12. box office and season tickets accounted for the largest share of clubs’ inflows. Stadium operation and management is potentially a significant revenue source (Kartakoullis et al. at a higher rate compared to revenues. Sponsorship is another significant source of revenue for football clubs.0 Unported License. extraordinary expenses. however.S. Nowadays football is characterized by a huge turnover and. 2000).. This occurs mostly in Great Britain. financial costs. 2004). This is largely linked to clubs’ success in athletic terms (Baroncelli et al. coaches. visit http://creativecommons. Although clubs are perceived like firms capable of generating increasing cash-flows and sustaining higher labour costs (especially athlete costs). sponsorships. and not only on matches days. 3. Revenues can be categorised as follows: tickets and ticket-season. Many companies wish to associate their brand names to a football team. with rare exceptions. has also gradually but significantly changed to fit the context of the times (Vrontis. in recent years. (2004) identify six typical costs: wages and salaries. total revenues for top-flight clubs increased a further 6. the ultimate element shaping football. This work is licensed under the Creative Commons Attribution 3. Over ten years ago the Deloitte football money league (2001) identified the development of european football stadiums to be the first step in implementing an effective business model. with the factors contained in the rational goal quadrant the dominant factor for effectiveness. intangible assets depreciation. despite a period of economic downturn. other depreciation. these labour costs grew. football has undergone significant changes that modified its structure and nature. 2013 Special Issue .8bn (UEFA. 2013). other revenues. net losses are recurrent in their income statements. The study operationalized the competing values model which was thought to be fraught with operational constraints (Papadimitriou. the clubs can get economic benefits from these structures every day. Vrontis.. The largest cost relates to the salaries of football players.Selected papers of the 1st B. aren’t yet able to implement an effective business model. However data show that production costs are higher than the total revenues. Taylor. To view a copy of this license.

641 million (+36% compared to 2009 and +153% compared to 2008). balance or very low loss levels. A change that also indicates the potential of innovation (Bresciani et al. while Italy AS the unbalanced federation among the top 5 (Uefa. the financial analysis includes pan-European year-on-year and five-year trends (aggregate and by number of clubs). merchandising revenues are still underdeveloped in some countries. Therefore. 2012. 2011: 76). among the other top twenty federations. measured as ratio between equity and total assets (Figure 3). This result was achieved only by Belgium. because clusters differ in ranges and numerousness. This work is licensed under the Creative Commons Attribution 3. Specifically. Lab International Symposium Merchandising (shirts. while the other two federations included in the top 5 of the UEFA rankings (Italy and France) had aggregate net losses. is also the analysis of total debt. Spanish and German federations perform significantly better compared to the other top 20 federations. at federation level. In this first cluster. Federations performance analysis can be achieved also considering the number of clubs included in the categories of profit. A strong correlation can be verified only for the top group: in fact the first important conclusion is that the top five federations in UEFA ranking occupy the same positions for total revenues.0 Unported License. England. sports performance is correlated with financial performance.. both at micro (individual clubs) and macro (federation) levels. For the third consecutive year. Interesting. England is close to maximum (135 million euros) and France is near the low level of 50 million euros.Selected papers of the 1st B. due to management system peculiarities. Broadcasting revenues on the other hand. To view a copy of this license. visit http://creativecommons. English. creating a notable ‘genetic’ mutation: from sport to television show. Also.Business Systems Review. for the first five federations. Germany appears as the virtuous federation. Another set of important data is the proliferation of associations that have a net loss: 2010 marked record low losses of 1. three countries (Italy. are the most relevant source of revenue for clubs: the introduction of pay-TV and pay-per-view in the mid nineties.org/licenses/by/3..0/ 224 . has increased this type of revenue. so that the positions in terms of sports scores and in terms of turnover are essentially the same. Federations are divided in five clusters of turnover from Top to Micro (Figure 3): «This year. Annually the UEFA analyzes governance and financial development of European football. 2013: 10). 2013 Special Issue .S. Additional conclusions may be drawn by correlating these results with operating results achieved by different federations. a micro analysis does not improve the situation: all major federations realize losses. even if. Spain and Germany have made an aggregate operating profit (Figure 2). To validate a possible correlation between UEFA ranking and turnover is not easy. Rossi et al. country by country data and a split of clubs within each country across a range of important financial measures. This innovation has reshaped the football model. scarves and many other products carrying the football team brand) also could represents a significant revenue source for teams. The situation is somewhat better for Spain and Germany whose losses are below 10% of revenues. 2012).» (UEFA. ISSN: 2280-3866 Volume 2 – Issue 2. Germany and Spain) are in the medium-high level (between 90 and 110 million euros).

0 Unported License. 2013 Special Issue . ISSN: 2280-3866 Volume 2 – Issue 2. 2013).Selected papers of the 1st B. 2011.S. Figure 2.org/licenses/by/3.Business Systems Review. Federations’ profit and loss. (UEFA. UEFA peer group (UEFA. To view a copy of this license. Lab International Symposium Figure 1. visit http://creativecommons. 2013). This work is licensed under the Creative Commons Attribution 3.0/ 225 .

org/licenses/by/3. Federations’ equity (in % of total assets) (UEFA. Also at micro level. are included in the top 20. Another important observation is made based on the operating results achieved by teams of different federations. five Italian.0 Unported License. while England has a negative value of this index. Italy (four teams each. France. but half of the top 20 have a level of equity below the 20% of total assets.4 billion euros (+3% over last year). according to Deloitte Football Money League2012 (EuroTopFoot. The first figure to consider is total turnover.g. and Portugal (two). three Spanish and two French teams.Business Systems Review. This result is confirmed by the micro analysis: this is an index of high indebtedness of the main football teams in almost all federations. In this special ranking. in terms of turnover. This survey underlines the economic importance of football business and emphasizes the football teams’ power. it is interesting to investigate if sport success is linked to good financial performance. Lab International Symposium Figure 3. To view a copy of this license. Seven clubs of the turnover ranking are not present in the sports performance ranking. Scotland and Russia. only Germany and France have values greater than 25%. 2013 Special Issue . The general situation is almost disastrous. but it is possible to show that a large number of European clubs (over 33%) realized losses in excess of 20% of total revenues.Selected papers of the 1st B. though. with a turnover of 4. The comparison between sport results and turnover shows some discrepancies. but the English clubs are all in the top ten). The top twenty teams represent eight countries. 2012). The top 20 are completed by Germany. Among the top 5. This analysis can also be conducted at the individual football club level. all represented by one team. First of all it’s important to analyse sport performances (EuroTopFoot. 2012). Poland). 2013). winning two of the last three Champions Leagues. This work is licensed under the Creative Commons Attribution 3. Spain is the most represented federation (five teams) and Barcelona FC has confirmed its first place in this ranking. not all top 20 teams. visit http://creativecommons. First of all. 2013). In fact there are: six English. In this case there are no disaggregated dataiii. There are cases who are out of control (e. This indicates a negative correlation between sport performance and total turnover. ISSN: 2280-3866 Volume 2 – Issue 2. Spain is followed by England.0/ 226 . four German. and about 60% realized operating loss or balance (UEFA.S. the top 20 teams are again representing only five countries. in terms of sport performance.

This work is licensed under the Creative Commons Attribution 3. nearly 56% have closed their accounts with a net loss and about 30% with a loss greater than 20% of revenues. Spain has the highest number of teams (5) who have made a net profit.Business Systems Review. The data highlights excessive debts for more than one third of the European football.. Additional conclusions may be drawn from net income and indebtedness analysis. Lab International Symposium Figure 4. Further considerations on the financial condition of European football teams arise from the analysis on debt: 36% of all teams of the 53 European federations present a dramatic financial situation (Rossi et al. This data confirm a negative correlation between sport success and financial performance: to compete at the highest levels it is necessary to spend huge amounts of resources that often do not generate a positive income. 2013).org/licenses/by/3. 2013). 2013 Special Issue . representing 45% of liabilities.0 Unported License. data show that the major European teams participating in continental competitions are characterized by a clear preponderance of bank loans and capital injection by the owners. visit http://creativecommons. 2013). Spain and England (4 each) and Italy (2). Restricting the analysis to the eighty teams that participated in the final stages of the Champions and Europa Leagues. It is finally important to understand how leading football firms finance their investments and how they invest their resources. Out of the 665 teams. Clubs’ operating profit result as % revenue FY2010 (UEFA.0/ 227 . the most of the deficits by these teams is caused by players’ salaries (only for Arsenal FC – in 2008 – expenses were primarily for a new stadium). the results are even more disturbing: 65% have a net loss and 36% have losses above 20% of revenues. To view a copy of this license. Regarding investment. These data also confirm the difficult economic situation that is influencing the major European clubs.S. representing 53 European federations. Regarding the first point. ISSN: 2280-3866 Volume 2 – Issue 2. 2. with the findings highlighting some interesting trends): 1.Selected papers of the 1st B. Comparing the leagues. The UEFA (2013) survey highlights the great difficulties of the major European clubs: the ten most indebted clubs had a deficit of 5 billion euros. while England is the federation that has the largest number of teams (7) with the largest losses (UEFA. For 23% of teams the value of this index is higher than -50%. the most indebted clubs are of three federations. 25% are represented by players.

Like in most professional sports. more specifically. the Latin model. For these reason.org/licenses/by/3.l. Lab International Symposium 4. In terms of legal status. 81/1981 From 1996 Law 58671996 S. To view a copy of this license. the osmotic model. in its turn one of six continental associations that adhere to the Fédération Internationale de Football Association (FIFA). is characterized by a relation between a business group and the club. The national leagues are part of a wider complex Federation. In this context it is possible to identify at least three organizational-managerial models (Rossi et al. visit http://creativecommons. AC Milan. largely for tax consolidation.l. 1999). This governance model adopted from football teams whose main characteristic is having one or few shareholders and no link with other clubs of other sports. S. football teams represent firms that operate in the industry. according to law 81/1981 (Table 2) Italian professional teams have to be incorporated limited liability companies (S. Evolution of legal framework for Italian soccer teams. called Leagues. o S. No Profit No Profit Oriented Simple Profit Business Oriented Matrix Italian teams are typically controlled by an entrepreneur (single or family) who is also the club chairman or has an indirect control over it (Rossi et al. Italian football industry is influenced by the general governance model: the insider system (or network-oriented) and. The business indeed is regulated by a multi-level organization system. From a managerial point of view.p.A. or S. 2013).A. cultural and managerial attitudes of the professional teams. that can be classified as dissociated. Compared to the previous model. is characterized by a strong link between the football club and its owner. such owners finance football teams through and with large financial resources.S. (data processed by Braghero et al.. Both football teams and Leagues are subject to the rules established by the national and international federations. Law Club legal status Aim Team Orientation Organisational structure 1960-1981 Sports Federations Statute No Recognized Association Sportive Social Oriented Informal 1981-1996 Law n. Each national League is responsible for championships’ organization. ISSN: 2280-3866 Volume 2 – Issue 2. ACF Fiorentina and SSC Napoli.p.Business Systems Review. This is the administrative.r.Selected papers of the 1st B. o S. Osmosis rests on the fact that entrepreneurial activities are by nature associated with football teams. Table 2. The first one. regulation and management of football activities. Each league is characterized by a specific organization and management model that is the result of historical.r.0/ 228 . a club has a high marketing value through the increased and improved public exposure of the owner. The club thus becomes a vehicle for business and other objectives. 2013 Special Issue . but they are subordinated to the associations of the teams.p. The second model.A.). OWNERSHIP AND ORGANIZATION OF THE EUROPEAN PROFESSIONAL TEAMS Several different actors are involved in the execution..l. All the european national federations are associated to the Union European Football Association (UEFA).r. Examples of the osmotic model are Juventus FC.0 Unported License. 2013). organizational and controller organism of European football. in this case the identification between This work is licensed under the Creative Commons Attribution 3.

The English model is well represented by Manchester United FC. ACF Fiorentina and SSC Napoli. The English Premier League is an international benchmark in terms of professional teams capability to achieve sport success in combination with excellent financial performance. Using simultaneously economic and sport performance makes it possible to define different behaviours that generate four groups of teams (Rossi et al. The losses’ compensation – sometimes significant – is guaranteed by the entrepreneurial group owner. that. Lab International Symposium entrepreneur-president and team is weaker. but they are always able to replace them.0/ 229 .0 Unported License. Examples of this group are AC Chievo Verona. these are teams that have high national and international sportive results. but it is also residual because this is a model adopted from football teams in the past. Manchester United represents the typical expression of the English model and it is the football team with the highest average attendance (67. but also sport performance. Examples of this model are AS Roma.performance losers. Examples of the dissociated model are FC Internazionale Milano. The last model is the residual-atypical model. - survivors. Atalanta Bergamasca Calcio and US Città di Palermo.S. but a social epicentre with museums. The Manchester United team has been listed on the stock market with the free float reaching one billion pounds. shops. 2013): - sports winners . To view a copy of this license. when teams did not have a business orientation. exactly because there is no link between the football club and the controlling group. is a listed company. It is an apparently anachronistic model since it bears few benefits. SS Lazio. even though these are incompatible with their economic-financial results.. other countries also present cases of a few clubs implementing innovative and successful business models. visit http://creativecommons.Business Systems Review. these are teams that consider economic and financial equilibrium as their principal objective. it is characterized by a peculiar element: all the top teams own their stadium. Sport performances are instrumental to improving the nursery of young talented football players: these clubs sell their players. It is labelled as atypical. Genoa CFC and US Città di Palermo.000 spectators per match) and a stadium This work is licensed under the Creative Commons Attribution 3. It is difficult to find football teams that compete at the highest levels adopting a similar model. The complexity of football firms research is largely related to particular parameters used for measuring the performance: not only financial performance. Malcolm Glazer completed a hostile takeover and delisted the title from the London Stock Exchange. ISSN: 2280-3866 Volume 2 – Issue 2. and desire to close their balance sheet with profit or a minimum loss. but it remains secondary to sport success and for this reason it is almost never achieved. - mixed sports . AC Milan and FC Internazionale Milano. this group includes all teams that care about their financial equilibrium and they have no relegation target (from Serie A). since 1991. The championship results are necessary to valorise the football players and to realise significant gains.org/licenses/by/3. UEFA Europe League) with a balance sheet in equilibrium. Examples of this group are Juventus FC..performance. Operating balance is pursued. 2013 Special Issue . In recent years however. Examples of this system are Udinese Calcio. SS Lazio. AC Siena and Bologna FC.Selected papers of the 1st B. includes those teams with moderate national and international sport success (Coppa Italia. These clubs are more interested in their cost-benefit performance than in the football one. The stadium itself is not simply a venue for football matches. - performance winners. In May 2005. Starting with the English model. pubs and restaurants.

This is a German multisport club based in Munich.5%. which specializes in sports. ISSN: 2280-3866 Volume 2 – Issue 2. but each member may participate in important decisionsiv.org/licenses/by/3. but unquestionably a successful one. Over the past few years. Another good example of English club managerial model example is Arsenal FC. baseball. Catalans have achieved sport success and a strong link with the (large) local community: the Catalan identity is an integral part of the club image and a key element in competitive strategies and marketing choices. and FC Bayern shares are controlled by the sport association FC Bayern. Another particular Spanish model. The Catalan team is the most successful club in recent years. In the past it has encompassed men's volleyball. handball.Business Systems Review. it is a top club on continental competition and it has had large success in both national and international competitions (Rossi et al. The governance model adopted is participatory (a special kind of co-operative). there are significant differences. Governance responsible has imitated the classic English model and Bayern is the owner of stadium: the technologically advanced Allianz Arena stadium with 69. but after only five years the Bavarian club has already paid half of it. but from operating revenues: income from broadcasting rights. is FC Barcelona. 2013). This model allows the so-called ‘Red Devils’ to generate the financial resources necessary to continuously reinforce team. For many years in fact. The sponsorship logic used is innovative. 2007).0/ 230 . Lab International Symposium capacity utilization of 99. athletics. The participatory model adopted demonstrates how these factors can be used strategically to enter new markets. rugby. Management is functionally carried out by the top management.g. Fabregas from Arsenal to Barcelona in the summer of 2011).Selected papers of the 1st B.000 seats. With this organization. These players are ‘grown’ and sold at high prices once they have established themselves at national and international level (e. The so-called ‘Gunners’ consider the nursery of young talented football players to be very important.0 Unported License. Bayern has an excellent costs-revenues rapport and there is a perfect assets control. to create new business opportunities. Beyond these though. the so-called ‘Blancos’ of Madrid resemble the big Italian clubs’ model.. in 2006. merchandising and stadium-generated inflows. with Audi and Adidas being also club shareholders. thus securing substantial capital gains that allow solid business and athletic improvements. communication and health. 2013 Special Issue . because it aims to create synergy This work is licensed under the Creative Commons Attribution 3. The critical factor for success is the ‘sold out’ in every match and the consequent guarantee of 60 million a year of match-days revenue. and it has a different philosophy regarding the management of the team. To view a copy of this license. to increase revenue sources. to create partnerships with firms of other sectors and other countries (Bof et al . Its total expense was 340 million euros in 2005. The financial resources invested by the club are not from the president’s personal wealth. Arsenal has never met the athletic achievements of Manchester United. tennis. visit http://creativecommons. Recognized by many as a successful model. It holds the absolute majority (as much as 80%) and a residual part (20%) is in the hands of two major sponsors: Adidas and Audi. Two common characteristics among these two clubs are the presence of a coach-manager for over fifteen years and stadium ownership. This is a real sports group that includes a plurality of disciplines. Barcelona is a particular case in which relationships with the locality represent a resource and not a constraint. but diachronically equally successful. Merchandising is also very well developed and there are important sponsors’ contributions. another football model has attracted the attention of sports management scholars: FC Bayern München AG. swimming. Real Madrid is the only professional sports club in the world that has established. sports management. at the Universidad Europea de Madrid. in addition to football and basketball. but with different financial results and a different costs-revenues structure.S. a post-graduate university school. A different model. is Real Madrid CF. with the greatest possible participation by citizen-members.

the problem lies in the distribution of the value created between profit and wages. signed by FC Bayern with attractive interest rates that increase with each goal and cup win. since they might obtain considerable economic advantages from a successful season. this situation a viable solution could be a stronger correlation between salary and performance. Firstly. Also in this case.org/licenses/by/3. the systemic approach could help. either individual or team performance. rather than net income. 150 thousand booklets were issued. the football teams actually create economic value. 2013 Special Issue . To a certain extent. notwithstanding the existing contract.Business Systems Review. It is not possible to assume shareholder value maximization as the ultimate goal of the firm. mainly due to the high costs of players and coaches. because they have the benefit of a riskless income granted by contractual agreements with the firm. credit cards and checking accounts. normally his agent manages to get relevant salary increases. Looking at the whole business system these stakeholders could be regarded as virtual shareholders (Capasso. HypoVereinsbank has provided its customers’ savings accounts. Reasoning on the financial data. If we consider the value added (gross operating margin plus labour costs).0/ 231 . In this perspective risk allocation is definitely asymmetric. at least in some measure. To correct. but if a well paid player performs badly. these stakeholders can be considered as firm suppliers. To view a copy of this license. with an average of one thousand euro. 1996) and the ultimate goal becomes a negotiated system of objectives directed towards the value maximization of the business system as a whole subject to some specific constraints.0 Unported License. The underlying rationale is to redefine the risk-reward profile of the main stakeholders in a way more suitable for their being residual claimants (i. This work is licensed under the Creative Commons Attribution 3.S. in exchange for their professional activities. generating some insights on the governance of this special kind of business. but they are also residual claimants. ISSN: 2280-3866 Volume 2 – Issue 2. Under a systemic perspective. it is quite evident that professional football team management requires a good sport performance to be sustained by a corresponding financial performance. paying a significant share of salaries in stock options). Some residual claimants (players and coaches) obtain considerable benefits from successful sporting performances but can also count on a significant floor to their economic returns in the adverse scenarios. the team’s management cannot reduce his base salary. Lab International Symposium between football team and sponsor: for example. In addition it is possible to consider that when a player performs particularly well. we observe how net losses are recurrent in the income statements of many teams. Indeed there are some crucial stakeholders who share with the firm essential resources that cannot be easily replicate. This further aspect entitles some prominent stakeholders to have some informal influence on management decisions and sometimes in corporate governance too.e. the analysis of the economic equilibrium of professional football team would lead to different conclusions. but moreover in the allocation of the risk among the multiple stakeholders.Selected papers of the 1st B. CONCLUSIONS Considering the above mentioned literature and the analyses carried out in the previous paragraphs. Not casually there is a general trend to introduce risk mitigating covenants in the contracts between teams and top players (or top-coaches) and also between teams when a player contract is transferred to another team (part of the payment can be indexed to future performances of the transferred player). 5. and many competing teams try to hire him. visit http://creativecommons. we can try to develop some logical considerations on the economic nature of professional football teams.

0/ 232 . visit http://creativecommons. These are vehicles for fans to influence the running of their team. 33(4): 1-17. Firm resources and sustained competitive advantage. Journal of Management. Strategic Change and Role of Interests. AREL (2012). Milano: EGEA. in better financial conditions. As seen in the previous survey. Journal of Sport Management.S. some successful case-histories (FC Bayern Muchen) show that the main sponsors can consolidate their position as significant shareholders of the team. J. This entitles the supporters to voting rights in general assembly and presidential elections. Power. 2013 Special Issue .. 7(1): 49-64. ISSN: 2280-3866 Volume 2 – Issue 2. Financial Review. even if with a different institutional and legal framework. J. N.it/other/RC2012_Completo_LowRes. Slack. Pant. Baroncelli.. taking into account not only the current claims but also that the satisfaction of today’s claims will affect the sustainability of the competitive advantage in the long run. Supporters’ commitment is granted not only through share ownership but also as a result of long term advance season ticket payments. Lab International Symposium A further consideration stems from the circumstance that teams endowed of their own stadium enjoy a more stable revenue stream and are. S. Rosenstein.. Especially in the English Premier League experience. transforming themselves from virtual to actual equity-holders. Szymanski. 18(3): 158-198. Hinings. T. T.. U. Journal of Sport Management. S. Supporters have several ways to strengthen their link with the beloved team.Selected papers of the 1st B. we observed as several teams became listed companies. since the stadium-generated revenues are related to a physical resource. This article has hopefully developed a new approach toward the economic analysis and the corporate governance of professional football teams. raising equity finance from their supporters thanks to the widespread practice of supporters trusts. Amis. ceteribus paris. Board Composition. where possible. (1997). A. Lago. (2004). To view a copy of this license. Retrieved http://www. and Organisational Capacity. wholly controlled by the firm..pdf 12/12/2012 from: Barney.figc. experience a direct supporters’ participation in the governance of the team. (2004). Report Calcio 2011. (1998).. Hopefully. also sponsors and supporters could be called to a more active involvement in the comprehensive business system. Achieving a sustainable competitive advantage: A resourcebased view of sport sponsorship.Business Systems Review.0 Unported License. Slack. J. B. It is board responsibility to understand and balance the different stakeholder’s claims on the firm. REFERENCES Amis. S. it will lead to further researching that area. Barnhart. In Spain. Il business del calcio: successi sportivi e rovesci finanziari. and their amount has limited relations with sporting performances. the stadium management. This work is licensed under the Creative Commons Attribution 3.. Barcelona and Real Madrid. 11(1): 80-96. Finally.org/licenses/by/3. In many cases supporter trusts gain direct board representationv. fundraising to finance the acquisition of shares in the club. The discussion here could not be exhaustive. The main reflection stemming from an analysis that is still in progress relates to the complexity of the relation between corporate governance and strategic management in professional football team vi. plays an important function in mitigating the problems raised by the role of critical stakeholder. (1991). In point of fact. R. C. managerial ownership and firm performance: An empirical analysis.

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L. Endnotes i Several studies examined links between the boards of directors for profit businesses and company performance. Club Licensing Benchmarking Report Financial Year 2010. Supporters Direct was established to encourage the formation of supporters' trusts to promote democratic supporter ownership. (2002). but without any consideration of how that performance was determined.pdf Uhrig. 2000. 1999. iii The European Club Footballing Landscape – an UEFA survey – has considerate 653 teams of 52 European Federations. (ii) attendance at general shareholders’meetings.undp. Brown. ii Smart and Wolfe (2000) quote several leading scholars on RBV (Barney. Thrassou A.0/ 235 . A. Using well established financial measures as the measure of company performance. v In British sports. (2004).Selected papers of the 1st B. January. Queensland University of Technology. UEFA (2013). a supporters' trust is a formal. Review of the Corporate Governance Arrangements of Statutory Authorities and Office Holders. A. Essentially. Evaluating Governance. 1991) and RBV within a sports context (Amis. iv Barcelona FC shareholders have several important rights: (i) active and passive voting. iii) it must be imperfectly imitable. Nicholson and Kiel. With government and with crossparty support. (2009). legal and start-up costs. Measuring the Quality of Corporate Governance: In Search of a Tailormade Approach?. Retrieved 15/01/2013 from UEFA: http://www. Grant. Vrontis D. Supporters Direct encourages these bodies to be formed as Industrial and Provident Societies (IPSs) and assists with their formation. 23(136): 6-10. 1998). 1991.pdf United Nations (1997). D. Lab International Symposium Stewart. the separation of Chairman and Chief Executive (Coles and Hesterly. Thrassou. 2013 Special Issue . Vrontis. Retrieved 11/11/2012 from UNDP: http://mirror. (2007). J. Supporters' trusts are The first trust This work is licensed under the Creative Commons Attribution 3. Journal of Promotion Management. Pant. The Corporate Board. 2004. 15(4): 499-521.S. Levrau. ii) it must be rare among current and potential competitors. J. ISSN: 2280-3866 Volume 2 – Issue 2. 28(3): 71-86. 25(7): 789-806.gov. there was no conclusive evidence that linked a specific board structure to improved organization performance. A.pdf Van den Berghe.uefa. A New Consumer Relationship Model: The Marketing Communications Application. (2003).au/financial-framework/governance/docs/Uhrig-Report. it must possess the following attributes: i) it must be valuable. A new conceptual framework for business-consumer relation. Journal Of General Management. 2004. Reconceptualising Governance. in order for a resource to provide competitive advantage.org/magnet/Docs/!UN98-21. Several of the governance models (Forbes and Milliken. Friedman and Phillips. Barnhart and Rosenstein. visit http://creativecommons.Business Systems Review. (iii) expression of their opinions.PDF/!RECONCE. Marketing Intelligence & Planning. 1997). democratic and not-for-profit organisation of fans who attempt to strengthen the influence of supporters over the running of the club they support. D. and Slack. A. To view a copy of this license. focusing on board composition and specifically.finance. Second Thoughts on Board Independence: Why do so many demand Board Independence when it does so little Good?.PTU/!front. Westphal.org/licenses/by/3..0 Unported License. as a source of competitive advantage. RBV focuses on internal tangible and intangible resources.com/MultimediaFiles/Download/Tech/uefaorg/General/01/74/41/25/1744125 _DOWNLOAD.. The European Club Footballing Landscape. Retrieved 10/12/2012 from Commonwealth of Australia: http://www. J. Paper presented to the Public Policy Network Conference. (2003). 2005) linked governance to an organization’s performance.

More than 110 supporters' trusts currently hold equity within their football clubs while supporters' trusts have outright or majority ownership or control at two Football League and others. The largest is the Manchester United Supporters Trust. Over 40 football clubs currently have supporter representation within the boards of their football clubs (source: Wikipedia).S. 2013 Special Issue .org/licenses/by/3. This work is licensed under the Creative Commons Attribution 3. Lab International Symposium established was at Northampton Town in January 1992.0 Unported License. About 100 football trusts currently have shares in their clubs.Business Systems Review. visit http://creativecommons.Selected papers of the 1st B. Dagnino (2012).0/ 236 . which used to be known as Shareholders United and currently has over 163. vi On the relation between corporate governance and strategic management see also Capasso.000 members. ISSN: 2280-3866 Volume 2 – Issue 2. To view a copy of this license.