BPP Real Preseen Analysis

Overview
Our company is a football club, Glory Soccer Club, based in the fictional Asian country of Veldoun.
At first glance there appear to be a number of similarities with the Indian Super League, which was
founded with 8 teams in 2013, and completed its inaugural season in December 2014. By contrast
the Veldoun Soccer league was founded in 2004, with Glory SC being one of ten clubs. Glory was
founded by the wealthy entrepreneur Dr Kartar Sanghera in 2006.
The ownership of the club is somewhat fragmented, with Kartar owning 35%, but no other
shareholder owns more than 3%, indicating that many of the shareholders are fans rather than
institutions. The club is quoted on the national stock exchange, and its shares have lost 60% of
their value in the last two years, during which time it has seen its revenues grow by 11%, but
operating costs have risen 19% resulting in a profit of V$7.8m turning into a loss of V$(1.3)m.
Most of the rise in costs can be attributed to player signings and salaries.
The business model of the club has three elements:
1 – Win soccer matches
2 – Grow the brand
3 – Sustain supporters interests
Comparative data is given on a global super-power Mantrey. They are much larger and more
profitable than Glory, indicating some possible collaboration / acquisition activity. This data
reinforces the perspective of Glory being a nationally successful club, but lacking the brand and
financial clout to compete in the global market for the best players. Instead its ‘marquee’ signings
tend to be high-profile players approaching the end of their careers. The profile of one such
player, Filip Novak, is provided on page 12 of the preseen.

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Key aspects from an E3 perspective
The key strategic challenges facing Glory all relate to how it can continue to grow as a business. If
the club is able to grow its four revenue streams then it should be able to out-spend its main rivals
increasing its chances of sporting success. These steams are:
Ticket sales – mainly to home fans via a mix of season and match tickets. Glory owns its own
stadium
Broadcasting rights – currently sold to Orbit Communications (Sky TV?)
Merchandising – replica shirts etc
Sponsorship – shirt and other sponsors
Based upon what we have seen in the February and May sittings, allied with what we are told in
the pre-seen, we could see the following developments from an E3 perspective:
 Interacting with the organisation’s environment – managing relationships with
stakeholders is interesting. The club must balance the need to be successful as a
business by maximising revenues from supporters, sponsors and TV companies, but at
the same time its business model is committed to preserving the club’s relationship with
fans. We have seen in the UK, clubs being accused of treating fans more like customers
than supporters, by launching excessive numbers of replica kits etc. Aside from this there
is the scope to work with Mantrey either as an overseas feeder club, or perhaps as a Joint
Venture partner to help penetrate other Asian markets.
 Evaluating strategic position and strategic options – there are numerous possible
scenarios / opportunities that could be presented eg whether to sign Novak, whether to
make a big splash in the transfer market, merger / JV with Mantrey etc. In each case you
will need to be able to objectively assess these (SAF approach) and provide compelling
recommendations. On page 10 of the preseen there is a hint that Kartar is becoming bored
with Glory – perhaps a takeover is in the offing?
 Leading change – any strategic choices (see above) will result in strategic and operation
change. Previous exams have requested advice on how to manage change, and in
particular how to communicate changes, or, how to form teams to manage change. In this
case perhaps a change of club ownership, or a tie-up with Mantrey would require such
advice.
 Implementing strategy – any new strategy will need to be rolled-out across the business,
and then assessed on an ongoing basis. Whilst there are no compulsory calculations in
ICS the Board has already outlined the current performance measures on page 15 of the
preseen (match results, league position, share price etc), so perhaps you could be asked
to evaluate the club’s current performance against these, or, how to communicate these to
different stakeholder groups such as investors and supporters.
 The role of information systems in organisational strategy – the strategic use of IT is
hinted at in the preseen on page 13 ‘Electric boots’. Statistics are being increasingly used
by clubs to remove the subjective elements of player scouting. Such ‘sabre-metric’
approaches were first used in Major League Baseball, but are being adopted by football
clubs seeking to identify value in the transfer market. Perhaps Glory could follow this
route, and maybe wishes to know whether Big Data can be incorporated into this system?

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Key aspects from a P3 perspective
When looking at the preseen from a P3 perspective, the overall aim is to identify the risks faced by
Glory and how they could be managed: this is done by considering them in the context of the five
main syllabus topics below.
Expanding on each of these syllabus areas in turn:
 Identification, classification and evaluation of risks – There are many different
stakeholders that present risks for Glory, so you will need to understand the various
relationships which could be covered in your exam: staff, fans, broadcasters, sponsors,
rival clubs, players’ agents and investors to name a few. Strategically, it is vital for the
success of Glory that football continues to be in demand in Veldoun, so you need to
consider other strategic issues that could affect the club such as the loss of key players,
poor team performances, the expansion of the Veldoun Soccer League and even the
outside possibility that owner Kartar Sanghera may decide to offload his investment.
 Strategic risk responses – We know that Glory is based in a country which has a well-
regulated and highly efficient stock market, so sound governance is likely, but not
guaranteed. The preseen supplies details of the Glory board which looks well-staffed but
possibly inexperienced in commercial terms, so you should be prepared to discuss this
further if required. Given the current investigations into football’s world governing body
FIFA, it is important that you also consider the ethics of organised sport, such as
corruption, bribery and money laundering (including the case of Carson Yeung, former
owner of Birmingham City Football Club in the UK) plus the risk of ‘sweatshop’
manufacturing conditions for shirts and footballs and even the possibility of players taking
performance-enhancing drugs.
 Internal controls – We know very little about the systems of control operated by Glory: for
a business that is keen to expand and compete on the global stage, it must be able to
cope with significant and varied flows of both cash and information. You may be asked to
consider these systems in the context of the Glorious Energy Group as there may be
synergies between the two related entities, such as shared systems or a combined internal
audit function. The preseen also talks about collecting player data from electronic tracking
devices that may require knowledge of big data analytics.
 Risks from cash flows – We know that Glory is based in a country with a currency that is
freely traded so familiar forms of hedging may be available to allow it to trade easily with
its overseas stakeholders, especially as part of transfer activity. Overall, the financial
viability of the club is essential so you should consider how this can be measured and
monitored as well as controlled, especially if more interest-bearing debt is introduced.
 Risks from capital investment decisions – Glory needs to maintain its business model
of attracting talent and maximising revenues from all its other assets. It is possible that
expansion of the stadium in Praree may be considered, or enticing a star such as Filip
Novak as a ‘marquee’ signing to increase success on the pitch.
There is a list of key risk factors on pages 15-17 of the preseen which you can refer to as well as
this list.

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Key aspects from an F3 perspective
We look at the preseen from an F3 perspective by considering them in the context of the three
main syllabus topics below.
 Formulation of financial strategy - You need to understand the impact of the 35% stake
still held by Kartar Sanghera (the Chairman) on Glory’s share price and decision making.
Is the influence of Kartar still a positive one? Or is there a danger that Kartar is using the
club to support his own wider business interests? You may also need to comment on the
impact of an issue (e.g. sale of a star player) on Glory’s share price. You may also need
to show awareness of the impact and relevance of Glory’s falling share price over the past
2 years, and its recent rise despite a dramatic fall in profits.
 Financing and dividend policy - Financing: There may be pressure on Glory to inject
further finance. This is likely given the fall in profits and the pressure to recruit and retain
high calibre footballers and potentially to expand the capacity of its stadium. Many sports
clubs (for example, Manchester United, Arsenal) have issued bonds to take advantage of
low interest rates, or borrowed more money from their owners (e.g. Chelsea). There are a
range of theoretical and practical arguments in favour (and against) increasing gearing,
and you will need to have a good understanding of this area of the F3 syllabus. Glory
would appear to have the capacity to increase gearing because its current gearing is low,
and has fallen compared to 2014. Dividend policy: Some football clubs (e.g. Arsenal) do
not pay dividend and have no plans to do so – this is because they believe that they can
get a better return for shareholders from investing this money in new players and facilities.
Other companies (e.g. Borussia Dortmund) face similar issues but do pay dividends. This
is an issue for Glory, which currently does not pay dividends but has a large cash surplus
(as at 30 June 2015) and so could consider introducing a dividend. You need to be able to
give good practical advice on this area.
 Evaluation of a possible takeover - Corporate finance is 40% of the F3 syllabus. It is
always a likely area in an exam question but the key details are likely to be introduced on
the day of the exam. It is possible that Glory may be acquisition target. As a minimum, you
need to be able to advise on the validity, the strengths and the weaknesses of all of the
key valuation techniques.