Football & Finance: Exploring the Capital Markets
Over the last few decades the business of football has grown significantly. The worldwide broadcasting of sport events by global media conglomerates, and the rapid acceptance and development of sport sponsorship have changed the traditional business model of football clubs, which historically has relied on match day revenues.
The globalization of football has, on one hand, brought football clubs additional revenue, generated primarily by commercial activities such as the sale of broadcasting rights, sponsorships and licensed merchandise. On the other hand, football clubs now must commercialize in order to remain financially competitive and sustainable in light of increased costs.
Maintaining a sustainable financial position may require football clubs to make significant investments to achieve objectives such as:
- Improving on-field performance (buying the best or more promising players);
- Improving/increasing national and international branding through effective marketing initiatives (promotions, sponsorships, etc);
- Enhancing the sustainability of its business model, and diversifying its revenue stream by expanding beyond broadcasting rights and tickets by focusing on merchandising, sponsorship, and stadium revenues.
Reaching these objectives may require investment in new technologies, personnel, manufacturing, new or renovated venues, financial and legal representation, and marketing initiatives. A primary question for many football clubs is where to obtain the additional capital needed for these specific investments? There is a variety of options available to clubs interested in raising capital, including those potentially offered by the capital markets, such as:
- Issuing corporate bonds;
- Initiating an IPO (Initial Public Offering);
- Integrating a football club’s fan base into a shareholder structure.
However, to date, only a few European football clubs (Juventus, Roma, Lazio, Borussia Dortmund and Manchester United are some examples) have initiated IPOs or have financed their revenue programs via capital markets. This limited number demonstrates how difficult it is for football clubs to enter capital markets and, perhaps, how reluctant capital markets are to embrace football clubs.
This paper discusses the key dynamics of capital markets and how football clubs must prepare in order to finance their investment programs through a capital markets action. It is clear, that for football clubs, having a solid economic and financial track-record may not be enough and that further “intangible”, but substantial prerequisites may be necessary, such as a:
- Well defined and executable business and marketing strategies reflected in an economic and financial business plan;
- Balanced corporate governance;
- Proper corporate structure;
- Competent management team.
This paper addresses effective and potentially successful financial and governance strategies that football clubs can follow that will facilitate a capital raising action through capital markets.