YIM ING ZHANG K1112911
Explore the optimal capital structure for football clubs in
English Premier League
YIMING ZHANG
K1112911
Dissertation Submitted in Partial Fulfilment of the Requirements of the University for the
Degree of Financial and Business Management
1
YIM ING ZHANG K1112911
Abstract
Capital structure is an important affair which involved in each firm‘s administration.
Prior research donate us a great basis for further study on this puzzle. However,
besides the theory experimentation, we could attempt to test and analyze the situation
specifically as well. Thus, in this article, we would like to use a case study to analyze
two football clubs in English Premier League, and to explore their decision making.
Hence, try to give some proposal to the general football clubs.
2
YIM ING ZHANG K1112911
Authorship Declaration
I declare that all materials in this dissertation that are not my own work have
been acknowledged and that no materials from my previous degree(s) have been
included.
I have kept all materials used in this research, including samples, research data,
preliminary analysis, notes and drafts, and I can produce them on request.
3
YIM ING ZHANG K1112911
Acknowledge ments
To Dr. Mark Farmer,
Dr. Mohamed Nurullah and lovely Andrew;
My families and all the Blues
For all the love and laughter and every moment I have ever had.
------Yiming Zhang
May, 2013
4
YIM ING ZHANG K1112911
Table of Contents
Chapter 1……………………………………………………………………..……….8
Introduction………………………………………………………………..…….……8
Chapter 2……………………………………………………………………….…….13
Literature Review……………………………………………………………...……..13
2.1 Original Theories....................................................................................................13
2.2 Others.....................................................................................................................16
Chapter 3……………………………………………………………………………19
DATA and Methodology………………….…………………………………………19
3.1.1 Methodology........................................................................................................19
3.1.2 DATA Collection ................................................................................................21
3.2 Methodology to Analyze These DATA ..................................................................22
3.2.1 Capital Gearing ..................................................................................................22
3.2.2 Income Gearing ..................................................................................................23
3.2.3 Typical Ones .......................................................................................................24
Chapter 4…………………………………………………………….………………25
Analysis…………………………………………………………...................………25
4.1 About the Two Clubs .............................................................................................25
4.2 Analysis .................................................................................................................25
4.2.1 Season 2003/ 2004 to Season 2006/ 2007 by Arsenal Football Club Itself ......26
4.2.2 Season 2007/ 2008 and After for Both Clubs .....................................................31
4.2.2.1 Arsenal Football Club.......................................................................................32
4.2.2.2 Queens Park Rangers Football Club................................................................36
4.2.3 Comparison for Their Ratios on Time Basis.......................................................39
4.2.4 Comparison for Their Trends..............................................................................42
4.3 A Fact......................................................................................................................45
4.4 Results and Suggestion...........................................................................................46
Chapter 5……………………………………………………………………………48
5
YIM ING ZHANG K1112911
Conclusion………………………………………………………….………………48
Reference……………………………………………………...……..………………50
6
YIM ING ZHANG K1112911
Table of Figures
Table 1.1: UEFA Financial Fair Play Rules- Acceptable Deviation Levels (2012).......8
Figure 1.1: Financial Highlights for Clubs of Premier League (2012)........................11
Figure 4.2.1 Arsenal Football Club, Season 2000/ 01 to 2011/ 2012..........................26
Table 4.2.1.1 Season 2003/ 04 to Season 2006/07-Arsenal Football Club..................26
Table 4.2.2.1 Season 2007/ 08 to Season 2010/11 - Arsenal Football Club.................32
Table 4.2.2.2 Season 2006/07 to Season 2010/11-Queens Park Rangers Football
Club .............................................................................................................................37
Table: 4.2.3.1 Crucial Ratios for Both Clubs of Season 2007/ 2008...........................39
Table: 4.2.3.2 Crucial Ratios for Both Clubs of Season 2008/ 2009...........................40
Table: 4.2.3.3 Crucial Ratios for Both Clubs of Season 2009/ 2010...........................41
Table: 4.2.3.4 Crucial Ratios for Both Clubs of Season 2010/ 2011............................41
Table: 4.2.4.1 Trends of TD/ TA for Both Clubs and the whole league.......................42
Table: 4.2.4.2 Trends of Profitability: EBITDA/ TA for Both Clubs and the whole
league...........................................................................................................................42
Table: 4.2.4.3 Trends of Remuneration/ Cost of Sales for Both Clubs .......................43
Figure: 4.2.4.1 Both Trends for 4 Years of Arsenal Football Club...............................44
Figure: 4.2.4.2 Both Trends for 4 Years of Queens Park Rangers Football Club........44
Table: 4.2.4.4 Trends of Intangible Assets/ Total Assets for Both Clubs.....................45
7
YIM ING ZHANG K1112911
I.
Introduction
According to the UEFA Club Licensing and Financial Fair Play Regulations, clubs
would not be qualified for European club games if their financial conditions do not
achieve the level which ruled by UEFA's Executive Committee. This situation could
be simply displayed by the table following.
UEFA Financial Fair Play Rules – Acceptable Deviation Levels
Monitorin
Number
Years Included
Acceptable Deviation (€m)
g period
of Years
T- 2
T- 1
T
Covered
Not Covered
2013/ 14
2
N/A
2011/ 12
2012/ 13
45
5
2014/ 15
3
2011/ 12
2012/ 13
2013/ 14
45
5
2015/ 16
3
2012/ 13
2013/ 14
2014/ 15
30
5
2016/ 17
3
2013/ 14
2014/ 15
2015/ 16
30
5
2017/ 18
3
2014/ 15
2015/ 16
2016/ 17
30
5
2018/ 19
3
2015/ 16
2016/ 17
2017/ 18
<30
5
Table 1.1: UEFA Financial Fair Play Rules- Acceptable Deviation Levels (2012)
To draft this regulation was intend to cut the debt-abuse within the operating of
football club. But ‗debt‘ has always been a way to finance a business, why this should
be restrained for managing a football club? As an element could be considered within
a capital structure, is there an answer to how much debt should be held by a football
club?
Firms have different preference on financial decisions. Different degree of risk,
different industry and even different time conveys to either positive or pr udent results.
To the distribution of one‘s capital, different firms would give different choices. Along
prior research, the researcher can hardly find an accurate method to choose the
optimal capital structure. It seems that each company might have to combine both
8
YIM ING ZHANG K1112911
previous theories while to accumulate their own experiences into practice as well.
The football industry in UK is highly developed. The well-known Premier League is
popular world-widely. It generates the greatest income 1 comparing to the football
league games in other countries. However, we can also see debt financing is
widely- used by most clubs. According to the report of the European Club Footballing
Landscape 2008 published by UEFA, the debt held by English Premier League
overtakes the sum of the other clubs licensed in UEFA, which draws everybody‘s
attention and also arouse worries on Premier League. Because, it is generally known
that English Premier League is the richest football league on the world. Then, what
will be the scene if every league in UEFA follows the model of Premier League to
gain profits? The researcher has no clue about what would it be like, but maybe
people could take a deep thinking about how to make it better.
After 1980s, the new model of English football illustrates a revival in UK domestic
market. It generates the highest revenue among all football leagues. But, what has
been concerned all the time is that these prosperities cost too much, which makes
people wondering whether it is a smart debt financing or an erosion of the game.
Due to there is no surely established methods to abide, it dose make sense if the
researcher could utilize one or several cases to analyze and summarize on what they
have reflected, what the problem is, which decision should be taken and implemented
widely. What the researcher would like to discuss is the situation in football clubs.
The researcher sets the condition of UK market, and obviously, it would be typically
and significantly for us to launch our attention onto the clubs in English Premier
League.
Among the member clubs in Premier League, the researcher would like to choose the
1
UEFA, The European Club Footballing Landscape, Club Licensing Benchmarking Report Financial Year 2008/
2009/ 2010.
9
YIM ING ZHANG K1112911
sample which is specific and clear. Moreover, the researcher attempts to focus on
individual cases and give deeply analysis in a comprehensive manner. Depending on
this, I select two football clubs from English Premier League for some differences I
concern, and use case study to conduct the research.
Queens Park Rangers Football Club
One of the two clubs is the Queens Park Rangers Football Club, which spent 4 years
to accomplish their target of promoting from Championship League to Premier
League after being taken over by Bernie Ecclestone and Flavio Briatore. Before the
takeover, QPR F.C. had been bearing in years of financial problems. The takeover
worth ￡14 million, taken place in August 2007. Apart from the ￡14 million, they
had promised to take ￡5 million on convertible loan facilities, which contribute to
player trading and covering a debt of ￡13 million. On December of that year,
Lakshmi Mittal became a shareholder as well, by purchasing 20 percent of the stake
for ￡200,000. His son-in- law, Amit Bhatia, was set as one of the directors. Though,
it seems like QPR F.C. was just another football club which is mainly relied on the
combination of personal wealth like Chelsea and Fulham. However, there is not a
significant further funds been injected in. Now, B. Ecclestone and F. Briatore both
quit, Mittal Family remains holding 33% of the stake, and the major shareholder is a
Malaysian businessman Tony Fernandes who owned 66% stake of the club. It is not a
stable composition of shareholder, which differentiates itself with its neighborhoods
Fulham and Chelsea.
QPR F.C. was not the kind of giants at the time they had been purchased, though with
a great history and loyal supporters as most of the football clubs in UK. Yet, it is not a
simple mission for a football club to promote into Premier League. So, I really
wonder what suggestion it could give when they made a financial decision to the club,
which might helped for the clubs in a similar financial condition. The methods of how
they organized their plan and the time they chose to cut the expenditure, both will
10
YIM ING ZHANG K1112911
become the objects that this research would focus on.
Arsenal Football Club
The other one I would like to introduce is the giant- Arsenal Football Club which has
been phrased time after time about their rare ‗health managerial‘ as a club in English
Premier League by UEFA.
Figure 1.1: Financial Highlights for Clubs of Premier League (2012)
The Arsenal Football Club is owned by Arsenal Holding PLC, which is a public
limited company, though only traded on a specialist market. This is not the first
English football club owned by a public limited company. It is eye-catching to find
out that the financial condition of Arsenal Football Club is always positive even
during the time of financial crisis. Thus the researcher would like to analyze the club‘s
movement and try to obtain some practical experience which may also be applicable
to other clubs. Moreover, the researcher believes that group turnover, wage cost, profit
before tax and net debt of this club will explain its situation directly. Meanwhile, the
aggregation of these four DATA may reflect more information and their internal
relationships. It could be a great resource for the researcher to analyze on it.
11
YIM ING ZHANG K1112911
Apart from the two before, people could find there is a private limited company which
called the Football Association Premier League Limited. The company is jointly owned
by the current 20 football clubs which stayed in the Premier League. And each owner
owns the right of one vote as a shareholder. The ownership would slightly change once
a year, the relegated clubs have to switch their rights to the clubs which promoted from
the Football League Championship. Although, as a firm, the Football Association
Premier League would gain a profit from TV broadcasting and sponsorship, yet each
penny they have earned would strictly been distributed to the 20 football clubs in line
with the regulation of the company. By this the researcher means that the DATA she has
found for this company could simply deemed as a description to the Premier League
industry as a whole. Cause every joint income would be paid back proportionally.
Though, the item of remuneration which shows in Premier League Ltd. only refers to
the salary for the employees of the association. After that, the researcher would utilize
the sum of cost of sales, administration expenses and remuneration to get the ratio with
the turnover, hence, compare with individual clubs.
As regards the pioneers on the research of capital structure, Modigliani and Miller
(1958) proposed their three propositions which guided the following researchers to
explore. While indeed, in my opinion, the M & M Theory is more philosophical than
practical. People could feel and understand it while hardly put it into practical uses. It
is the origin and inspiration of all the creative work after. Hence, Myers (1983) greatly
offers a research onto modern business activity. In this research, the researcher would
like to take a further study on it, and try to use the theory before to explain and
conclude the problems that plague us.
In short, what the researcher trying to resolve is that what an optimal capital structure
would be like to a football club in Premier League; to what extent, the debt would
pose a threat to a club; and what kind of debt should be favored. Hence, try to
summarize the problem which is within such a particular condition. The theories and
12
YIM ING ZHANG K1112911
proposition which had appeared in previews works indicates the researcher on how to
give a suggestion, and then, plan for it.
The paper is distributed into five main chapters. Chapter 2 illustrates the previous
papers which contribute to our research; I take the research from Myers as dominant
theory. Chapter 3 describes the procedure of DATA collection, and explains the reason
of the sample chosen. It also contains the theory and formula that the researcher uses
to get the result she needs. Chapter 4 is the analysis of the case. The researcher gives
the conclusion in chapter 5, meanwhile indicates the limitation and suggestion for the
cases.
II. Literature Review
2.1 Original Theories
Theories which relate to capital structure have been assumed and tested for more than
half a century of time. The discussion was originated in MM theory which introduced
three propositions to the following researchers.
Modigliani and Miller (1958) suggested three propositions in their initial research on
capital structure, which considered the valuation of a company would remain stable
whether its capital structure been changed or not. It created a new method for corporate
financing at that time. The most significant place is that they focused on the market
value of a firm instead of any particular income, meanwhile settled the framework of
optimal capital structure exploring for the following research. After that, in 1963, they
made a correction on the previous finding, which was to take tax under consideration as
well. Although, it is simply understood that to use debt could save the costs of taxes
once raising capital reserve, the author still explained their concern about the
consequences that a high leverage ratio might cause.
13
YIM ING ZHANG K1112911
Debt financing is popular among business activities nowadays. It is preferable and
attractive since it is cheap, while adventurous as it is risky. According to the revision
work of MM (1963), in a world with tax, gearing level should be as high as possible in
order to attain the maximization for the value of a firm. However, we know that the
decision a firm would make won‘t be in such an absolute condition. An obvious
advantage for debt finance is tax-reduction for the company. Besides, it is favorable to
the finance providers as well. As far as lenders concern, they possess the rights of
claiming prior to the equity holders‘, once in a bad time. Moreover, another factor
people have to admit is that fees, for raising debts, generally cost less than issuing
shares (Gillian, 2005). With such superiorities, people still have to avoid high gearing
depending on its risky property. On the basis of prior research, high gearing level
declines overall financial costs. But it has also been tested that such a declination was
unrealistic along with the ascent of shareholders‘ expected return.
However, in case of business activities nowadays, we need something more practical
and understandable.
Stewart Myers (1983) has been committed to get the study further. In his first article
about capital structure, he illustrated two theories to analyze the methods of getting an
optimal capital structure. The first theory was called the Static Trade-off Theory, which
weighed the arrangements of debt, equity, market value of the firm and tax shields.
Among the article, he indicated that interest tax shields is in another way been offset by
other costs of the firm. Or we could say that he suggests different effect of debt and
equity plainly reflect at the interest tax shields it saved, hence, points out that tax
saving should be treated as an offset of personal income taxes which was paid by
individual investors. He also mentioned that the consideration of costs of financ ial
distress, moreover, suggested that the kind of value a firm could lose in financial
distress would be its value of intangible assets. Since intangible assets relates to a firm‘s
growth opportunity as well, it is important to consider whether the company count on
14
YIM ING ZHANG K1112911
too much of it or not. As Myers (1998) commented in his following research, this
theory is too vague to be put into practice. Yet, its consideration of intangible assets
applied the situation of football club, hence took this element into consideration in the
following research.
Apart from that, he introduced the pecking order theory as well. The core meaning of it
is to financing without setting a target gearing ratio. It defines a preference of a firm
when it intends to raising capital for further development. The theory explains that
firms would take internal financing as their first choice. And if they do need to use
external financing, they would choose the safest as previous, which is debt first, then
issuing shares. The most obvious difference between these two theories is that the Static
Tradeoff Theory has to have a target ratio first, while the Pecking Order Theory does
not have to have one. Since there is not a specific formula for the Static Trade-off
Theory, the main work for this theory is to set a target ratio, a nd adjust each item to
attain that target.
According to the second theory, Myers introduced the asymmetry between firm value
and investor‘s benefit among external financing. And it also tried to figure out how to
attain an optimal capital structure through the analyzing of comparison between
internal and external equity, timing of issuing securities, exchange debt for equity or
repurchase, and the risk of intangible assets. It suggested two risks that a firm would
mainly incur, which were costs of financial distress and the possibility of losing
positive- NPV projects. Consequently, it confessed that the regulation on capital
structure decision making still has a long run to take effect.
The researcher could learn from this article that Myers does not advocate individual
firms to force themselves just to fulfill the debt ratio referring to some kind of
industrial custom. He illustrates several examples of specific conditions to convince
us how puzzled it could be. And this makes the researcher wondered, maybe a firm as
football club in UK should not to be pessimistic at first, though financing in debt.
15
YIM ING ZHANG K1112911
In the following research, Myers (1998) introduced a new method, which called
Organizational Theory, to amend the inadequacies of the previous conclusion. He
used the word ‗a weak guide to average behavior‘ to describe the practical usage of
static trade-off theory, and explained how contradictory the theory is versus the
pecking order one. Again, the research emphasized the necessity of ‗financial slack‘ to
a firm, which directly donates to one‘s default risk affordability. Apart from the
concern about intangibility valuation, he cited the main objective of a corporation is to
get a better distribution of cash (Treynor, 1981). Meanwhile, he also compromised
that most firms would fix one‘s reserves first, and then, consider issuing shares.
Myers (1983) discussed how to make a better decision once a firm needs to adjust its
capital structure. He indicated that the MM theory has to endeavor to get on well with
the situation in practice. These theories show me the original understanding of a
firm‘s capital structure. The methods they offered delight me to experiment the
situation for football clubs, moreover, to find an optimal method in such a specific
industry.
2.2 Others
The research made by Rajan and Zingales (1995) used the approach of both comparing
the correlations of leverage ratio and considering the specific economic conditions
from different countries. It analyzed the case of capital structure not only via the
calculation on data, but also a variation of economy. Based on this, John (1999)
compared the capital structure among different countries and different characteristics of
a firm. They took a further step to get the options which may influence the risk level of
a company as consideration, yet confessed that the result may not that obvious as in
different countries. Bevan and Danbolt (2002) followed the research given by Rajan
and Zingales (1995) which investigated the situation in seven countries. Hence, Bevan
and Danbolt focused on the evidence from United Kingdom, and collected the data of
16
YIM ING ZHANG K1112911
822 UK firms from Datastream to test the correlation of different elements which could
reflect the managerial of capital structure. They concluded a similar result with Rajan
and Zingales, which enhance the suggestions of the two seniors. These researches
introduced me the consideration of detailed aspects of a firm which could also
influence the determinants for ones‘ capital structure. This conducts me to choose two
football clubs from both different ownership and different size, though within the
same country. And try to compare the financial performance under such condition,
then find out whether there should be a different solution according to different types
and degrees of football clubs in Premier League.
Toshiyuki, Mika and Yusuke (2010) investigated about the performance of Japanese
firms via different characters of corporate governance during a post-depression period.
The methodology they used was a combination of DEA, RAM (Range Adjusted
Measure) and Tobit regression. The research was applicable of the entirety of Japanese
firms, which relied on a huge database. The result was referential to the country, while
not that applicable for an individual firm. It is not that simple for a prospective
conclusion, which is to enhance the portion of foreign investigations, been suggested
to a national policy institution. This article introduced a method of suggests to the
committee, and help enhance from drafting the regulation, which could be applicable
for the work of Football Association of UK.
Michael (1986) indicated that debt has a function of stimulating firm‘s efficiency by a
conversion into stock. Meanwhile he pointed out that the method could be insufficient
according to the increasing gearing costs. Bennett and Donnelly (1993) pointed out in
their research that to allocate a company‘s capital structure, people should consider
about the situation for different industry. It allowed the hypothesis in Myers (1977)‘s
article which referred the odds of gearing in risky business. It tried to analyze the
specific conditions and requirements which may be referential experiences for the
financial decision of firms like football club.
17
YIM ING ZHANG K1112911
Christopher (1996) applied the methodology of RAROC (risk- adjusted return on
capital) to test the capital arrangement of bank. It attempted to forecast the capital
budget and to evaluate the financing results as well. Similarly, it also implied that too
much debt could damage the performance of bank once in a risky circumstance.
Although it is a case study which aims at banking industry, yet the method of risk
management can apply to any firm as well as football clubs.
Thierno, Laetitia and Amine (2010) compared the performance on risk-taking of banks‘
asset risk, default risk, profitability and average asset growth rate according to various
ownership structures. It differentiated the categories of shareholders into public held,
privately owned by family, privately owned by institute, privately owned by company
and privately owned by bank. And it found that the influence appeared significantly
among the privately owned banks, while not that significant between publicly held and
privately owned on the whole. This introduced the comparison of different ownership
within a specific industry, which allowed me to consider about the different ownership
structure of Arsenal Football Club. Thus try to find out whether it performed better than
other clubs in English Premier League.
Szymanski and Smith (1997) created a model to comparing the correlation between
revenue and performance of English football clubs. They chose 48 out of 92 clubs
among the English football leagues from 1974 to 1989. At first, they analyzed that a
higher position on the league charts would definitely gains a corresponding rewards on
revenue according to the ticket selling, advertising and broadcasting dividends. Hence
they attempted to figure out whether the wage bill a club paid could positively affect its
performance. The model considered very detailed elements which might affects.
Finally, they concluded at ‗the club-specific intercepts in the total cost function are
positively correlated with the level of wages a club chooses‘. Or else we could say that
if we divide the 48 football clubs into three parts according to their positions of ranking,
then the clubs stayed at a high rank could make a profit, and the clubs lingered within
the bottom area make a tiny loss, yet the majority of the clubs, which in the middle,
18
YIM ING ZHANG K1112911
undertakes most losses. Meanwhile, it also mentioned the controversy about the owners
who make the financial decision to a club. Furthermore, it suggested that there should
be an external regulation to help create a coordinate benefit for the whole league. The
limitation of this article is that the options it considered are too specific which not that
applied to the circumstances nowadays, while its consideration about macro-regulation
is insightful. This article gives a new idea, which is to take wage cost into
consideration. It also reminds me, if we could take a new regulation onto player ‘s
remuneration? Though, merit pay is not unusual in other industries.
Carlos and Stephanie (2006) implemented DEA (Data Envelopment Analysis) into the
evaluation of a club‘s efficiency within English Premier League. The factors it involved
includes the revenues of a club, the wages each club spent for its players and employees,
and the position they got at the end of that season. This article attempted to find out the
efficiency of those elements, and whether they could influence each other. Hence, it
concluded at that the operational skills partially equal their match perfor mance. The
exception appears at the small clubs. According to the conclusion, the researcher has
noticed that clubs which have not had a sufficient capital should carefully take a
strategy on its operation.
Among these articles before, some of them illustrate the basic theory, some of them
introduce the situation of football industry, and some of them demonstrate the method
of comparison and analysis. I would gathered these useful information to conduct the
following research and try to solve the problem that I have wondered.
III. DATA and METHODOLOGY
3.1.1 Methodology
The research design I choose to conduct the research is case study. A case study once
19
YIM ING ZHANG K1112911
been defined or discussed as ― case study research design is appropriate for in- depth
description, explanation, evaluation and assessment of a given phenomenon which
could be an individual, organization, event or a specific program‖ ( Gall, Borg and
Gall, 1996). Case study is the method which offers me to obtain an in-depth
consideration on the phenomenon that I am interested in. Since a phenomenon refers
to things already occurred, what the researcher could do mostly is to describe, analyze
and evaluate; based on these, to answer the question which been raised at the
beginning of the research. Researcher could use one case as well as several cases to
achieve his or her aim. In this research, I choose to use two cases which helps me to
do the description while to compare both conditions.
The research is a case study. It is a comparison between two football clubs according to
their capital structure management. Like Myers said, the situation about managing
capital structure seems too vague. Exactly! Cause different industries, different
countries different managers and even different seasons might not need a consistent
standard for each of their benefits. Thus the researcher could narrow her research scope
down, and utilize the specific conditions and detailed examples to analyze what
elements could be considered once changing the capital structure; why it appeared so
and how people should applied it in practical situation.
According to this, the researcher sets the football industry in UK as the research object.
And choose two clubs from Premier League to study. First of all, the researcher collects
the company information from FAME. Secondly, highlight the key points she would
like to concentrate on. And then, the researcher substitutes these raw data into the
formulas to get the numerical ratios. Finally, the researcher analyzes it by the cases.
The researcher selects two football clubs from Premier League, which are Queens Park
Rangers Football Club 2 and Arsenal Football Club. The previous one was taken over
2
Here we would like to mention that though Queens Park Rangers Football Club is a newly promoted one from
the Football League Championship, which managed not perfectly as same as Premier League. However, the
20
YIM ING ZHANG K1112911
by Mr. F. Briatore in the summer of 2007, meanwhile holding a plan of to promote to
Premier League within four years. It is a good example of the managing for a non- giant
football club. Though the owner is a billionaire, it slacks its path to a four years period,
and keeps the financial condition of the club calm as always. The following one,
Arsenal Football Club, has a special legal form among the current 20 football clubs in
Premier League. It is managed by Arsenal Holding PLC., which is a public limited
company. Though Arsenal Football Club is not the first football club which goes public,
yet most of the events told others that it might not be a good way to manage a football
club like that, especially for a long run period. However, Arsenal Football Club has
been referred to as ‗the healthiest football club‘ among Premier League. Even though
they did not get too much trophies these years, they still managed well. Thus the
researcher would like to analyze and discuss the case of this football club.
I set the period of time between season 2007/ 2008 and season 2010/ 2011 for Queens
Park Rangers Football Club, and a longer stage for Arsenal Football Club, which is
from season 2003/ 2004 to season 2010/ 2011.
3.1.2 DATA Collection
To describe and compare, apart from the basic information, I need the DATA to be
diverse and comprehensive. In this research, I got most of the DATA from FAME. It is
a database which you could find most of the UK company‘s information in it. The
DATA information it offers is accurate and comprehensive. Apart from the general
items like balance sheet and profit & loss account, FAME also provides ratios and
trends information of the firm. To analyze the situation of a company‘s capital structure,
the researcher will utilize the established ratios and the single data in the report to do
the following calculation.
researcher considered that this case should better be treated completely and coherently. Thus DATA from that
period would also be available for the comparison.
21
YIM ING ZHANG K1112911
And also we could find the DATA from the football clubs‘ annual report. As well as
Deloitte Football Money League which contains a good analysis and several specific
records of the spending and revenue of a club. But those were only about the top clubs
from each European League. Besides, the researcher also consults the newly
implemented regulation from the Union of European Football Associations (UEFA),
which called Financial Fair Play. This regulation forces the clubs which attempt to
remain the qualification to compete in Champions League to keep their debt below a
specific amount.
3.2 Methodology to Analyze These DATA
As to analyze, I have to process some raw DATA, and get the ratios or margins to
serve my analysis. Through the research before, the researcher found that ways of
measuring gearing ratios varied. It once again demonstrated that to evaluate the effect
of gearing, we should better considering more aspects about the firm‘s condition. From
each formula which has been tested before, the researcher selects the following ones as
to get the information she needs.
To measuring a firm‘s gearing ratio could help us to analyze its performance,
meanwhile the researcher would like to find out better solutions to optimize such
condition. It is necessary to consider the worst-case scenario. Depending on this, the
researcher takes market and book value both into account, since they serve different
purposes.
3.2.1 Capital Gearing
There are basically two ways of measuring gearing (Bevan, A.A., and Danbolt, J. 1999)
which are capital gearing and income gearing. Capital gearing, as the name suggests,
demonstrates the degree of debts worked within the capital as for gearing. If we divide
22
YIM ING ZHANG K1112911
shareholders‘ funds 3 from the amount of long-term debt, we would get how the
shareholders‘ funds could offset the loans once there is no enough cash flow. However,
a concern on the book value of assets also suggests that the saleable value of those
assets could be quite different from what they have been measured. Thus, we could
divide the sum of long-term debt and shareholders‘ funds from long-term debts to get
an accurate result further. Besides, we could take a firm‘s short-term debt into
consideration as well. In this way, the researcher utilizes the ratio of all borrowing to
the sum of all borrowing and the shareholders‘ funds to get the capital gearing which
indicates the difference that the short-term debt could cause. It tests if a firm has been
tied up with short-term borrowing within the same time. Because an inability of
overdraft repayment should have been tighten up the awareness of the firm‘s manager.
Another method of capital gearing is long- term debt dividends total market
capitalization. It is similar with other formulas, but could overcome the weakness of
equity measurement on balance- sheet (Bevan, A.A., and Danbolt, J. 1999). Market
capitalization represents the market value of a firm‘s equity. Both shareholders and debt
holders could find out how related a firm‘s share price could be with its debt amount
through this model. Generally, market to book ratio defines the stock price of the firm.
While to a private company we could define the market to book ratio as to divide the
book value of total assets from book value of total assets miners the book value of
equity and added back the market value of equity 4 . This formula helps us to introduce
the financial instrument of convertible bonds to facilitate football clubs to adapt to
Financial Fair Play regulation of UEFA.
3.2.2 Income Gearing
As for income gearing, it is more realistic since it explicitly indicates whether a firm
could properly repay its debt. It seems that most of the capital gearing models were set
3
Also could be expressed as net asset.
M arket to book ratio=( book value of total assets –book value of equity +market value of equity)/ book value of
total assets
4
23
YIM ING ZHANG K1112911
the scenario as a negative condition. We should not only to compare the value of a
company‘s own to the debt it owes, but also its profitability to overcome it. Income
gearing could be seen as the proportion of profits which taken by interest charges.
Similarly, it could be understood as how an annual income stream is related to its
interest commitments. To the kind of corporate with a considerable amount of
intangible assets, it is fair and proper to get income gearing ratio into account.
Moreover, the firm should avoid its efficiency undermined by narrowly focusing on
the extent of saleable assets (Bevan, A.A., and Danbolt, J. 1999).
Based on income gearing, the researcher considers that the tangibility of a company
was also important. Especially in sports industry, such as Premier League, intangible
asset takes a big portion of its total assets. Furthermore, the intangible assets could
easily lead to a financial distress when hard time comes. However, from other
perspectives, intangible asset also means a growth opportunity for the firm. It is the
dilemma that every company would face to. Firms could compare their depreciated
fixed assets to total assets, and get the degree of depreciation. Hence, prepare for the
precarious condition that the firm might encounter.
It has been known that balance is considered as a basis in valuing a company. However,
the worth of a firm could hardly been measured by such relevant figures. One reason is
that the mode of operation has been in the transition of manufacturing to services. Thus,
the value of a firm would be much more relying on the product of intellect. For example,
intellectual property, brand value and media creations which can be hardly shown on
balance sheet frequently. And that is why interest cover plays a practical role by
illustrating how company could easily serve its debts.
3.2.3 Typical Ones
Apparently, we should not to ignore these essential ones. Like, total debt to total assets,
which is the simplest one but also the indispensable one. It plainly shows a basic
24
YIM ING ZHANG K1112911
situation.
Then, the researcher would also test the firm‘s profitability by using the formula
EBITDA/ TA, which is to dividend the book value of the company‘s total assets from
its earnings before interest, tax and depreciation. It tests the actual ability of generating
profits for a firm.
While taking the influence of asymmetric information into account, there could be
another element which be considered by both firms and investors.
IV. ANALYSIS
4.1 About the Two Clubs
I would like to introduce some features of both clubs at the beginning of the analysis.
Arsenal Football Club has a different ownership structure to the other clubs of UK
Football. Its parent company named Arsenal Holding plc, which owns 12 subsidiary
companies. It is special not only because it is non-quoted, but also not traded
frequently. As for the condition of Queens Park Rangers Football Club, the ownership
structure has always been private limited company, which jointly owned by individual
persons who has a large amount of personal wealth. Though the club was not traded
on the market, shareholding changed apparently once a year among the shareholders
(Footballclubsowners, 2011). It is hard to tell whether the financial decisions on
capital structure would be influenced simply by different ownerships. The following
analysis is mainly based on their financial results.
4.2 Analysis
I would like to start the analysis from the performance of Arsenal Football Club. The
25
YIM ING ZHANG K1112911
following is a figure which simply shows a combination of the row data. They illustrate
the basic financial condition of the club for a twelve years period. To demonstrate them,
I am not mean to justify what it shows. Instead, it conveys us a brief impression of the
trends, which helps us to understand it as a whole.
Figure 4.2.1 Arsenal Football Club, Season 2000/ 01 to 2011/ 2012
4.2.1 Season 2003/ 2004 to Season 2006/ 2007 by Arsenal Football Club Itself
2004/
2005/
2006/
2005
2006
2007
2003/ 2004
Total Debt
256.3
356.5
517.0
597.9
Total Assets
340.7
479.2
647.6
731.3
84.4
122.7
130.6
133.4
EBITDA
38.5
34.5
13.8
51.9
Remuneration (Wage)
69.9
66.0
83.0
89.7
Total Equity (Shareholders'
Funds)
26
YIM ING ZHANG K1112911
Cost of Sales (Administration
140.4
120.8
141.2
177.5
Intangible Assets
35.0
29.0
66.6
64.7
Long-term Debt
143.6
205.4
285.8
88.3
23.7
19.6
22.8
4.1
All Borrowing
167.3
225.0
308.6
92.5
Interest Charges
6.0
17.6
19.8
36.7
Depreciation
1.9
1.9
2.4
9.7
Profit Before Interest and Tax
16.5
36.9
35.7
42.3
Turnover
156.9
138.4
138.2
200.8
Expenses)
Short-term Loans and
Overdrafts
Table 4.2.1.1 Season 2003/ 04 to Season 2006/ 07 - Arsenal Football Club (million￡)
2003/ 2004- 2004/ 2005
In 2002, Arsenal Football Club started to invest in their new stadium- Emirates Stadium,
which is a long-term project ended in 2006. The completion of the new stadium, within
the same time, turns the club into a brand new process of development.
The situation of Arsenal Football Club during season 2004/ 2005 could be seen as an
accumulation for the prospect of reward from the new stadium. It is been reported that
the pre-tax profits increased from £10.6 million in season 2003/ 2004 to £19.3 million
in season 2004/ 2005 for the group. And this contains the effect of continuing invest in
the new stadium. They insist to reserve sufficient cash for the club to spend, even
though having been caught in such costly project. Correspondingly, there are two
business formats in the group which is property development and the football club
management. We have to admit that it is a good approach of serving the football club‘s
operation by those obvious profits from property sales, while this could hardly been
imitated by others. The growth of property developing revenue provides a steady and
27
YIM ING ZHANG K1112911
gradual income, hence remains the interval of football club managing which has been
considered not that stable. At year 2004/ 2005, the group spent £98 million on the
construction programme for the new stadium. They chose bank loan, which is fixed
rated, to accomplish such a high demand on capital. It was a significant injection which
sustains the investment in fixed assets this year of £98 million. Undoubtedly, this
optimizes the flexibility of the football club‘s managing, and leaves the cash reserve at
£63 million for the club to operate. Capital injection by shareholder has also been a
method of financing. In season 2004/ 2005, they received £30 million investment from
Granada Media Group. Meanwhile, the shareholding of Granada increased to 9.99%.
Group turnover slightly decreased from £156.9 million (2003/ 2004) to £138.4 million
(2004/ 2005). On the other hand, operating costs reduced a £14.4 million from the
previous season (2003/ 2004- £120.2 million) at £105.8 million for this year. Among
the operating costs, wage expending has taken the biggest portion at £66.0 million for
2004/ 2005 and £69.9 million for the previous year. If we take a look at the wage to
turnover ratio, it is 47.70% and 44.55% respectively. The result for Premier League is
100.68% (2003/ 2004) and 101.37% (2004/ 2005), which is greater than the double of
Arsenal‘s one. However, concerning their own, there is a slightly decrease from season
2003/ 2004 to season 2004/ 2005.
At season 2004/ 2005, the group provided £81.1 million cash inflow by its own
generation, and £30.0 million from share issue, another £55.5 million loans from bank.
Among these, the group invested £97.8 million in fixed assets, which is the Emirates
Stadium, and remained their cash reserves at £45.6 million. £14.1 million net intere st
payment was apparently spending on the loan which also related to the new stadium
project. So as to abide by the regulation of avoiding interest rate risk, the group only set
£7.6 million of the loan as floating rate loans. As regard to the business of property
development, repayments to the bank was made once the proceeds of sale has received.
The amount is as high as £17.1 million, which reduces the burden of debt.
28
YIM ING ZHANG K1112911
The financial condition of Arsenal Football Club at the end of season 2004/ 2005 is
good, since it provides over £70 million cash for the next financial year. With an
interest cover over 2.00, it creates a comfort environment for the coming projects.
2005/ 2006- 2006/ 2007
In the following two years, a series of dramatic changes had been occurred gradually.
The most significant one is that the debt amount sharply increased in season 2005/ 2006,
while the turnover remained stable as around £138 million till the year after, which is
over £200.0 million in season 2006/ 2007. The group believes that re- investment by
profits would be a great way to generate cash at that stage. As a result, the group
sustainably allocated £260 million loan on the new stadium project. And then, they
switch the debt into fixed-rate bond under different terms. £210 million of the bonds
were set for 23 years at the rate of 5.14%, and the remaining £50 million was 5.97% for
25 years. Thus the annual debt costs decreased to £20 million, and saved as much as
£12 million to the last year.
The group started to repay its bonds as well, with the change of the new stadium, and
the following revenue it generated. The investment in the new stadium won‘t be as
prominent as before since the construction development has come to an end. The group
had been spending at least £460 million on investments of such long- term facilities.
These kinds of project mostly enriched the intangible assets in return, which is vague
and hard to estimate. However, it is an essential factor of consideration when firms tend
to adjust their gearing ratios. To owning more intangible assets, is to increase the risk of
distress. But, intangible assets could positively influence the profitability instead. As
for season 2005/ 2006, the amount of intangible assets doubled the figure for the
previous year which was £29.0 million, and remained at £66.6 million for this season.
In the upcoming 6 years, such figures do not greatly changed, which was just wavering
around the amount of £60 million. While profitability significantly went down to
2.14% in season 2005/ 2006, then swiftly growing back to 7.09%, and gradually
29
YIM ING ZHANG K1112911
increased in the following years.
After moving into the new stadium, a sharp growing on group turnover at 46% took
place at season 2006/ 2007, which is over £200 million. The group provided the club
£73.9 million cash reserves to spend on the transfer market during that summer. This
amount exceeded £38.3 million to the record of last year. The interest paid for this year
was £36.7 million, which is the highest in decades, and almost doubled most years‘
figure of that. This is basically because of the extra cost of debt-refinancing, which is a
one-off payment.
In season 2005/ 2006, operating costs for the group was £141.2 million. But this figure
was increased to £177.5 million for the year after. Generally, there could be three
reasons of causing this variation. The first one is the increase of remuneration, the
second one is the property development, and the third one is the depreciation costs.
These factors indicated the situations which are inevitable alone with a football clubs‘
operating. The scene of season 2005/ 2006 to 2006/ 2007 was like: club taking more
debts and to invest. Among the figure, the researcher found that the raising of debt
burden is apparently converted into intangible assets. Though, it showed that the
group‘s profitability significantly dropped to 2.14%, yet bounced back to 7.09% in the
following year. Moreover, the researcher found that the increase of intangible assets
and the wage spending are concerted with each other. Furthermore, depreciation
jumped from £2.4 million in season 2005/ 2006 to £9.7 million in season 2006/ 2007,
which is over four times of the previous one. This is caused by the newly completed
stadium, which also generates great incomes. We should have noticed that the
depreciation on fixed assets cannot be neglected as well.
In season 2006/ 2007, cash from operations before invest in stock was £112.1 million.
After spending £34.8 million on stock investment, it leaves £77.3 million of net cash
from operations. As for the previous year, the net cash from operations is £41.1 million.
And they have taken £18.2 million out of £59.3 million to invest in stock. These
30
YIM ING ZHANG K1112911
provided the club with sufficient cash to distribute, and showed that keeping cash in
hands was not an absolute wasting but could be a waiting for a positive project.
Apart from the £77.3 million cash from operations, there was another cash amount,
£296.6 million, which was from debt. And then, the group spent £265.1 million to repay
their debt, the net interest payments for this year was £24.6 million. Still, there was an
investment in fixed assets of £37.9 million. Net debt has slightly increased in this year,
from £262.1 million in 2005/ 2006 to £268.2 million in 2006/ 2007. The group
regulated that debt could only be utilized onto the project which with guaranteed profits.
For example, property development and investment in fixed assets, such as the new
stadium. However, this regulation restricts debt financing, even though it was meant to
lower the risk. Besides, the group was avoiding exposure to the variation of interest rate,
thus swap those into fixed rated.
From the group‘s board of view, as to long term club management, profits and rewards
should be re-invested to the team as much as possible. This means that with such a
glorious turnover, shareholders still can hardly expecting an increasing on cash.
4.2.2 Season 2007/ 2008 and After for Both Clubs
2008/
2009/
2010/
2009
2010
2011
2007/ 2008
Total Debt
675.2
639.1
481.4
445.3
Total Assets
834.3
833.4
736.7
713.2
159.1
194.3
255.3
268.0
EBITDA
60.2
74.2
72.6
56.2
Remuneration (Wage)
101.3
104.0
110.7
124.4
Total Equity (Shareholders'
Funds)
31
YIM ING ZHANG K1112911
Cost of Sales (Administration
196.2
274.8
344.3
233.8
Intangible Assets
55.7
68.4
60.7
55.7
Long-term Debt
268.5
263.2
258.0
252.5
142.8
129.2
5.2
5.6
All Borrowing
411.3
392.4
263.2
258.1
Interest Charges
17.0
16.6
18.2
14.8
Depreciation
11.7
11.8
12.1
12.6
Profit Before Interest and Tax
53.7
62.1
74.2
29.6
Turnover
223.0
313.3
379.9
255.7
Expenses)
Short-term Loans and
Overdrafts
Table 4.2.2.1 Season 2007/ 08 to Season 2010/ 11 - Arsenal Football Club (million￡)
4.2.2.1 Arsenal Football Club
Season 2007/ 2008- Season 2008/ 2009
To Arsenal Football Club, both of the two years demonstrate a great financial situation.
This drives the board more convinced about their principle of long term investing. In
season 2007/ 2008, group turnover increased to £223.0 million. The trend of growth on
turnover kept steadily upward after the new stadium been put into use. And, the income
generated by new contract with Premier League TV should attribute to group‘s
sustainable investment onto the pitch. Because it will result in team‘s performance,
hence, the situation of the League‘s ranking position which relate to the distribution of
broadcasting income for the after seasons. Meanwhile, the reward raises the
expectation on players‘ salary as well as transfer prices, which would add burden on the
firm‘s spending. The wage to turnover ratio attains 60.01% in season 2005/ 2006,
which is the highest from season 2003/ 2004 to season 2010/ 2011. One year after
season 2005/ 2006, the group turnover sharply increased, and draw back the wage/
32
YIM ING ZHANG K1112911
turnover ratio to 44.66%. However, if we take a look at that the average wage/ turnover
ratio for the entire league kept above 100%. Then, it seems to be positive to the Arsenal
Football Club, because the ratio continually decreases in the following years, which
corresponds the target they have set. Such a restriction on wage spending do creates a
good financial condition for the firm, though not that common among their rivals.
Player registration has also been an approach of gaining profits, while the manager of
the club, Arsène Wenger, called it a by-product. By this he means that the profit of
selling players would be a result of the firm‘s long term investing as well. This indicates
that he would not prefer to rely on speculative buying o n players as a gain, instead, to
generate profits from gradually investing in their own youth training. Truly, it is a
general approach which has been taking by most big clubs. But Arsenal Football Club
illustrates greater patience on it, and correspondingly gets a nice result.
In season 2007/ 2008, the position of net debt went up to £318.1 million. It contributes
to the health position of cash and sustainable investment in the property development.
The debt amount was expected and well-planned. A fixed interest rate long-term bond
was refinanced after its completion in last year ‘s summer. £133.5 million of the loan
was for the property development, and 73% of it was at fixed rate. In the year of
financial turbulence, the group‘s operation wasn‘t been disturbed excessively based on
their prudent management.
A record high net profit showed in season 2008/ 2009, the figure rose from £25.7
million in 2007/ 2008 to £35.2 million. Inexplicably, the economic condition at that
period was extremely difficult, yet the part of football business in the group was not
been affected seriously. In season 2008/ 2009, the group turnover climbed to £313.3
million, which is £90 million progress to the year before. To measure their financial
performance, we could take a look at the profit before player trading. The group got
£70.5 million in season 2008/ 2009, exceeds over £10 million to season 2007/ 2008.
33
YIM ING ZHANG K1112911
As for the intangible assets, the value of it was £55.7 million in season 2007/ 2008, and
this came up to £68.4 million in 2008/ 2009. Net debt reduced to £297.7 million this
year, leaves the figure of last year as the highest as the one in the period of 2004- 2011,
which is £318.1 million. The turnover continually increased, though not that significant
like last year. As always, spending on wages increased to £104.0 million, meanwhile
wage/ turnover ratio fell. The group had noticed that the remuneration expectation
keeps upward among Premier League, thus strengthened their insistence on the policy
of long-term project of youth training. However, if we take a look at the results of all the
play-related activities, the net costs of them were still higher than those for the years
before. Such policy seems too restricted on player transfer, cause to turn down gearing
ratio could not only lower the risk, but also reduce the efficiency. According to the
Board‘s point of view, they allowed the team manager to reinvest by the profits which
generated from the previous player trading. But if the group was to set the former-profit
as the caps of the actual reinvestment on players, the researcher believes that the
recession of team performance in the match would be another kind of long-term
damage, which undermined the football club‘s benefit.
Cash reserves kept high in season 2008/ 2009, the figure increased by £6.3 million from
£93.3 million in 2007/ 2008 to £99.6 million in 2008/ 2009.
Season 2009/ 2010- Season 2010/ 2011
The Group performed a tremendous upgrade in season 2009/ 2010. Group turnover
increased to £379.9 million, which is £66.5 million extra to the season 2008/ 2009.
Then, they moderated their gearing ratio by pay back £130 million loans to bank, and
remained £135.6 million as the net debt of the group. The rest of the debt was mostly in
long- term, which indicates their aim at enhancing the stability of operating.
In season 2009/ 2010, wage costs went up again, from £104.0 million to £110.7 million.
According to the great performance on group turnover, wage/ turnover ratio turned
34
YIM ING ZHANG K1112911
down instead, which is 29.15% - the lowest since seven years before. The Group
continued to raise their cash reserves, and attained £127.6 million in season 2009/ 2010.
While in season 2010/ 2011, earnings plunged into a lower position. Group‘s turnover
dropped from £379.9 million last year to £255.7 million the year following. Wage costs
increased by £13.7 million to £124.4 million this season. Though wage spending
increased every year, the magnitude for this time was the largest. With more cash in
hand, net debt went on to decrease.
Player trading is a fluctuated element which every club would provide a cushion for. In
season 2010/ 2011, player trading cost a net loss of £14.6 million, though it was a net
profit of £13.6 million for the year before. Depending on their restriction on debt, net
interest spending fell to £14.2 million, which is £4 million less than it in 2009/ 2010. In
2009/ 2010, the interest cover for the firm raised to 4.08, which means the profit they
have generated could pay their interest bill for more than four times. It is safe but
wasted. This figure turned into 2.00 in season 2010/ 2011 with a descent on interest
charge. The profit before interest and tax decreased from £74.2 million in season 2009/
2010 to only £29.6 million in the year after.
However, the group insists to raise the cash reserves and to keep their debt level low.
Cash amount increased from £127.6 million (2009/ 2010) to £160.2 million (2010/
2011), while net debt decreased from £135.6 million (2009/ 2010) to £97.8 million
(2010/ 2011). And if we take a look at the profitability of season 2010/ 2011, obviously,
the result was weaker than it for the year before. Instead, this figure was similar to the
result of season 2007/ 2008. Yet, interest cover for that season was 3.16, clearly greater
than 2.00 for season 2010/ 2011. Their interest charges were almost the same, yet the
figure of profit before interest and tax for season 2007/ 2008 was higher than it for
season 2010/ 2011 of over 80%.
There is another special about appeared in the linear chart before. Season 2010/ 2011
35
YIM ING ZHANG K1112911
was the first time for the wage cost exceeds the amount of net debt. And the situation
for the net debt was in a trend of severe decreasing. Though the shape of turnover was
similar to net debt, it was a displacement which occurred one year after. Wage cost
ascends continuously, meanwhile the extent for post 2004/ 2005 enhanced further. The
researcher could simply say that in season 2010/ 2011, wage cost was over net debt, yet
profits decreased with group turnover fell sharply.
Gearing could be a test for a firm‘s profitability. One or two examples showed corporate
could even be financed entirely by debt, which basically are resource-based enterprises
(Aline van, D. and Andrew, T., 2005). These are apparently monopoly business with
stable cash flow. Upon these, debt could help them to reduce the cost of capital, and
then accumulate other part, which is to boost the cash reserves.
Generally, the factors of loss which different from a football club‘s operation to other
business are about the players. On the one hand, the profit for players trading is
fluctuated. And perhaps that is why to invest in youth training could be seen as a way of
stable. On the other hand, pressures from the rising wage costs and amortization &
depreciation lead to a heavy burden on outcome. To the present situation of Arsenal
Football Club, they endeavor to manage their investment about players and to avoid
greater loss on it. To purchase young players is not only because they are lower cost, but
also the rate of depreciation for them is lower than those for experienced players. It
could also been considered as slacks the path on recession for the intangible assets of a
club. And intangible assets has always been regarded as relating to the level of risk,
furthermore, the debt budget of a firm.
4.2.2.2 Queens Park Rangers Football Club
36
YIM ING ZHANG K1112911
The researcher sincerely would like to know the approach of financial management
utilized by football clubs as much as possible. The activities that Queens Park Rangers
Football Club made are somehow different from Arsenal Football Club, meanwhile,
represent majority of the football clubs.
Table 4.2.2.2 Season 2006/ 07 to Season 2010/ 11 – Queens Park Rangers Football
Club (million￡)
2006/
2007/
2008/
2009/
2010/
07
08
09
10
11
Total Debt
5.0
3.4
2.7
1.7
4.9
Total Assets
13.5
12.0
11.7
10.9
14.4
Total Equity (Shareholders'
8.5
8.6
9.0
9.2
9.5
Funds)
EBITDA
-1.2
-0.8
3.0
0.3
3.0
Remuneration (Wage)
7.0
9.2
15.6
14.4
27.6
Cost of Sales (Administration
7.6
11.5
20.0
20.4
34.8
Expenses)
Intangible Assets
0.6
6.2
6.7
3.9
8.0
Long-term Debt
N/ A
N/ A
N/ A
0.1
N/ A
Short-term Loans and
N/ A
N/ A
N/ A
N/ A
N/ A
Overdrafts
All Borrowing
0.2
0.2
N/ A
0.1
N/ A
Interest Charges
1.5
2.1
N/ A
N/ A
N/ A
Depreciation
N/ A
N/ A
N/ A
N/ A
N/ A
Profit Before Interest and Tax
0.6
0.1
0.4
0.2
0.3
Turnover
6.0
9.5
20.2
18.3
34.6
Perhaps everyone knows that there are more than 40,000 football clubs in UK. The
English Premier League was established in 1992. It sets as an aggregation of 20 English
37
YIM ING ZHANG K1112911
Football Clubs which qualified for this aggressive competition, meanwhile, each club is
managed as an individual firm by their specific owner. Queens Park Rangers Football
Club was an original member of the league.
By 2007, failure on the field and a £22 million debt meant the club faced liquidation.
From the brink of bankruptcy, a deal was made. The club and its debt were bought
outright by Formula 1 boss Bernie Ecclestone and Flavio Briatore.
At the press conference, the new boss said that his plan is to take the club to promote
into Premier League in a four-year time. By that time, what he thinks the club has had
was the value of the brand, the history and great tradition and an enormous potential
which are almost intangible. And the eager for promoting into Premier League can be
easily understood, because the clubs in Premier League could averagely generate over
£105 million in revenue each season. It is almost six times that of a championship side.
Promotion to the premier league is the most lucrative prize in world football.
In that way, what had changed during year of 2006/ 2007 and 2007/ 2008?
Shareholders‘ funds of these two years remains basically unchanged, meanwhile total
debt and total assets both reduced. Moreover, from season 2006/ 2007 to season 2007/
2008, EBITDA remained negative. But the figure was getting better from -£1238
million in season 2006/ 2007 to -£802 million in season 2007/ 2008. Both of the
remuneration and administration expenses increased, though not as shocked as the
changing of intangible assets, which was only £635 million in 2006/ 2007 and
rocketing up to £6247 million in the next year. The proportion of intangible assets in
total assets of season 2006/ 2007 was 4.72%, and this ratio for the year after was
52.10%. Till season 2010/ 2011, the ratio of intangible assets to total assets resulted
over 50.00% for three times. However, the ratio to Arsenal Football Club within eight
years was between 6.05% and 10.28%. As the researcher had mentioned before,
intangible assets could offer a term for gearing, while enhance the probability of
financial distress as well. Since a rapid growth on intangible assets, the subsequent
38
YIM ING ZHANG K1112911
measures of operating should be considered in the following year.
In season 2008/ 2009, the highlights of the club‘s managing would be some events as
follows. First of all, team manager had been replaced by a new one. And then, the
board got the suggestion of recent decreasing of supporters during the Fans
Association Meeting. Finally, from the second half of the season, the board started to
spending money on purchasing players. Because they finally realized that this is the
fundamental way of improving a team‘s result, which influences the earning within
the same time.
Under such decisions, club‘s turnover doubled in season 2008/ 2009. Things
interesting are that the proportion of debt, assets and equity stayed the same, but
EBITDA resulted in positive for the first time at £2.98 million. We could find some
reason from the evidently raised expenditures of both wages and cost of sales. From
season 2007/ 2008 to season 2008/ 2009, wage spending for the club increased from
£9.21 million to £15.61 million, and this growth rate almost tripled the record of the
year before. Moreover, the enhancement of administration expenses doubled its result
between season 2006/ 2007 and season 2007/ 2008. Meanwhile, intangible assets was
not increased as dramatic as the spending, and the club‘s turnover in season 2008/
2009 doubled the result in the previous year.
4.2.3 Comparison for Their Ratios on Time Basis
Season 2007/ 2008
2007/ 2008
QPR
TD/ TA
28.48%
80.93%
99.96%
TD/ TE
39.83%
424.40%
266480.27%
Profitability: EBITDA/ TA
-6.69%
7.21%
-2.09%
39
ARSENAL Premier League
YIM ING ZHANG K1112911
Remuneration/ Cost of Sales
79.79%
51.62%
0.75%
Intangible Assets/ Total Assets 52.10%
6.67%
N/ A
Table: 4.2.3.1 Crucial Ratios for Both Clubs of Season 2007/ 2008
During this period of time, we could see from this table that the profitability of
Arsenal Football Club remained positive though the situation about QPR F.C. and
even the average of whole league presented negative. It is also significant that the TD/
TA ratio for Arsenal F.C. was almost three times of the result of QPR F.C.. And it is
good for both of them to keep the TD/ TA ratio under the condition of whole league.
QPR F.C. kept 52.10% intangible assets compare with total assets, yet this figure for
Arsenal F.C. was only 6.67%.
Season 2008/ 2009
2008/ 2009
QPR
ARSENAL Premier League
TD/ TA
22.89%
76.68%
99.97%
TD/ TE
29.68%
328.86%
289411.69%
Profitability: EBITDA/ TA
25.54%
8.91%
-0.68%
Remuneration/ Cost of Sales
78.07%
37.83%
0.73%
Intangible Assets/ Total Assets 57.39%
8.21%
N/ A
Table: 4.2.3.2 Crucial Ratios for Both Clubs of Season 2008/ 2009
At this period, profitability for QPR F.C. dramatically raised to 25.54%, which
apparently tripled the Arsenal‘s one. While the remuneration from costs-of-sales
remained high, this was as twice as much of the ratio for Arsenal Football Club. With
a high portion of intangible assets and wage costs, the financial condition was getting
riskier, though with a good profitability at that moment.
Season 2009/ 2010
40
YIM ING ZHANG K1112911
2009/ 2010
QPR
ARSENAL Premier League
TD/ TA
15.88%
65.34%
99.97%
TD/ TE
18.88%
188.53%
323985.25%
Profitability: EBITDA/ TA
2.40%
9.86%
-0.12%
Remuneration/ Cost of Sales
70.57%
32.16%
1.04%
Intangible Assets/ Total Assets 35.80%
8.23%
N/ A
Table: 4.2.3.3 Crucial Ratios for Both Clubs of Season 2009/ 2010
Evidently, the table shows a rapid declination of Queens Park Rangers Football Club‘s
profitability in season 2009/ 2010. Meanwhile, salary spending remained high, and
the proportion of intangible assets from total assets reduced more than 20%. At the
end of this season, QPR F.C. still not yet accomplished their achievement of
promoting from Football League Championship to Premier League. We could see that
even with a target like this, they calmly restricted the debt amount as well as the
portion of intangible assets. Inevitably, weaken the profitability. Another point is that
during this period, one of the owners (Flavio B.) sold 62% of his shares to another
co-owner (Bernie E.). The latter successfully sold them to another investor after the
end of next season, when the club promoted to English Premier League finally.
Season 2010/ 2011
2010/ 2011
QPR
ARSENAL Premier League
TD/ TA
33.98%
62.43%
99.96%
TD/ TE
51.47%
166.18%
245944.01%
Profitability: EBITDA/ TA
20.88%
7.88%
-0.21%
Remuneration/ Cost of Sales
79.46%
53.21%
0.72%
Intangible Assets/ Total Assets 55.58%
7.81%
N/ A
Table: 4.2.3.4 Crucial Ratios for Both Clubs of Season 2010/ 2011
41
YIM ING ZHANG K1112911
As for season 2010/ 2011, the portion of intangible assets for QPR F.C. was taken
over half of the total assets for the first time since been taken over at 2007. And also,
this is the first year for them to compete in Premier League after that year as well. To
compete in a higher level of League might increase ones‘ intangible assets.
Meanwhile, we should also notice that Arsenal Football Club has always been kept
this ratio under 10%.
4.2.4 Comparison for Their Trends
Total Debt/ Total Assets
TD/ TA
QPR
ARSENAL Premier League
2007/ 2008 28.48%
80.93%
99.96%
2008/ 2009 22.89%
76.68%
99.97%
2009/ 2010 15.88%
65.34%
99.97%
2010/ 2011 33.98%
62.43%
99.96%
Table: 4.2.4.1 Trends of TD/ TA for Both Clubs and the whole league
According to the table before, obviously, the ratio for the whole league remains
apparently unchanged. And the condition of Arsenal Football Club is that the trend of
TD/ TA went down gradually. To the situation of QPR F.C., the trend has gently going
downward through the first three seasons, yet sharply increased to 33.98% in season
2010/ 2011, and this is even higher than the result of the first year in this period.
Profitability: EBITDA/ TA
Profitability: EBITDA/ TA
QPR
2007/ 2008
-6.69%
7.21%
-2.09%
2008/ 2009
25.54%
8.91%
-0.68%
42
ARSENAL Premier League
YIM ING ZHANG K1112911
2009/ 2010
2.4%
9.86%
-0.12%
2010/ 2011
20.88%
7.88%
-0.21%
Table: 4.2.4.2 Trends of Profitability: EBITDA/ TA for Both Clubs and the whole
league
It is true that the profitability for the whole league has always been negative. The
result for Arsenal F.C. remains positive and stable, in contrast, the result is fluctuating
under the situation of QPR F.C.. Combined with Table 4.2.2.2, we could find that
from season 2007/ 2008 to 2009/ 2010, the amount of Debt for QPR F.C. gradually
declined, yet its profitability does not relate to this trend at all. In season 2008/ 2009,
the profitability of QPR F.C. was as high as 25.54%.
Remuneration/ Cost of Sales
Remuneration/ Cost of Sales
QPR
ARSENAL
2007/ 2008
79.79%
51.62%
2008/ 2009
78.07%
37.83%
2009/ 2010
70.57%
32.16%
2010/ 2011
79.46%
53.21%
Table: 4.2.4.3 Trends of Remuneration/ Cost of Sales for Both Clubs
Remuneration to Cost of Sales tests the portion of wage costs among the whole
spending on sales. From Table 4.2.4.3, the researcher could hardly find a simple
regularity. Basically, the ratio for QPR F.C. is higher than it for Arsenal F.C.,
meanwhile, the changes for the QPR one are more moderate than the Arsenal one. In
season 2008/ 2009 and 2009/ 2010, the proportion of Remuneration in Cost of Sales
for QPR F.C. doubled this ratio for Arsenal F.C. each year. If we combine the result of
profitability with this ratio, we could get how wage spending influences one‘s
profitability.
43
YIM ING ZHANG K1112911
60.00%
50.00%
Remuneration/ Cost of
Sales
Profitability: EBITDA/
TA
40.00%
30.00%
20.00%
10.00%
0.00%
2007/ 2008 2008/ 2009 2009/ 2010 2010/ 2011
Figure: 4.2.4.1 Both Trends for 4 Years of Arsenal Football Club
100.00%
80.00%
60.00%
Remuneration/ Cost of
Sales
Profitability: EBITDA/
TA
40.00%
20.00%
0.00%
-20.00%
2007/ 2008 2008/ 2009 2009/ 2010 2010/ 2011
Figure: 4.2.4.2 Both Trends for 4 Years of Queens Park Rangers Football Club
To Arsenal Football Club, trends of profitability and Remuneration to Cost of Sales
are always contrary to each other. Though, the changes of profitability are more
moderate than the other. However, the situation for QPR F.C. is not the same.
Profitability once rose with the descent of remuneration/ cost of sales in season 2008/
2009. In other three years, both ratios went towards same direction. In other words,
wage spending been saved, while the ability to generate profits been damaged within
the same time. Likewise, profitability turned well with the increased investment in
remuneration.
Thus, I consider that to clubs like QPR F.C., to rise the spe nding on wages could
enhance their profitability. Things we should understand is that this would not always
worked, clubs should adjust or tighten the expenses on players once been through the
44
YIM ING ZHANG K1112911
initial operating activities. The following is the situation of Intangible Assets to Total
Assets for both clubs.
Intangible Assets/ Total Assets
Intangible Assets/ Total Assets
QPR
ARSENAL
2007/ 2008
52.10%
6.67%
2008/ 2009
57.39%
8.21%
2009/ 2010
35.80%
8.23%
2010/ 2011
55.58%
7.81%
Table: 4.2.4.4 Trends of Intangible Assets/ Total Assets for Both Clubs
To Arsenal Football Club, the lower two figures for Remuneration to Cost of sales,
which are 37.83% and 32.16% for season 2008/ 2009 and 2009/ 2010 respectively,
were just the higher two of the profitability and the portion of intangible assets.
However, as the circumstance of Queens Park Rangers Football Club, remuneration to
cost of sales slightly went down for season 2009/ 2010. Yet the ratio for intangible
assets to total assets decreased seriously to 35.80%. Meanwhile, profitability dropped
sharply from 25.54% to 2.4%.
An original investment could end up in either a direct result as profit and loss, or
depositing into assets of the object. Once intangible assets rose, gearing ratio would
increase as well theoretically. To sustain risks within business is an absolute pathway
to all the kinds of rewards. Hence, to small and medium-sized clubs, to implement
debt financing is the essential process which no one could avoid. As the relevant
association and governor, they would not go so far as to support or encourage, while
should at least be comprehensive to such operating activities.
4.3 A Fact
45
YIM ING ZHANG K1112911
This figure has been showed at the beginning of this chapter; here I would like to
introduce a feature of it.
-
Group turnover happened after taking debt. By this I mean, from the pattern which
shows this fact, I was wondering whether taking debt could positively influence
the group turnover as simple and direct as this.
4.4 Results and Suggestion
-
To the Financial Fair Play Regulation by UEFA, would it be better if they could
offer a corresponding coefficient for the clubs from different countries‘ league
game. According to different economic condition, consuming condition and even
salary condition (not refer to the transfer fee, but just the general wages), I think to
adjust the acceptable deviation more specific would be much proper.
-
Through my research, though people could find that almost every comparison or
46
YIM ING ZHANG K1112911
analysis would mention about remuneration, it is definitely a crucial part in
financing a business like football club in UK. Still I do not consider to price a
wage relate to the result of a game is a good idea. However, this is better than
reduce salary comprehensively among football players.
-
To borrow a proper term of debt along with the length of project of your club. By
this I mean, to the club which switches its ownership frequently, it is OK to
finance with short-term money. Correspondingly, to the club which managed
under the long-term project, than it should keep long-term debt mainly.
-
Try to avoid to signing players with high fees while short-term contract. This one
is similar to the last one.
-
Implements tight restrictions on percentage of turnover that can be spent on
players‘ wages. This sounds like the second suggestion that I have just explained.
But the key point is that I recommended the players‘ rewards to associate with the
club‘s operating instead of the result of an individual game.
-
Try to enhance the portion of convertible bonds. Since it is flexible in time-term,
which could help adjust to the restriction of those regulations during some urgent
time.
To the investors (bank, shareholder, lender), they could wait and see how the share
price goes; and secure principal, with at least a coupon.
To the company, convertible bonds‘ interest is as coupon payment, which is tax
deductible. Moreover, it helps the club at self- liquidating by simply issues more
shares, while not have to find cash to pay off the loan principal. The disadvantage
will be undertaken by all other equity holders. It is a hybrid of debt and equity.
47
YIM ING ZHANG K1112911
Convertible bonds were defined as ―issued as debt instruments but also give the
holder the right to exchange the bonds at some time in the future into ordinary
shares according to some prearranged formula. Advantages: (i) lower interest than
on debentures; (ii) interest is tax deductible; (iii) self- liquidating ; (iv) few
negative covenants; (v) shares might be temporarily underpriced; (vi) cheap way
to issue shares; (vii) an available form of finance when straight debt and equity are
not.‖ (Glen A., 2008).
-
Be aware of contingent liabilities.
V. Conclusion
Either football club shows that the restriction on cost of player would be necessary.
And to the situation of Arsenal Football Club, since the Arsenal Holding PLC invests
in property as well, which is hardly implied by every club. The Club‘s control of debt
is recommended, yet to duplicate its model do needs a complex and long- term project.
Most of the football clubs are with great intangible assets, which would be expected
as a growing opportunity. Thus, this kind of industry could moderately takes a bit
more debts than other general business industry.
Here debt financing is not an instrument for short game, but to invest in one‘s
long-term project. Though it may hardly convert into turnover or profit at once, it
would be embedded in intangible assets and ready for the upcoming activities.
To football clubs, Leveraged Buyout is more likely to put burden on them rather than
to support investment or spending. This is not about the supporters who are unhappy
about a new owner to making money from the club they had been supported for life
long, or to oppose such event like a teenager, but for the truth of Leveraged Buyout
was not for the growth of a club‘s own benefit indeed.
48
YIM ING ZHANG K1112911
Each club should take one‘s characteristics and the trend of its development as
consideration, thus to make financial decision. Decision to raise equity or debt finance
is neither simple nor straightforward. Knowledge of these will enable the finance
manager or other executives to select and structure the different forms of finance to
maximize the club‘s potential.
Words: 12018
49
YIM ING ZHANG K1112911
References
Aline van, D. and Andrew, T. (2005) Glas Cymru Launches Bond CampaignWater Marketing Drive in Plan to Raise ￡2bn for Purchase of Dwr Cymru,
Financial Times, 9 April 2001, p. 14.
Babatunde B., Rob S. and Stefan S. (2006) English Football, Journal of Sports
Economics, 1, 29-46.
Babatunde, B. (2007) Stadium Attendance and Television Audience Demand in
English League Football, Journal of Managerial and Decision Economics, 29, 513-523.
Barclay, M.J. and Smith, C.W. (1999) The Capital Structure Puzzle: Another Look
at the Evidence, Journal of Applied Corporate Finance, 12(1), Spring, 8-20.
Barclay, M.J., Smith C.W. and Watts, R.L. (1995) The Determinants of Corporate
Leverage and Dividend Policies, Journal of Applied Corporate Finance, 7(4), 4-19.
Bevan, A.A., and Danbolt, J. (1999) Capital Structure in the United Kingdom
1991-1997 – A Dynamic, Cross-Sectional Approach, paper presented at the ACE
project workshop Financial Flows and Debt Structures in Transition and market
Economies: Bulgaria, Hungary and the United Kingdom, Budapest, 15th May.
Bradley, M., Jarrell, G. and Kim, E.H. (1984) On the Existence of and Optimal
Capital Structure: Theory and Evidence, Journal of Finance, 39, 857-878.
Brealey, R.A. and Myers, S.C. (1996) Principles of Corporate Finance, 5th
international edition, McGraw-Hill.
Carlos, P., Barros and Stephanie, L. (2006) Performance evaluation of the English
Premier League with data envelopment analysis, Applied Economics, 38, 1449- 1458.
Chittenden, F., Hall, G. and Hutchinson, P. (1996) Small Firm Growth, Access to
Capital Markets and Financial Structure: Review of Issues and an Empirical
Investigation, Small Business Economics, 8, 59-67.
Chung, K.H. (1993) Asset Characteristics and Corporate Debt Policy: An
Empirical Investigation, Journal of Business F inance and Accounting, 20(1), 83-98.
Crutchley, C.E. and Hanson, R.S. (1989) A Test of the Agency Theory of
Managerial Ownership, Corporate Leverage and Corporate Control, Financial
50
YIM ING ZHANG K1112911
Management, 18(4), 36-46.
Danbolt, J., Hirst, I. and Jones, E. (2000) Measuring Growth Opportunities,
University of Glasgow, Department of Accounting and Finance, Working Paper
2000/6.
David, F. and Rob, S. (2006) New Issues in Attendance Demand The Case of the
English Football League, Journal of Sports Economics, 3, 247-266.
DeAngelo, H. and Masulis, R. (1980) Optimal Capital Structure under Corporate
and Personal Taxation, Journal of Financial Economics, 8(1), 3-29.
Deloitte & Touche Annual Review of Football Finance. Reports for UK ( several
years).
Dieter, J. H. (2003) Productive Efficiency of English Football Teams- a Data
Envelopment Analysis Approach, Journal of Managerial and Decision Economics, 24,
403-410.
Footballclubsowners (2011) Lakshmi Mittal- The Co-Owner of Queens Park
Rangers
[online]
Available
at:
http://footballclubsowners.wordpress.com/2011/12/20/lakshmi- mittal/ [Accessed on
12th
July 2012]
Gall, M. D., Borg, W. R. and Gall, J. P. (1996) Educational Research: An
Introductio. White Plains, NY: Longman.
Gillian, T. (2005) Corporate Loans Grow Ever Cheaper, Financial Times, 8 June
2005, p. 4.
Goalhi. (2012), UEFA Financial Fair Play Rules- Acceptable Deviation Levels
[online] Available at: http://my.goalhi.com/siufay/blog/4904199.html [Accessed on 6
December 2012].
Harris, M. and Raviv, A. (1990) Capital Structure and the Informational Role of
Debt, Journal of Finance, 45(2), 321-349.
Harris, M. and Raviv, A. (1991) The Theory of Capital Structure, Journal of
Finance, 46(1), pp. 297-355.
Hoopchina. (2012), Financial Highlights for Clubs of Premier League [online]
Available at: http://m.hoopchina.com/bbs/2115431.html [Accessed on 6 December
51
YIM ING ZHANG K1112911
2012].
Jensen, M. and Meckling, W. (1976) Theory of the Firm: Managerial Behaviour,
Agency Costs and Capital Structure, Journal of Financial Economics, 3, 305-360.
Kester, C.W. (1986) Capital and Ownership Structure: A Comparison of United
States and Japanese manufacturing Corporations, Financial Management, 5-16.
Miller, M.H. (1977) Debt and Taxes, Journal of Finance, 32(2), 261-275.
Modigliani, F. and Miller, M.H. (1958) The Cost of Capital, Corpo rate Finance,
and the Theory of Investment, American Economic Review, 48, 261-297.
Modigliani, F. and Miller, M.H. (1963) Corporate Income Taxes and the Cost of
Capital — A Correction, American Economic Review, 53(3), 433-443.
Myers, S.C. (1984) The Capital Structure Puzzle, Journal of Finance, 34(3),
575-592.
Myers, S.C. and Majluf, N.S. (1984) Corporate Financing and Investment
Decisions When Firms Have Information That Investors Do Not Have, Journal of
Financial Economics, 13, 187-221.
Peter D. and Stephen D. (2002) Managerial efficiency and human capital: an
application to English association football, Journal of Managerial and Decision
Economics, 23, 471-486.
Rajan, R.G. and Zingales, L. (1995) What Do We Know about Capital Structure?
Some Evidence from International Data, Journal of Finance, 50(5), 1421-60.
Remmers, L. Stonehill, A. Wright, R. and Beekhuisen, T. (1974) Industry and Size
as Debt Ratio Determinants in Manufacturing Internationally, Financial Management,
Summer, 24-32.
Roger, G., N. (2002) The Economics of Promotion and Relegation in Sports
Leagues The Case of English Football, Journal of Sports Economics, 2, 169-203.
Scott, J. (1977) Bankruptcy, Secured Debt, and Optimal Capital Structure, Journal
of Finance, 32(1), 1-19.
Stiglitz, J.E. and Weiss, A. (1981) Credit Rationing in Markets with Imperfect
Information, American Economic Review, 71, 393-410.
Stephen, D. and John, G. (2006) The Economics of Football, (4th printing), United
52
YIM ING ZHANG K1112911
Kingdom: Cambridge University Press.
Toy, N., Stonehill, A., Remmers, L., Wright, R. and Beekhuisen, T. (1974) A
Comparative International Study of Growth, Profitability and Risk as Determinants of
Corporate Debt Ratios in the Manufacturing Sector, Journal of Financial and
Quantitative Analysis, 875-886.
Titman, S. and Wessels, R. (1988) The Determinants of Capital Structure Choice,
Journal of Finance, 43(1), 1-19.
Tuckey, J.W. (1962) The Future of Data Analysis, Annals of Mathematical
Statistics, 33, 1-67.
Van der Wijst, N. and Thurik, R. (1993) Determinants of Small Firm Debt Ratios:
An Analysis of Retail Panel Data, Small Business Economics, 5, 55-65.
Williamson, O., (1988) Corporate Finance and Corporate Governance, Journal of
Finance, 43(3), 567-591.
53