Shedding Light on the Business Model of Italian Professional Football
Clubs: A Critical Perspective Over the ‘Dogma’ of Football Clubs as Mere
Entertainment Providers
Abstract
Several research contributions have investigated the operations of professional football clubs (PFCs). These
studies identify the economic essence of PFCs in the production of entertainment. The aim of this study is to
provide evidence that the business model developed in these previous researches does not hold for all PFCs in
the Italian “Serie A” league.
The paper first identifies the potential drivers of profitability of PFCs in the “Serie A” in terms of financial and
governance related variables. Secondly, the paper tests the association – via the application of an OLS
multivariate model – of these factors with the actual profitability of clubs over a seven-year period, from 2006 to
2012. The paper shows that the business model that best explains the profitability of PFCs is one where: (i) the
core activity is not merely the provision of entertainment; and (ii) as a consequence, it pursues objectives of
profit maximization.
The main limitation of this study lies in its focus on the Italian domestic professional football market. Further
research may provide evidence of the validity of our conclusions to a wider set of clubs at an international level.
The business model of Italian PFCs, as resulting from our findings, may drive a revision of the annual reports of
these entities to better reflect their economic and financial position. Ultimately, the paper tries overcoming the
‘dogma’ of PFCs being looked at as mere entertainment producers by showing that they perform other (more
profitable) operating activities which characterize a different business model.
Introduction
A recent market research (Deloitte 2012) on the European football industry has highlighted that this sector has
reached a total turnover over almost EUR 17 bn in 2012 with the English “Premier League” leading the ranking
with total revenues of approximately EUR 2.5 bn followed by the German “Bundesliga” (EUR 1.75 bn), the
Spanish “Liga” (EUR 1.72 bn), the Italian “Serie A” (EUR 1.55 bn) and the French “Ligue 1” (EUR 1.04 bn).
While the Italian football market only ranks fourth in terms of revenues, it presents the highest cost-to-revenue
ratio signalling that containing the costs associated to football players is a key factor to improve the economic
and financial performance of Italian clubs. At the same time, according to this research, the level of revenues is
still concentrated around the “traditional” ticket sale and “show-related” activities and therefore the search for
new strategies to increase revenues will become a pivotal factor of future economic viability of football clubs in
Europe.
While showing the status quo of the European football market, this evidence raises a question for academic
researchers: what is revenue for football teams? From a normative perspective, in the IFRS Conceptual
Framework revenue “arises in the course of the ordinary activities of an entity and is referred to by a variety of
1
different names including sales, fees, interest, dividends, royalties and rent” (IASB 2012). Considering that most
EU football clubs file their financial statements according to IFRSs, from this perspective, the notion of
revenues proposed in the Conceptual Framework could be accepted as describing the “operating” top line of
football entities. What is then “ordinary” or “operating” activity for football clubs? This question further links to
the issue of business model in the context of football clubs. In fact, today, while football clubs are subject to the
strict conditions imposed by the UEFA financial fair play (2012) which pushes in the direction of requiring clubs
to secure – by almost any means – their financial break-even, it is still to understand what features make football
a business which is still worth investing in for many private entrepreneurs. Understanding the business model of
football clubs can therefore help assessing the areas where it is worth investing to balance the two conditions of
existence of these peculiar entities: (a) the economic viability of clubs; and (ii) their sporting performance. If
those revenues which are traditionally regarded as being the “operating” ones for football clubs – that is
revenues from sporting events and related ones – no longer explain the profitability and market persistence of
certain football clubs, other sources of income need investigation in order to identify elsewhere in the financial
statements the drivers of profitability of these entities and, by this means, better defining their business model.
Furthermore, professional sport clubs are subject to significant stakeholder pressure, especially where clubs’
supporters are particularly attached to local teams. The stakeholder management approach (see ex multis Freeman
1984) is quite familiar to for-profit firms, especially in Western countries, where internal and external
stakeholders have gained increasing importance and power so to influence the way in which firms try reaching
their business objectives. Even more important, in the specific field of football clubs, seems the approach
provided by the legitimacy theory (Suchman 1995) to depict the peculiar importance of the social contract that
exists between football firms and their reference environment (especially supporters) and to explain that these
firms, at each point in time, “fluctuate” between at least two orders of objectives: (i) maintaining their economic
equilibrium; and (ii) meeting foreseeable and reachable sport results. In fact, in professional sport business,
possibly these issues are even stronger because directors may find it quite difficult to choose strategic plans if
these result in poor sport results and they make supporters unhappy, even when such plans are deemed
necessary for the firm’s survival. Therefore, the governance model of professional sport clubs is an important
factor when defining the clubs’ approach to achieving business objectives.
In the paper, the Italian “Serie A” league is observed on a time frame considering the last 7 years (2005-2012).
Particularly: the latest financial statements (2012-2013 season) of “Serie A” teams are analysed, in order to find
evidence regarding the business model of those teams which have achieved positive financial results over this
timeframe. The business model of any firm “at a minimum, […] would indicate: what activities it undertakes
within the firm and how these are organised; what it buys and sells in market transactions, which markets it
operates in (i.e. who it buys from and who it sells to), and the nature of its relationships with these parties”
(ICAEW 2010, p.10); therefore, in broad terms, a firm’s business model can be identified by considering both
performance-related and governance structure-related features. In fact, corporate governance characteristics1,
such as Board of Directors’ size, are an integral part of a firm’s business model as they indicate – from the lowest
operational level to the highest strategic level in an entity – how the production is organised.
2
By looking at financial and governance factors, we tested the existence of any statistical association between
those aspects (explanatory variables) and football clubs’ profitability (dependent variable) as expressed in terms
of yearly net earnings.
We believe that the relevance of this contribution is two-fold:
(i)
in the recently published new UEFA’s Financial Fair Play Regulation (2012) no reference is made to the
concept of a business model, therefore football clubs are looked at only from the perspective of their
cash flows, to ensure their ‘financial’ viability. However, in this paper we show that there are some
economic – rather than merely financial – determinants of clubs’ performance that should be looked at,
in order to better understand their economic model; and
(ii)
this work may help overcoming the usual ‘dogma’ of football clubs as being mainly entertainment
producers, by highlighting the economic factors that show a significant degree of association between
the operating performance of Italian professional teams in the “Serie A” league and the business
activities they perform.
The paper is structured as follows:
(i)
in the first section, the general context of the paper is set by providing a theoretical perspective
(literature review) which helps us shaping our research questions; further, a snapshot of the Italian Serie
A market (economic context) is sketched out in order to allow for the definition of research hypotheses
consistent with the status quo and the pre-defined research questions; this section concludes with the
indication of the expected relevance of this paper as a contribution to existing research;
(ii)
the second section concerns the identification of the methodology used to verify the research
hypotheses;
(iii)
the following section presents the empirical results showing the extent to which research hypotheses
have been verified and the cases in which this has not occurred;
(iv)
the last section addresses comments on the empirical results, offers possible explanations to them in line
with the theoretical reference framework and answers the research questions proposing some
considerations for further research.
1. Literature Review, Economic Context and Research Hypotheses
1.1 Existing Literature and problem setting
For the last thirty years, football championships have attracted significant interest not only by club supporters,
but also by accounting academics. Many studies have tried to investigate from an accounting perspective this
particular business, shedding light on several features of the income statement or the balance sheet (e.g.
depreciation of players’ registration rights and the related recognition and measurement of intangible assets; see
ex multis Trussel, 1977; Morrow 1992, 1995, 1996a, 1996b, 1999; Michie and Verma 1999; Rowbottom 2002;
Amir and Livne 2005; Forker 20052).
Regarding these studies, we noted that the debate around the option between expensing or capitalising and, in
general, regarding the methodology to evaluate players’ intangible assets in the balance sheet sometimes reopens:
Morrow 1996a and 1996b concluded that “there are convincing arguments for the conceptualisation of the services provided by
3
football players as accounting assets, and recommends a system of valuation in which players are valued at their realisable value by
independent experts”; Amir and Livne 2005 argued that players rights should be expensed because of the weak
evidence of future cash inflows (before 1998, the British FRS 10 gave the expensing option), whilst, according to
Forker 2005, capitalization should remain the right way for accounting for these intangibles3. A peculiar view on
the determinants of the transfer value of these rights is discussed in several papers, with interesting results
(Carmichael, Forrest and Simmons 1999; Dobson, Gerrard and Howe 2000; Tunaru, Clark and Viney 2005)4.
However, only a few researchers have tried to find evidence regarding one aspect of deeper concern when
looking at football club activities, that is the determinants that are able to explain their economic durability in
their ‘market’.
In addition, we found that most studies have only considered either (i) major teams and/or listed teams (in the
Italian context, see Risaliti and Verona 2013), or (ii) aggregated and often by country data (Lago, Simmons and
Szymanski, 2006; Buraimo, Simmons and Szymanski, 2006; Lago and Baroncelli, 2006; Gouguet and Primault
2006; Frick and Prinz, 2006; Ascari and Gagnepain, 2006; Morrow, 2006; Barros 2006; Dejonghe and
Vandeweghe, 2006; UEFA, 2010; Deloitte 2003, 2004, 2005, 2006a, 2006b, 2007, 2008, 2009, 2010). However,
none of the Italian studies (see footnote 1) considered the whole “Serie A” league, as it has been done for other
countries with their respective major leagues, although from a more limited perspective (for example, Hall,
Szymanski and Zimbalist (2002) test the existence of an association between clubs’ performance and level of
payroll expense).
Regarding the former, as a matter of fact, we notice that the conditions of economic durability of those clubs
largely depend on robust equity injections by their main shareholders. Also, a pure ‘surplus-maximization’
approach similar to those applicable to proper businesses is difficult to apply to those teams, as their strategic
and managerial choices are seldom comparable to those of firms (in this respect, we recall that Guzman and
Morrow 2007 refer to football clubs as “unusual businesses”, p. 309)5.
For what concerns the second group of studies, instead, the co-existence of a few large teams together with
many small ones generates some distortions in the market: for example, if one club alone loses EUR 100 mln
and eight other smaller teams in the same league gain EUR 10 mln each, then the balance of the whole sector
indicates a situation of economic tension, whilst a deeper look into the specific economic conditions and
business model6 could let us conclude differently.
For these reasons, most studies focusing on football clubs have restricted their analyses to the description of the
‘status quo’ rather than providing the ‘economic rationale’ that is able to explain the business model of football
clubs and their performance patterns.
One common misconception about professional football clubs is, in fact, that their existence would be largely
explained by their efforts in winning competitions and championships. We believe that this is where the difficulty
in trying considering professional football clubs as proper businesses is rooted. Of course, we do not necessarily
hold that professional football clubs are ‘profit maximisers’ tout court, but we note that even ‘proper’ businesses
seldom operate as pure profit maximisers. Therefore, a focus solely on the economic and governance
determinants of football clubs’ operations may shed light on the drivers of their performance and better explain
their activities in terms that differ from their claimed nature of ‘sui generis’, mere sport result-maximiser entities.
4
Particularly, we noted that for Szymanski e Kuypers (1999) revenues depend on sporting results (see also Hoehn
e Szymanski 1999) which in their turn depend on the average level of football player wages in the long term.
Therefore, those clubs which are relatively wealthier than others are more likely to rank in higher positions
(Murphy 1999a and Murphy 1999b), and relegation causes several financial problems (Gerrard 2002).
Nevertheless the link between sporting results and revenues remains unclear when measuring revenues (also
“sporting revenues” for Barajas et al. 2005) as the sum of “the income from match tickets and the pools (combined as the
TAP variable), television rights (TV) and advertising/sponsorship (ADV)” (Barajas et al. 2005, p. 12), excluding the
results of, for example, the trading activity of players’ registration rights.
Moreover, only these latter consider a different hypothesis: do economic results (not only revenues, but all other
sources of income) depend on sporting results? The answer to this question shows that when profitability is
considered in association with sporting results, as opposed to considering the mere dependence between
sporting results and the level of revenues, the degree of significance of the association tested becomes much
weaker (Barajas et al. 2005, par. 5, pp. 14-17; Bollen 2010).
As previous literature contributions have rarely addressed the issue of the determinants of football teams’
economic results, we try entering this research field by proposing an alternative model to the ordinary one that
looks at the performance of these clubs by underlying any association between their sport results and their
economic performance. In fact, football clubs are generally regarded as entities which are unable to translate their
operational objectives in profitable targets. Instead, we believe that: (i) football teams pursue different patterns of
profitability which differ from the mere production of revenues by means of ticket sale or brand merchandising;
and (ii)sporting results are far from being the unique or the ordinary focus of these entities when it comes to
setting their profitability targets.
In fact, when looking at professional football leagues in their entirety, and particularly when focusing on the
Italian case, it is clear that: (i) most teams - generally the small and medium ones - do not necessarily compete
with the realistic expectation to win the championship or to rank in the first few top positions of any
tournament; and (ii) their choices in terms of best players’ retention and players’ trading policies do not
necessarily seem consistent with the objective of increasing a team’s potential to win competitions.
If “the mission of professional football clubs can be described as to offer entertainment to their spectators through the game of football”
(Cincimino et al. 2012, p. 116) and therefore the only ‘customers’ of football clubs were theirs fans, then
probably none of the Italian professional teams would reach the economic equilibrium.
At the same time, we noted that in the Italian premier league, the “Serie A”, most small and medium sized teams
are generally profit-makers as opposed to some of the major clubs which are loss-makers.
The existence of those clubs that, on one hand, are not the best performers in their league in terms of the
number of competitions won, but that, on the other hand, are profit-makers raises the question of why this
happens and what are the determinants of such state of things or, in other words, what their business model is.
We agree with Lago and Baroncelli (2006, p. 22) that “if for the leading clubs, sporting results can be expressed in terms of
victories (in the championship, European Champions League, UEFA Cup, etc.), for the provincial teams, they can be expressed in
terms of them having managed to remain in Serie A and their promotion from Serie B”, however we believe that there are
5
also other factors of the operations of Italian professional football clubs that need to be investigated in order to
identify the proper determinants of the economic durability of those clubs.
In fact, the ‘ordinary’ lenses through which football clubs are usually analysed, that is looking at them as mainly
show-business providers, appear to be unsatisfactory. We note that this may be a relevant and even sustainable
business driver if: (i) the club is renowned as being a competitive one (and, as such, it relies on strong and
generally expensive players); and/or (ii) the club has a quite large fanbase either locally or in even remote regions
which, however, are reachable via satellite television. Again, this is not the case for small and medium clubs
which do not always meet either conditions and we agree that, “the provincial teams are forced to replace a large
number of their players every year. Teams that easily retain their position in Serie A let two, three, or even more talented players go
each year, whom they replace with young players whose performance at the start of a season is uncertain […] although paradoxical,
[…] have more clearly defined economic objectives. These are clubs that are often linked to entrepreneurs who have no desire or cannot
afford to run a business at a loss, and they must thus make a profit from invested capital” (Ibidem, p. 23 emphasis added).
Nevertheless, as opposed to what stated by these authors, we believe that this way of performing is not a
constrained choice, but it is rather a sought-after model.
Furthermore, even for major clubs, which the ‘business model’ of show providers seems to best fit, the mere sale
of TV rights and tickets proves not to be economically sustainable (as shown in Risaliti and Verona 2013 and
also noted in Lago, Baroncelli and Szymanski 2006; Dobson and Goddard 2001; Antonioni and Cubbin 2000).
Therefore the question of what factors are able to explain the existence and the economic durability of football
clubs still remains unanswered7 also for those teams.
In sum, when looking at both small/medium sized clubs and major football teams their respective conditions of
existence seem not to be explained by the ordinary paradigm which indicates that they are businesses whose core
characteristic is the subordination of profitability targets to sporting targets. Therefore it is worth investigating
the specific economic and governance-related conditions which may explain the performance of these entities.
Based on the considerations developed above, we identify a threefold research question:
RQ.1
What are the determinants of football clubs’ performance for the Italian “Serie A” league?
RQ.2
What is their economic raison d’être?
RQ.3
What are the conditions of their durability as economic entities?
To answer these questions, we considered the whole population of Italian football teams focusing, at a first stage,
on small and medium clubs and then including in the sample also the major teams. We notice that, by not
limiting the analysis to the ‘top-tier’ clubs, we look for the key features of football activities which are able to
explain their performance over a fairly long (seven-year) period in terms that differ from the usual show-provider
model. The search for the conditions of the economic viability of football clubs (in the first place, small and
medium sized ones) suggests that we look more in depth into their financial statements. In analysing the financial
statements, our search for a business model for professional Italian football clubs belonging to the Serie A league
will not simply consider the accounting model as a given (in the Italian context many studies follow this
approach; see ex multis Cesarini 1985; Committeri and Melidoni 2003; De Vita 1998; Manni 1990; Rusconi 1990;
Teodori 1995; Bianchi and Di Siena 2000; Bianchi and Corrado 2004; Melidoni and Committeri 2004; Regoliosi
2006; Pezzoli 2007; Valeri 2008; Mancin 2009; Gravina 2012), that is we will not merely rely on the
6
representation that statutory accounts give of the business model of the reporting entity. Also, as mentioned
earlier, the identification of the business model of professional football clubs will rely on a review of their
governance structures.
1.2 The Italian “Serie A”
Aggregated data from PwC (2013) seem to be very useful in providing a snapshot of the Italian professional
football industry. In this report, several measures have been observed, such as total sales (broken down by
revenues from competitions, revenues from TV rights, merchandising, etc.), and asset and liability key factors
(including players’ registration rights and net financial position) for each of the following groups: “Serie A”
league, “Serie B” league (Italian second division) and “Lega Pro” league (Italian third division) during the period
from season 2007-2008 to season 2011-2012.
Data relating to Serie A are given more emphasis and space in the document and, looking at the associated
graphs and tables (pp. 84-95), it is possible to note some interesting factors which are useful in describing the
economic status of Italian professional football teams:
1) the increasing weight of income from the sale of players’ registration rights on total revenues (from 12%
in season 2007-2008 to 20% in season 2011-2012);
2) the decreasing weight of TV rights sales (in absolute terms the relative weight is quite high at 43% in
season 2011-2012, but it was far higher four seasons before, at 53%);
3) the relative growth of players’ wages (from EUR 949 M in season 2007-2008, to EUR 1,182 M in the
latest season); and, eventually
4) the trend of the cumulated net income (from a cumulated loss of EUR 150 M during season 2007-2008
to a cumulated loss of EUR 282 M in latest season).
The following graphs help summarising the situation of the Italian professional football industry in recent years
(Serie A only).
Graph 1 – Total Sales
7
Graph 2 – Gains from Players Trading
Graph 3 – Annual Total Players Wages
Graph 4 – Annual Net Income
The teams of the Italian “Serie A” league which we refer to in this paper are listed in table 1 here below (in
alphabetical order)8 (these teams differ from those considered in the PwC report, as we have considered teams
playing in the Serie A as of beginning of season 2012-2013):
8
Table 1 – Italian “Serie A” 2012-2013 teams
Atalanta
Bologna
Cagliari
Catania
Chievo
Fiorentina
Genoa
Inter
Juventus
Lazio
Milan
Napoli
Palermo
Parma
Pescara
Roma
Sampdoria
Siena
Torino
Udinese
For each of the listed teams, we analysed the annual reports of last 7 years (annual reports relating to fiscal years
2006-2012), disregarding the league they belonged to in the seasons preceding season 2012-20139.
First of all, we have to underline that in the Italian Civil Code and according to Federal accounting rules, even if
the percentage of income from players trading on Total Revenues is increasingly important, not all football teams
include these gains in the “Total Revenues” section (“Valore della produzione” according to art. 2425 Civil
Code).
If we sum the “ordinary” revenues (i.e. sporting-related revenues, such as TV right sales, ticketing and
merchandising revenues) to the line item relating to revenues arising from players’ transfer (which are often
regarded as being “residual” ones) ) for the 20 teams listed above, we have the results listed in tables 2, 3 and 4
below (please note that Pescara did not exist during years 2006-2009; fiscal year 2012 financial statements of
Atalanta, Fiorentina, Genoa, Milan and Torino have not yet been issued at the date this paper is published):
Table 2 – Italian “Serie A” 2012-2013 teams aggregated Revenues and Other Income (R&I)
EUR
Atalanta
Bologna
Cagliari
Catania
Chievo
Fiorentina
Genoa
Inter
Juventus
Lazio
Milan
Napoli
Palermo
Parma
Pescara
Roma
Sampdoria
Siena
Torino
Udinese
Total
R&G 2012
Not available71,126.131
67,164.706
54,629.468
53,631.425
Not available
Not available
235,686.916
213,786.231
95,509.291
329,307.000
155,929.550
96,517.284
101,486.232
15,636.259
115,973.000
32,427.358
52,340.285
Not available
120,968;790
R&G 2011
35,152.303
58,124.124
46,782.669
55,289.005
41,429.533
67,076.954
118,807.748
268,827.275
172,066.450
93,670.372
266,811.000
131,476.940
98,197.944
83,108.964
11,356.899
143,878.000
54,339.968
30,355.276
19,510.578
96,356;473
R&G 2010
20,154.633
49,128.409
42,256.935
45,407.893
40,956.843
79,854.927
95,890.719
323,516.329
219,731.837
98,501.843
253,196.000
110,849.458
68,483.430
78,349.512
4,624.832
137,044.000
59,387.396
52,823.316
31,892.917
73,544;066
R&G 2009
51,886.904
41,554.004
47,851.946
50,488.682
36,006.384
140,040.713
99,682.839
232,642.570
240,434.141
92,001.361
307,349.000
108,211.134
113,225.649
36,377.569
Not available
160,929.000
52,655.231
46,584.991
49,288.688
88,547;290
R&G 2008
45,508.797
26,303.628
56,444.771
42,547.815
28,672.482
108,521.983
61,131.833
203,421.845
203,731.662
102,482.031
218,663.548
88,428.490
74,834.928
45,425.434
Not available
189,313.000
58,196.009
39,567.454
59,201.027
78,536;548
R&G 2007
42,104.786
19,695.483
29,234.177
38,030.157
42,127.752
88,627.385
29,372.647
221,217.652
186,685.844
76,271.330
257,813.388
41,411.837
84,290.942
35,545.234
Not available
157,589.000
39,974.488
15,521.588
47,536.017
45,725;304
R&G 2006
34,224.167
13,621.792
27,384.987
16,586.538
32,894.241
60,961.502
17,446.927
215,731.889
252,727.083
81,197.194
293,106.971
12,068.630
53,911.752
51,833.339
Not available
128,542.000
38,115.264
29,280.006
33,149.605
84,982;606
1,482,812;926 1,892,618;475 1,885,595;295 1,995,758;096 1,730,933;285 1,498,775;011 1,477,766;493
9
Table 3 – Italian “Serie A” 2012-2013 teams Cumulated Net Profit (CNP) - EUR
EUR
Atalanta
Bologna
Cagliari
Catania
Chievo
Fiorentina
Genoa
Inter
Juventus
Lazio
Milan
Napoli
Palermo
Parma
Pescara
Roma
Sampdoria
Siena
Torino
Udinese
CNP 2012
Not available
-48,960.95
23,721.75
29,685.37
-16,586.94
Not available
Not available
-773,678.32
-206,649.29
41,870.26
-240,427.000
34,436.03
573.64
-14,768.11
1.59
-82,408.00
-90,630.45
-44,941.24
Not available
19,731.29
CNP 2011
-8,194.71
-42,771.42
21,213.49
25,392.76
-17,203.32
-70,039.86
-31,324.49
-696,530.39
-157,994.74
37,648.70
-233,570.00
19,715.27
4,585.34
-12,300.40
-6,531.28
-24,155.00
-52,501.70
-46,758.49
-45,913.17
10,949.13
CNP 2010
2,723.51
-38,605.00
23,020.87
18,943.25
-16,945.66
-37,565.78
-31,256.99
-609,716.61
-62,580.72
27,666.29
-166,236.00
15,517.44
-3,184.48
-12,958.52
-5,873.83
6,379.00
-36,859.68
-26,309.78
-31,178.21
8,051.97
CNP 2009
2,620.38
-30,332.47
26,690.75
16,395.85
-15,407.17
-27,961.42
-14,292.29
-540,670.80
-51,612.78
29,359.04
-96,485.00
15,173.76
14,041.42
-10,530.32
CNP 2008
-1,364.63
-17,308.97
26,007.97
5,490.23
-9,298.84
-32,404.23
-13,694.08
-386,247.33
-58,195.27
17,308.06
-86,649.00
4,239.24
-3,934.15
-614.65
CNP 2007
-4,565.85
-16,749.39
23,292.39
3,011.56
-5,999.22
-23,224.74
-15,198.83
-237,976.07
-37,407.80
3,546.19
-19,811.00
-7,671.81
257.97
-226.58
CNP 2006
-6,554.19
-9,322.21
-3,302.61
17.88
384.87
-19,519.79
-11,478.15
-31,143.74
-36,480.23
2,078.71
11,904.00
-9,088.78
-540.72
3,008.80
28,143.00
-24,750.22
-20,818.12
-20,042.04
14,973.08
29,432.00
-8,360.25
-12,966.74
-11,631.85
8,047.03
9,960.00
-3,175.42
-8,417.63
-7,731.28
171.00
-4,051.00
114.51
-8,109.31
-3,836.12
6,490.84
Total
-1,517,645.60 1,326,284.28
-976,968.93
-705,505.35
-552,145.46
-347,916.51
-119,427.24
Table 4 – Italian “Serie A” 2012-2013 teams Cumulated Adjusted Ebit (CAdjEBIT)*
EUR
Atalanta
Bologna
Cagliari
Catania
Chievo
Fiorentina
Genoa
Inter
Juventus
Lazio
Milan
Napoli
Palermo
Parma
Pescara
Roma
Sampdoria
Siena
Torino
Udinese
Total
CAdjEBIT
2012
Not available
-48,236.25
5,329.51
42,519.50
8,424.15
Not available
Not available
-904,536.42
-153,691.85
101,749.55
-179,022.00
77,443.73
6,523.44
7,219.76
-4,178.75
-43,492.00
-146,172.82
-80,101.07
Not available
47,110.49
CAdjEBIT CAdjEBIT CAdjEBIT CAdjEBIT CAdjEBIT CAdjEBIT
2011
2010
2009
2008
2007
2006
34.06
18,071.71
17,212.58
8,490.72
3,805.57
-3,424.56
-46,544.53
-44,823.79
-30,925.34
-18,783.55
-15,333.03
-8,964.04
-9,301.92
-7,134.50
-4,676.79
-6,151.28
-12,395.30
-6,857.39
34,184.41
23,971.12
19,795.74
11,365.70
6,715.39
457.34
4,853.40
4,555.91
4,588.65
8,459.73
7,120.25
3,430.21
-118,127.96
-68,355.49
-33,438.29
-42,284.91
-33,089.29
-29,062.64
-40,775.04
-32,674.50
-16,940.57
-18,768.52
-21,846.95
-11,381.43
-819,988.89 -734,276.36 -650,156.08 -500,489.88 -361,416.76 -173,378.57
-112,503.48
-20,348.68
-22,434.20
-36,475.36
-27,478.70
-33,948.37
102,471.09
80,929.52
73,263.36
50,448.04
16,575.53
18.64
-184,016.00 -109,766.00
-32,590.00
-37,152.00
35,874.00
47,751.00
51,198.15
35,486.05
32,264.45
12,122.06
-5,093.63
-8,280.90
9,713.18
-3,351.24
11,721.77
-10,747.82
-8,044.41
-11,311.04
-6,464.84
-5,191.85
-10,986.43
-3,030.67
-60.17
4,106.08
-5,456.11
-6,109.27
4,206.00
25,746.00
46,335.00
44,144.00
15,571.00
-6,740.00
-90,879.97
-66,252.48
-48,009.02
-28,287.94
-26,431.11
-14,388.09
-60,000.43
-31,474.65
-26,788.95
-20,329.67
-13,112.11
-7,579.10
-63,548.26
-41,932.35
-25,834.81
-14,735.35
-9,941.02
-5,913.50
24,629.31
11,904.42
14,457.37
906.66
-4,747.03
6,113.23
-1,490,522.24 1,326,317.81
-971,026.44
-683,141.56
-601,300.04
-453,327.74
-259,353.13
* For Adjusted ROI; we consider the (EBIT plus Gains from players trading when presented as Extraordinary Items less Losses
from players trading when presented as Extraordinary Items)
10
As we can easily observe in Table 2; during the analysed time period R&I results are very different among Italian
“Serie A” teams. Only two firms have to be considered large-sized firms; because their R&S are above EUR 150
M; almost in each observed year. Therefore rest; the majority of clubs in the “Serie A” league; is small-tomedium sized and in some cases we have very small entities (e.g. Pescara). Partly; R&I results are impacted by
sporting results; as it has been argued by several Authors (cfr. previous section 1.1.); and many of the most
significant effects on the R&I aggregates are due to relegations or promotions.
Furthermore; we note that most part of R&Is for Italian professional football clubs stems from the following
two main sources:
1.
TV rights whose allocation among 2012-2013 “Serie A” league clubs is shown below in Table 5; and
2.
income from Trading of Players’ Rights (IFPRT); whose distribution is shown in Table 6.
The rest of R&Is comes from merchandising and; for Juventus only; from own stadium related business
activities (Vendemiale 2013).
Table 5 – Italian “Serie A” 2012-2013 teams Allocation of TV rights
EUR M
Juventus
Milan
Inter
Napoli
Roma
Lazio
Fiorentina
Udinese
Palermo
Sampdoria
Cagliari
Torino
Genoa
Atalanta
Bologna
Catania
Parma
Chievo
Siena
Pescara
Total
Equal
part
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
17.31
346.14
Fans
51.19
35.04
35.98
21.33
16.22
8.40
6.18
3.77
5.35
3.09
5.26
4.64
3.09
2.81
3.50
3.32
2.11
2.09
1.39
1.57
216.33
Citizens Previous
season
3.11
4.12
4.28
3.71
4.28
2.47
4.15
3.92
5.69
3.09
5.69
2.89
1.35
3.50
0.73
3.30
1.68
0.62
1.19
1.44
0.76
2.06
3.11
1.03
1.19
0.82
1.49
1.24
1.34
1.65
1.47
2.68
0.60
2.27
0.37
1.85
0.37
0.41
0.44
0.21
43.29
43.28
Last 5 Historical
years
Results
11.13
8.24
11.74
7.83
12.36
7.42
9.89
4.94
10.51
7.00
8.04
5.77
8.65
6.59
9.27
3.30
7.42
2.47
6.18
5.36
5.56
2.88
1.24
6.18
6.80
3.71
4.33
4.12
2.47
4.53
3.71
1.65
4.94
2.06
3.09
0.41
1.85
0.82
0.62
1.24
129.80
Total
86.52
95.10
79.91
79.82
61.54
59.82
48.10
43.58
37.68
34.85
34.57
33.83
33.51
32.92
31.30
30.80
30.14
29.29
25.12
22.15
21.39
865.36
Table 6 – Italian “Serie A” 2012-2013 teams Income From Players Rights Trading (IFRPRT)
EUR M
Palermo
Sampdoria
Udinese
Torino
Napoli
Parma
IFPRT
2012
35;452.33
783.00
57;533.08
5;016.97
53;448.45
IFPRT
2011
25;408.12
19;052.00
41;879.02
5;103.00
9;137.52
37;184.23
IFPRT
2010
1;200.00
2;701.00
24;274.33
11;156.00
6;618.36
34;727.70
IFPRT
2009
49;653.73
7;942.03
36;967.94
9;600.00
10;046.57
25;666.81
IFPRT
2008
12;422.43
9;648.03
33;652.92
7;573.00
440.49
5;410.92
IFPRT
2007
22;848.16
1;004.04
13;869.07
704.00
4;921.44
IFPRT
2006
12;866.25
16;281.60
38;086.96
59.23
21;946.92
11
Genoa
Pescara
Catania
Cagliari
Bologna
Atalanta
Fiorentina
Siena
Chievo
Lazio
Juventus
Inter
Milan
Roma
Total
62;162.04 38;880.71
42;184.03
21;782.41
6;136.61
5;256.11
4;758.96
3;243.14
606.50
10;529.22
15;746.70
5;614.50
11;600.90
5;234.00
2;626.75
2;950.00
23;795.47
998.31
1.54
6;171.98 17;369.39
2;316.80
326.17
21;729.51
12;444.20
9;926.29
5.33 10;563.43
2;130.40
1;702.54
2;773.99
8;333.78
8;483.93
9;142.24
11;078.07
18;724.13
392.41
3;913.84
33;631.49
3;499.23
14;827.39
971.16
11;938.03
9;656.24
9;707.87
12;055.43
6;715.10
2;307.74
1;100.60
14;431.27
5;456.82
5;211.80
4;030.72 13;357.83
11;142.63
3;389.46
10;183.84
18;507.47
8;159.90
9;759.25
1.00
10;613.96
3.00
18;433.50
18;239.44 14;664.72
17;270.84
17;129.73
41;531.10
4;444.84
44;369.20
51;458.25 72;876.00
11;111.07
8;045.77
23;974.01
7;495.19
53;436.73
23;566.92 25;533.24
74;024.45
20;453.44
15;661.90
44;807.11
18;405.00
7;821.00 21;406.00
16;601.00
15;274.00
8;530.00
3;527.00
384;244.556 370;230.815 305;514.061 386;807.504 217;715.367 196;224.069 183;938.246
A closer look at Table 3 and Table 4 shows some interesting elements that highlights the importance of the
research questions described above. Particularly; we can see in these tables that some clubs constantly produce
net profits as well as positive levels of Adjusted EBIT (EBIT plus Gains from players’ rights when presented as
Extraordinary Items less Losses from players’ rights when presented as Extraordinary Items). Therefore; the
purpose of this paper is to try identifying the determinants of the positive earnings of those clubs.
As mentioned; these factors have been considered in previous studies; in light of the hypothesised main goal of
producing sporting results. However; in this paper we try proposing a different – though not necessarily
contrasting – reading of these factors by looking at the following two aspects:
1. the economic determinants of football teams’ net profits or adjusted operating profits; which we investigate
by splitting the total of Revenues and Income in their elementary parts; i.e. ordinary sales (according to
mainstream literature and common practice) and revenues from players’ trading.
2. Furthermore; we cannot avoid appreciating the importance of stakeholder pressure; as mentioned above. To
address this aspect; we considered governance related elements; especially those which corporate governance
literature has detected as connected to the objective of achieving profitable objectives; notwithstanding strong
external pressures.
1.3 Research hypotheses
In order for us to investigate the conditions of existence of those clubs in the terms stated above; we test the
following hypotheses:
HP1.
The operating performance of football clubs is a direct function of the relative weight of revenues from
players trading as a share of football clubs’ total revenues
HP2.
The operating performance of football clubs is a direct function of the degree of concentration in the
boards of directors.
The first hypothesis builds on the evidence that markets10 where football players’ rights are traded; represent a
relevant source of revenues for Italian football teams. Particularly; these markets can be looked at as a source of
valuable reserves for football teams which; in the course of their ‘ordinary activities’ – that is; in providing sport
12
shows – can rely on these resources when economic and/or financial difficulties arise as a result of excessively
onerous operating costs or investments. However; by looking at the financials of Italian professional clubs a
different picture emerges. In fact; these markets are seldom a source of revenues of “last-resort”; while especially
small and medium sized clubs rely on those markets as their primary source of earnings. We believe that; if
verified; the proposed test under HP 1 will support the idea that the core business of football clubs is
significantly oriented on players’ trading and much less on providing entertainment. In other words; far from
relying on a “business-to-customer” model; football teams rely on a “business-to-business” model whereas
producing entertainment via sport events is a means for increasing the “tradability” of individual players.
The second hypothesis focuses on the need; especially for small and medium sized clubs; to maximise their
operating ‘room of manoeuvre’ that is their ability to take decisions which are in the best interest of the club’s
economic performance. Some corporate governance literature attributes the ability to take more rapid and
sharper actions to relatively smaller boards as opposed to largely democratic structures. Klein 2002 recalls that
“Lipton and Lorsch (1992); Jensen (1993); and Yermack (1996) argue that the board's decision-making quality decreases with
board size because the more people in the group; the lower the group's coordination and processing skills (see Steiner 1972; Hackman
1990). Yermack (1996) finds evidence consistent with this argument” (p. 438). Consistently with these studies; we argue
that when governance structures of football clubs; ie BoDs; increase their degree of democracy; the operating
performance gets proportionally deteriorated because – as noted by Eisenberg; Sundgren and Wells (1998) –
“increased problems of communication and coordination as group size increases; and decreased ability of the board to control
management; thereby leading to agency problems stemming from the separation of management and control” (p. 37) (see also
Bhagat and Black; 1996; Hermalin and Weisbach 2000)11.
We believe that; if verified; this test shows how a lean governance structure may ‘protect’ the economic viability
of football clubs from social and emotional pressures which may lead to anti-economic operating decisions.
In sum; we believe that the combination of the two hypothesis; if verified; can shape a business model of
football clubs whereas:
(a) Football clubs pursue proper business objectives; that is guaranteeing their economic durability by
means of establishing and maintaining a concentrated governance structure; and
(b) Football clubs rely on players’ trading as their main driver of operating performance; so that the relative
volume of revenues from ticket sales; merchandising activities and TV rights – ie those revenues relating
to the football clubs in their capacity of show providers – are merely accessory activities to explain the
operating performance of football teams.
2. Methodology
In order to test HP 1; we analyse the determinants of operating profitability in terms of the main sources of
revenues for fiscal years 2006-2012. In order to test HP 2; we analyse the association between size of the Boards
of Directors and the operating profitability (Yermack 1996; Bhagat and Black 1996) of each Italian football team
during fiscal periods 2006-2012.
To verify the existence of any association between different drivers of business model and governance related
variables and the operating profitability of football clubs; as expressed in terms of the Adjusted Return on
13
Investments (as shown earlier in Table 4 we largely deal with below in section 2.2); we estimated an OLS model
where the Adjusted ROI is an interactive function of economic and financial related variables; discussed below in
section 2.3.1 and a set of governance variables; discussed in section 2.3.2. Some of the former variables are
control variables; as one of the latter is a control element too.
2.1 The sample
The observed clubs are all those involved in Serie A league during season 2012-2013. We considered their
consolidated (if any) or separate financial statements for the seven-year period between 2006 and 2012 (a total of
132 reports have been analysed). For most clubs; the reporting period ends on June 30th each year; however for a
few clubs the reporting period ends on December 31st and therefore financial reports 2012 for these clubs were
not available.
For one club in the sample; financial statements for years 2006 through 2008 were not available as the legal entity
it belonged to during that period defaulted in 2009. The complete list of clubs is reported above in Table 1.
Most clubs report their financial statements under Italian GAAP; only three clubs report under IFRSs as they are
listed in Italian Stock Exchange. We believe that this fact does not impact on our results nor it requires specific
adjustments to the methodology applied as the share of publicly exchanged stocks is very limited and the
significant equity injections which these clubs have requested to their main shareholders over the years have
significantly diluted the interests of minority investors.
2.2 The dependent variable
In order to verify the existence of any association between the determinants of the business model and the
operating performance we considered an adjusted version of the Return on Investments ratio (“Adj ROI”) as a
proxy of the profitability as our dependent variable.
To reach a logical configuration of this ratio; we followed a two-step process.
Firstly; we considered; for both listed and non-listed companies; the line items included in the Income Statement
as required under Italian GAAP (“ITA GAAP”) and which total up to the “Risultato della Produzione”; also
referred to as Operating profit balance (“OPER”). We acknowledge that the line items included in the IFRS
income statement (rectius statement of profit or loss) differ in name from the items included in OPER under
Italian GAAP. However; we made sure that consistency was achieved through the appropriate review of the
notes referring to each single line item so that; regardless for the ‘taxonomy’ adopted in each set of statements
(ITA GAAP and IFRSs respectively); line items were fully comparable content-wise.
In order to ensure that the operating profitability includes revenues; gains; costs and losses from both the
provision of sport entertainment and the activities of players’ trading; the OPER balance has been adjusted to
include items classified under ITA GAAP as extraordinary items12. This adjusted balance (“OPERplus”) is
therefore the sum of OPER and some extraordinary items. OPERplus is the numerator of the Adjusted ROI; we
considered this figure as a proxy for the gross operating profit.
The denominator of the Adj ROI is the sum of total assets.
The resulting Adjusted ROI; therefore represents the ratio between OPERplus and Total Assets.
14
2.3 Selection of the independent variables
In our research hypotheses there are two profiles to be tested in order to highlight the features of a potential
business model of football clubs:
(a) a purely economic aspect; that is the existence of any association between (i) the provision of sportshows and (ii) the activity of trading in players with the operating performance of football clubs; and
(b) a governance-related aspect.
2.3.1 Economic variables
The test involving economic variables highlights two potentially different business models; as described in
section 1.1.
We considered as total revenues the sum of revenues from the sport-event related activities and income from
players’ trading activities; this is named after “Total Sales”.
Because associativity applies to the elements which sum up to Total Sales; we test the nature of the business
model from the economic perspective by reference to income from the sale of football players registration rights
(“Trading Income”). Therefore our independent variable for the purpose of testing the business model from the
economic viewpoint is the ratio between Trading Income and Total Sales which we refer to as “BUS_MOD”.
We also considered four control variables to ensure that our results are not distorted by (i) the size of the
football club (“SIZE”); (ii) the degree of its financial leverage (“LEV”); (iii) the value of its players’ expressed in
terms of its intangible assets (“INTANG”) and (iv) the relative weight of depreciation charges for the intangible
assets (represented by the players in the team) and the total personnel cost (“DEP&PERS”).
2.3.2 Corporate governance variables
We considered the size of the Board of Directors (“BoD SIZE”) expressed in terms of the total number of
directors (Klein 2002) in each of the 20 teams for 7 years considered (as noted above; one club defaulted in 2009
and 4 teams have not reported 2012 financial statement yet; as they close their fiscal year on December 31st); we
only have 132 observations in our sample.
We used control variables to ensure that the association between BoD SIZE and profitability is not distorted by
(i) the nature of the entity in charge of performing external audit activities (“AUDIT”); this is expressed by
means of a dummy variable to indicate the use of external auditors or the Board of Statutory Auditors.
3. Empirical results
3.1 Descriptive Statistics
Table 7 here below shows the mean; median; minimum; maximum and first and third quartiles of the
untransformed variables used in the regression analysis.
15
Table 7 - Descriptive Statistics for Untransformed Variables Used in Analysis of profitability of Italian
Football Teams for a sample of 132 annual reports
Hypothesis
Variable
Number
Mean Minimum
Q1
Median
Q3
Maximum
Adj ROI
-0.0798
-1.1424 -0.1872 -0.0274
0.0503
0.2672
BUS_MOD
1
0.1885
0
0.0701
0.1535
0.2814
0.7056
LEV
2
-1.00
-123.13
-1.09
-0.15
0.35
24.865
INTANG
3
58.080
2499
21.140
47.841
78.948
209.495
DEP&PERS
4
0.4264
0.1071
0.2539
0.3799
0.5335
1.1275
SIZE
5
11.123
8.439
10.631
11.018
11.637
12.705
BoD SIZE
6
7.160
2
4
7
10
16
AUDIT
7
0.8015
0
1
1
1
1
Variable definitions:
Adj ROI = Ratio between Operating Profit adjusted for Gains from Player Rights’ trading and Total Operating
Assets.
BUS_MOD = Ratio between Gains from Players Rights’ trading and Total Sales
LEV = Ratio between Net Financial Position and Equity
INTANG = Total Intangible Assets
DEP&INT = Ratio between Depreciation of Intangible Assets and personnel cost
SIZE = Logarithm of Total Sales
BoD SIZE = the number of board members
AUDIT (Dummy variable) = 1 if the auditors are from an external team; 0 otherwise.
3.2 Correlations
Table 8 presents Pearson correlations between the transformed dependent and independent variables.
Table 8 - Pearson correlation (and p-values) among the Dependent and Explanatory variables
Adj ROI BUS_MOD NFP/E INTANG DEP&PERS
BUS_MOD
0.153
0.079
LEV
-0.024
0.053
0.817
0.549
INTANG
-0.005
-0.054
0.128
0.952
0.573
0.144
DEP&PERS
0.165
0.245
-0.111
0.208
0.059
0.005
0.206
0.017
SIZE
0.337
-0.135
0.240
0.802
0.085
0.000
0.124
0.006
0.000
0.331
BoD SIZE
-0.217
-0.169
0.183
0.571
-0.178
0.013
0.053
0.036
0.000
0.041
AUDIT
-0.180
0.101
0.212
0.379
0.118
0.038
0.249
0.015
0.000
0.177
LN
Sales
BoD
SIZE
0.543
0.000
0.372
0.000
0.188
0.031
Table 8 also shows that many explanatory variables are significantly correlated with each other. The tests of the
formal hypothesis are based on multiple regression analysis.
3.3 Multiple Regression Results
Equation 1 is the regression equation; the related empirical results are presented in Table here below.
16
Equation 1
Adj ROI = – 3.02 + 0.294 BUS_MOD – 0.00149 LEV – 0.000003 INTANG + 0.0856 DEP&PERS + 0.296
SIZE – 0.0231 BoD SIZE – 0.166 AUDIT
Table 9- Explanatory variables of Adjusted ROI Based on Regressions for a Pooled Sample of 132
Annual reports (Years 2006-2012)
Predictor
Coefficient
p-value
BUS_MOD
0.32223
0.0000
-0.001668
0.1190
-0.00000045
0.0000
DEP&PERS
0.09431
0.1230
SIZE
0.30585
0.0000
***
-0.022233
0.0000
***
-0.17374
0.0000
***
LEV
INTANG
BoD SIZE
AUDIT
Adjusted R-square
***
***
0.593
***; **; * Significant at the 0.01; 0.05; and 0.10 levels;
respectively
As shown in Table 9, the Adjusted R² is 0.593 which is fairly high compared to regression models applied in
previous similar studies.
We also tested the Durbin-Watsons statistics and do not reject the null hypothesis for autocorrelation.
Adj ROI is significantly positively associated with BUS_MOD (p < 0.01) and negatively associated with Board
Size (p < 0.01).
Regarding our control variables; Adj ROI is significantly negatively associated with INTANG (p < 0.01); and
AUDIT (p < 0.01); while it is positively associated with SIZE (p < 0.01).
The positive association between Adj ROI and BUS_MOD is consistent with our initial hypothesis and with the
theoretical framework which we referred to (Baroncelli and Lago 2004). These results indicate that the business
model of Italian professional football clubs in the Serie A league would be better described with reference to the
main determinant of its operating activities; that is the trading of players’ registration rights; rather than the
provision of entertainment services through sporting events.
The negative association between Adj ROI and Board Size is also consistent with our initial hypothesis and with
part of the literature. This association could be explained by highlighting that a close board concentration allows
for more profit-oriented activities and partly ‘immunises’ the club from social pressures on improving
competitive sporting results at the expense of economic performance. This evidence also suggests that further
research may confirm whether our understanding of the governance structure of football firms is correct in
terms of the ownership structure of the club. In fact; the combination of the two factors; (i) negative correlation
between operating performance and board size and (ii) positive correlation between ownership concentration
17
and operating performance; would indicate that clubs with a closer ownership oversight and with a direct
involvement in the management of the club’s operating activities are key factors to explain football clubs
profitability.
On the other hand; larger boards may suffer from social pressures more significantly than smaller ones; this may
be particularly true in the Italian case as football is certainly regarded as being the “national sport” and; especially
in local communities; a right balance between profitability and reasonable competitive results may be difficult to
achieve.
Furthermore; the positive and negative associations concerning control variables are; in our opinion; consistent
with previous literature. Particularly; the negative association between Adjusted ROI and the presence of an
external (single person or firm) auditor can be explained with the fact that in Italy; especially individual
entrepreneurs may be more willing to perceive external auditors as a burden to their ‘entrepreneurial freedom’
due to their lack of information with respect to the importance of having strong external monitoring bodies
(such as an external auditor). In fact; the preference on appointing the Board of Statutory Auditors as external
auditor adds a supplementary task that may reduce the level of oversight; leading to weaker attention in
guaranteeing that reliable and faithfully representational financial statements are issued. By this means; clubs
could more easily implement earnings management practices by reducing the degree of oversight (even if this
could also increase the level of risks in operating and financial activities the club is exposed to).
4. Conclusions and suggestions for future research
In this paper; we tried providing some evidence that football clubs; and particularly Italian professional clubs in
the “Serie A” league; can be investigated with the lenses of ordinary business and that there exist profitability and
governance patterns that are worth investigating to better understand the conditions of economic durability of
football clubs.
The importance of understanding the economic determinants of football clubs is two-fold: (i) expressing more
informed judgements regarding the economic viability of football clubs; in order to put into effect any reward
mechanisms for those teams which show a certain ability to remain fairly competitive and; at the same time;
maintain a reasonable level of profitability; (ii) gaining a deeper understanding of the business model of football
clubs; allows for better economic planning and for sharper actions in case of any restructuring plans.
We also note from our analysis that the core activity driving the operating performance of football clubs
identified in this paper; is poorly described in the accounting model provided by both groups of clubs; ie listed
and not listed ones. We believe that the income statement should at least highlight the balance of the two main
activities performed by Italian football clubs: (i) the result of the provision of sporting events to the public; and
(ii) the result of players’ registration rights trading.
Finally; this research may represent a seminal work for future contributions in the area of business and
accounting research on football clubs; at least in two respects:
(i) on one hand; it would be interesting to investigate whether the general business model identified in this
paper can be equally applied to all football clubs regardless for their dimension; popularity; ownership
structure and nationality. We believe that this is not necessarily the case. Particularly; our findings suggest
18
that within the general business model identified in this work; future research may look at identifying at
least two possible clusters of football clubs in the Italian “Serie A” league (and possibly in other national or
international leagues as well): (i) the “providers” of players; and the (ii) “consumers” of players.
(ii) On the other hand; our identification of the business model of Italian professional football clubs may
suggest a revision of the existing accounting schemes (or models) under which; at present; financial
information of football clubs are reported in Italy. For example; an accounting model consistent with our
findings would be one that shows; in terms of presentation of the income statement; at least a distinction
between the balance of “sport shows-related activities” and “players’ trading activities”13. Furthermore; in
light of our conclusions; also the measurement aspects of the “available for sale” or “held for trading”
players may need to be revised in order to present their current values; rather than their historical cost
information; in this respect we believe that for football clubs could apply the following: “Where the firm’s
business model is not to transform its inputs; but to buy and sell assets in the same market with the intention of profiting from
changes in market prices; we would expect that fair value would generally be the most useful basis of measurement” (ICAEW
2010; p. 42). In this respect; a relevant question arises about the correct classification of players’ rights in the
financial statements and also the annual impairment assessment of these assets. These issues may be
considered for further analysis (possibly by broadening the scope of the study to other European football
teams) not only by academics; but also by accounting standard setters which will be increasingly interested
in the next future in assessing the “real” value of the intangible assets embedded in entities’ financial
statements (IASB December 2012).
19
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We note that in the particular context of professional football clubs –at least in Italy – the traditional Agency (Jensen and
Meckling 1976) and Managerial Capitalism (Berle and Means 1932) theories do not necessarily explain the nature of the
relationship that exists between clubs’ owners and managers. This is because the degree of control that the former exercise
on the latter, with respect to the core business decisions (such as buying/selling key players or hiring/firing a team’s coach),
1
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is so pervasive that there is a low level of information asymmetry. Furthermore, at present, most chairmen or CEOs of
Italian football clubs are the owners themselves. This may suggest that governance-related features need to be interpreted in
a way that considers this peculiarity of football teams, so that for example, a small number of members of the BoD does not
necessarily signal a situation of lack of transparency or a reduced degree of collegial decision making, but it reflects the fact
that majority owners are also directly involved in the clubs top management.
2 In the Italian context see Catturi 1984; Manni 2000; Bauer 2001; Fiori 2003; Busardò 2004; Onesti and Romano 2004; Frau
2004, 2007; Lacchini and Trequattrini 2008; Dello Strologo and Celenza 2008; Regoliosi 2010; Cincimino 2008; Nicoliello
2011; Risaliti and Verona 2013.
3 Regoliosi 2010, eventually, proposed an alternative model to fair value and historical cost for the measurement of players’
registration rights.
4 Lucifora and Simmons 2003 tested the existence of determinants of superstar wages in Italian context, even if with
reference to a short period.
5 From a purely economic perspective, football clubs are very peculiar entities as the competitive conditions of the market
they operate in are different from the ordinary competitive conditions of firms which do not operate either in monopolistic
or oligopolistic conditions. In fact, as opposed to ordinary businesses, football (as any other sport) clubs benefit the most
when there is a perfect degree in competition with the other teams in the same league. The existence of a team that is far
more competitive than the others in the same league (a sort of monopoly situation) pushes its earnings close to zero, and
even in the case of a few strong competitors (a second-best hypothesis in main stream economic theories) the reasonable
expected returns are lower than those arising from a market with a situation of perfect competition. See Neal 1964. From
this perspective, in fact, it has also been noted that “sports fan interest is greatest when sporting competition is at its most intense”
(Boughes and Downward 2003, p. 88) and that sports fans are football teams customers. See also Rottenberg 1956, Cairns,
Jennet, Sloane 1986 and Dobson and Goddard 2001. From a different perspective, El Hodiri and Quirk (1971) contributed
to better understanding the peculiarities of the football business environment according to antitrust rules (for the Italian
antitrust regulation, see Autorità Garante della Concorrenza e del Mercato 2008; 2013).
6 We acknowledge that the notion of ‘business model’ has assumed several meanings and that no shared definition exists
among different disciplines where this term is most frequently adopted (for example, Zott, Amit and Massa 2010 considered
the concept of business model in the following areas: e-business, information technology in organizations, strategy,
innovation and technology management), also Page 2012 provided an overview of the term business model in the context of
financial regulation. Throughout this paper we will consider the notion of business model by referring, in general, to those
factors that are able to explain the operating performance of football clubs.
7 This seems to be a key issue for the owners of professional football teams; in fact, we noticed the growing tendency to
select different managers to cover different positions in football teams, by separating, for example, those who are in charge
of technical-sport issues (attributed to a general manager or to an operating one) from those involved in economic, financial
and commercial issues (whose responsibilities are attributed to internal sector specialists or to external professionals). The
importance of effectively managing business-related aspects is particularly important nowadays due to the growing pressure
that the strategic option to build club-owned stadiums has gained as a means for increasing volume and nature of revenues
by expanding the portfolio of business activities (e.g. hospitality, food services, shopping center, etc. also by means of
selected agreements with travel agencies and tour operators, schools and universities, etc.).
8 Fiscal year aggregated results are the sum of results of the same 20 teams, even if some of them had undergone relegation
in past seasons, or have classified in different tournaments.
9 The different timeframe considered also explains the differences in our balances for each measure compared to those from
PwC (2013).
10 The reference to the term “market” is not intended in the sense of “active market” as defined in IAS 38 Intangible Assets as
the market for players’ rights does not qualify as an active one according to the requirements of this standard.
11 “We do not argue that good corporate governance produces good corporate performance. Some of the most successful companies are managed by
entrepreneurs who disdain what we view as good corporate governance” (Lipton and Lorsch 1992, p. 64).
12 In NOIF accounts (the Italian football federation accounting and organizational rules), any club may choose to recognize
gains and losses from trading either as extraordinary or operating items.
13 Recently, according to the NOIF regulation, Italian teams have to disclose in a specific section (in tabular form) of their
annual reports, the result from players trading, however this additional information have not attracted significant interest so
far.
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