“Football clubs are big international brands”

Stephen Morrow, a specialist in sports finance, reflects on the successful formula of the football business and warns that “clubs can’t forget their history because that gives them strength as the international brands that they are”

That football has become a big business is indisputable. That it is for everyone equally is not so clear. According to the report published by Deloitte corresponding to the 2016/17 season, 14 of the 30 highest-earning clubs are English, five are Italian, four German, three Spanish and two French. Portugal only managed to place one club—Benfica—among the 30 richest clubs in the world, in the Deloite Football Money League ranking.

Manchester United, with €676.3 million in revenue, retained the top spot, closely followed by Real Madrid (€674.6 million) and FC Barcelona (€648.3 million). According to the British newspaper The Sun, Manchester City—fifth in the Deloitte ranking—wants to make Pep Guardiola the highest paid football manager in the world, with a contract extension until 2021 and an annual salary of €22.1 million, four million more than he receives today. That offer would put Guardiola at the level of top players such as Leo Messi (€25 million), Neymar Jr. (€30 million) or Cristiano Ronaldo (€21 million net per season).

The figures are dizzying and there are no signs of a recession if we take into account the increasing globalization of the football industry. For a man who has dedicated more than 30 years to researching the business of football, investigating the reasons for this growth and detecting the risks that some clubs have of losing their social essence in favor of that ‘business’ is not only his specialty, but a fascinating challenge.

We had the opportunity to analyze the economic side of football with Stephen Morrow, sports finance specialist at the University of Sterling, during his visit as a guest speaker of the Master in Football Business in partnership with FC Barcelona.

What are you views on the current state of the football business worldwide? What are the main trends and what changes are needed, if any?

Football business, at the moment, is a fascinating industry to look at, to be involved with. I think if you look at the changes that happened in the last decade or two decades it’s staggering. I think it’s hard to imagine what will happen next and it’s something I’m not going to predict, but it’s an incredible state of transition in many, many ways, phenomenally successful. Look at the levels of revenue that are earned by clubs in some of the top leagues, throughout Europe. It’s an extraordinary success story and we see that in the remuneration of the players and others that this looks like an industry which is successful. On the other side, of course, is that it perhaps emphasizes some of the gaps between leaks in some of the major european countries and other countries. We see big divides opening up between leagues, between countries and between clubs in those countries. I think that presents challenges for football in its kind of pure essence as a social competition. The business is booming at the top end, but actually football in Europe has always been more than just what happens in one or two important countries. I think there are challenges for UEFA and for others to try to work out how do we keep football being relevant within some of the other countries within its national associations.

The expanding reach of football around the planet and the commercial growth of big clubs, what is the impact on the way fans and supporters are connecting with clubs?

We see the way in which people consume football, the way in which football has a global reach; that part of it, is not the only part of what the football clubs are. It’s still there, for many clubs, even the biggest clubs, but of course these clubs are now international brands, they’ve got international reach, too, and I think presents challenges for the clubs to make sure in some ways they don’t lose sight of their history and their association with particular cities or regions because that in essence gives them the strength as international brands, too. So, it’s an inevitability as the business grows, but there are risks for football clubs too, to not forget where they come from, to not forget that the strength of those clubs comes from some of that connectedness with local communities and local areas.

How does marketization impacted the relationship between supporters and football clubs?

You look at football clubs and wonder, are they businesses or social institutions? Are they a mixture of both? And I think that the reality, of course, is that many of them try to be a mixture of both, but there is always a risk when you adopt business aproaches or business practices: you potentially risk along the line that kind of social relationships that have created the value of the brand in the first place. And I think there is a bit of a balancing there for clubs and for club executives to live within the business world that they are in. Of course, it’s an opportunity fot them, but also not in any sense, however inadvertently to be seen a kind of exploiting supporters and only seeing them as a kind of customers or opportunity for a revenue generation.

Do you think that one of the main issues that various regulating bodies of the industry should address is the introduction of a code of good practice?

A good practice or a good governance code, it’s something that it’s very prevalent within sport in general. There is a lot of pressure on sport organizations, rightly so to improve their levels of governance, to think about the ways that they engage with their stakeholders, to think about concepts like accountability and transparency.  I think it’s a good thing for football clubs to do, the challenges you have are the different kind of organizational structures and corporate forms that exists within different countries throughout the world. So, it’s difficult to see how you put in place a single form. Nonetheless, the idea of best practices or principles of good governance are things that we ought encourage and it goes back to that point that they are businesses but they are also social institutions. Therefore, they have to behave in a way which recognizes the obligations they have to different groups in society, their supporters, but also to communities and regions in which they’re based. So, personally I would like to see a greater emphasis on improvements on principles of good governance and I think we could overcome the challenges around the organizational form recognizing that these are special kinds of institutions.

“Football clubs are big international brands” - Johan Cruyff Institute

Annual Congress of supporters of FC Barcelona * Photo: FC Barcelona

What is the impact of the financial fair play regulation on the relationship between ownership structure and the financial performance in the major football leagues?

If you look at the performance of clubs at the present time, what we’ll see, of course, is an increasing number of over season visitors coming in to the major clubs across the major leagues throughout Europe. And that’s a trend that has began some years ago known and sure there is no signs of a beating as the game grows commercially. I think fair play is at least ensure that clubs are being run in a way which is financially sustainable. The challenge, of course, always is that people will always look for ways to push at the boundaries of any regulations or to look for ways to gain some advantage around that. And it’s a continuous challenge for UEFA to not just have the rules but to actually enforce the rules. And that’s not going to go away. There is a need for them to actually put their regulations into practice. I think the money that is coming in, those clubs who put more money in, there is no big surprise that they tend to be the ones that are more successful. It’s not going to be really surprised, anyone that it is going continue to happen. But also means the case that there will be many more losers than there are winners, so they can all win things, but what only UEFA can do is make sure that clubs are run in a way which ensures they are sustainable and that offers some kind of accountability to people that extend beyond, the providers of financial capital. I think that´s all they can do at this point of time.

Are clubs financial information reliable? How can clubs improve transparency and compliance?

I think very positive is some of the work UEFA does around, it is kind of a benchmarking and it’s an annual accumulation of financial data. That’s been tremendous for people who watch and want to understand what European football looks like and want to get a better understanding of its finances. And UEFA can be congratulated on the quality of that information and the work that there are putting together with all the national associations of the clubs on those national associations. I think, transparency is, speaking from a personal view, absolutely essential; football clubs should be transparent and should be accountable not just to their financial investors. These are institutions that have got a social relevance and the people care about and they invest in them not just financially, but emotionally. And I think there is an obligation on those clubs to actually acknowledge the position of the stakeholders and to be financially accountable and to be socially accountable to those stakeholders. Therefore there is an obligation on them to explain what they are doing, why there are doing it and whether they have been successful or not. I think that should be a basic expectation on good governance in football.

Talking about transparency, do you think technology is an answer, do you see some work to show the data?

I think there are some opportunities for more kind of real time, or more transparent information if you are using technology. I think it’s a challenge to do that because probably the complexity of some of the organizations, the different geographical issues around that, but I think generally speaking we see more technology being used in corporate reporting and elsewhere.  I think over time, football probably will have to pick up on that, as well. But, suddenly the trends to me are positive, we are seeing more information, we see it available on a more timely basis. Over time I guess that will get better, maybe technology will be one of the solutions to that.

“Football clubs should be transparent and accountable not just to their financial investors. These are institutions with social relevance; people care about and they invest in them not just financially, but emotionally”

Why do you think this kind of football business programs are important for those who want to work within the game?

I think these kind of programs are absolutely essential, because although quality of professional work that goes on in clubs has changed dramatically over the last 10-20 years; I think there is still an opportunity to make clubs being better run, to be run in a way which is in the interest of them as good businesses, but also as good social institutions. I think one of the great things about these kinds of programs is that it´s simply upscaling and providing knowledge to the individuals who can actually make a difference to the football industry, can make the football industry better. It’s easy to criticize the things that happened, but I think its not about criticizing what happened in the past, is trying to make sure that organizations are the best place to recognize the very complex and multiple objectives and requirements that are placed upon them; it’s not easy to be a business, a successful business and to be a social institution and to recognize your obligations in a social way.

MASTER IN FOOTBALL BUSINESS

in partnership with FC Barcelona

The main objective of the Master in Football Business in partnership with FC Barcelona is to educate with in-depth and up-to-date knowledge and insights from the football industry. Students will analyze the core theories and relevant case studies that will help them visualize the behavior of the football business. Students will also have the opportunity to learn, interact and contribute with FC Barcelona business strategy and operations.

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