Foreign Investment in English Football Quiz

Ownership Structure, Governance, and Regulation in Sports

• A shift towards "concentrated ownership systems" has occurred since the mid-1980s, with individual and large-block shareholders gaining stronger monitoring power over managerial decisions (holding at least 5% of the company's equity).
• Football (and other sports) experience high-stakes decision-making with significant potential rewards.
• Four distinct ownership models have emerged over the past 30 years in football:
  • Stock market model
  • Private investor model
  • Foreign ownership model
  • Supporter trust/Membership model

Stock Market Model

• Tottenham Hotspur was the first football club to float on the stock market in 1983, raising £3.3 million.
• Millwall raised £4.8 million in 1989, and Manchester United raised £6.7 million in 1991.
• The mid-1990s saw a boom period following the formation of the EPL in 1992, with a considerable increase in share value for Tottenham Hotspur and Manchester United (300% and 400%, respectively, between 1994 and 1996).
• 15 further flotations occurred between September 1995 and October 1997.
• Total EPL club fundraising through stock market flotations reached approximately £175 million.
• The listing of football clubs in the UK has become less attractive since 2000, with 14 clubs de-listing, often due to poor returns on investment and inherent difficulties clubs face in generating profits.
• Financial institutions are less likely to view football clubs as viable investment opportunities.

Private Investor Model

• This model mirrors the foreign ownership model but features home-based investors often emotionally invested in a specific club.
• Examples in English football include: Jack Walker (Blackburn Rovers), Dave Whelan (Wigan Athletic), Eddie Davies (Bolton Wanderers), and Ben Kenright (Everton).
• Croatian examples include Damir Mišković (Rijeka).
• Only 30% of EPL clubs fall under this model.
• Foreign investors now dominate ownership of football clubs across Europe.

Foreign Ownership Model

• The commercialization of football, including increased player wages, has led to substantial increases in the costs required to operate clubs.
• Many owners have struggled to provide the necessary investment to compete and have subsequently sold their majority stake to wealthy foreign investors.
• The global appeal of the EPL, high broadcasting rights value (£5.14bn for UK rights 2022-2025), and global expansion opportunities have made EPL clubs more attractive to foreign investors.
• Roman Abramovich's acquisition of Chelsea in 2003 was a significant foreign takeover in English football, followed by back-to-back EPL titles after substantial investment in the squad.
• Foreign ownership has opened the door for many more acquisitions of EPL clubs. Examples include the Glazers at Manchester United, George Gillett and Tom Hicks at Liverpool, Randy Lerner at Aston Villa, and Sheikh Mansour at Manchester City.
• Indian investment in Blackburn Rovers, by Venkys group.
• Recent regulations like Financial Fair Play (FFP) have moderated spending on player transfers.

Supporter Trusts/Membership Model

• This model involves a large group of supporters/members who own and/or operate the club, with a democratic say in club management through executive bodies (one member, one vote).
• This model is infrequent in England (where clubs are classified as limited companies).
• However, it is more common in other European countries, notably Germany (50+1 rule, limiting financier power over clubs).
• German clubs are generally averse to financial takeovers, and their limited financial capacity can restrict their on-field competitive performance.
• RB Leipzig is an example of a club circumventing regulations by acquiring the license of a lower-tier club in 2009, holding 17 members, and using only employees of the ownership firm for voting power.

Ownership Models Across Europe

• Spanish clubs (SADs) are joint-stock companies with limited liability, introduced in 1990 following a financial crisis.
• Clubs like Barcelona, Real Madrid, Athletic Bilbao, and Osasuna were allowed to continue with their membership models due to positive financial performance during the 1985-1986 period.
• Italian clubs like Juventus (Agnelli family), Inter Milan (Moratti family), and AC Milan (Berlusconi) have historically been under the control of wealthy individual owners.
• A strong focus on maximizing winnings is present (or is a focus in ITA clubs).
• French investment in clubs was banned until the 1980s. French clubs could then operate as limited companies.

Ownership Motives/Objectives

• Owners often have motivations beyond just football itself, including:
  • Brand appeal of EPL for global expansion.
  • Leveraging political and geographical influence.
  • Profit maximization.
  • Seeking a trophy asset.
  • Making the club a multi-club ownership by becoming the flagship club of the group.
  • Expansion of other sporting activities.

Financial Regulation

• Financial regulation often distorts sporting competition, creating both beneficiaries and losers.
• Financial regulation has good intentions (limiting financial imbalances, preventing insolvencies).
• Unintended consequences of financial regulation include protecting incumbents by creating entry barriers.
  • American sports use budget/salary caps and common revenue allocation.
  • European football uses Financial Fair Play (FFP).
  • This creates a clear differentiation between pre-FFP and post-FFP financial data.
  • FFP is focused on a break-even principle

Budget/Salary Caps

• Different types of caps exist, including global, partial, absolute/symmetric, relative/asymmetric, static, and dynamic.
• These caps can limit expenditures or income based on different parameters.

Common Revenue Allocation

• Allocation types include equal (same share for all teams).
• Performance-based (better performance = higher share).
• Reverse-performance-based (better performance = lower share).

Examples of Salary Caps

• Major League Baseball (MLB) uses a Luxury Tax element that taxes clubs exceeding a set payroll threshold. Tax rates increase based on consecutive years exceeding the threshold.
• The Luxury Tax element helps maintain balance in the league.

Problems with Salary Caps in Europe

• European sports often lack a substitute league for players.
• Players may leave for other leagues without caps, putting pressure on clubs in regulated leagues to keep up with competing clubs.
• There is potential for clubs to overstretch themselves financially in pursuit of maximizing spending limits or meeting targets.
• This can negatively impact sporting performance.

Financial Fair Play in European Football

• Financial crises in the mid-2000s led to financial instability, and "financial doping."
• In 2011, UEFA introduced FFP regulations, focusing on a break-even principle.
• It is a means to constraint spending and improve financial sustainability.
• The legality and impact of FFP on sporting balance have been debated.
• Issues such as the allocation of broadcasting revenue and acceptable losses have questioned the model.
• European Financial Sustainability regulations have replaced FFP in 2022.

Impact of FFP on Competitive Balance

• FFP is seen as an aggravating factor in the decline of competitive balance across leagues (especially in Germany and Italy).
• FFP exacerbates financial imbalances between clubs.
• FFP tends to favor established clubs.
• FFP in European Football.
• The financial advantages for better teams often lead to those clubs topping the league.

Managers in Professional Team Sports

• Manager costs are significant, and compensation for sacking managers can be substantial.
• Tenures of managers are relatively short (average one year).
• Scapegoating, vicious-cycle, and tenure/life-cycle theories explain manager changes and performance.
• Managers in US professional sports often have life-cycle tenure, while more frequently in European football the tenure is less long, and managers often change quickly due to poor performance. This pressure can make it harder to build a team.

Agents in Professional Team Sports

• Agents act as representatives for players, managing their contracts and various dealings.
• Agent fees are often substantial, sometimes more than the player's compensation.
• Some agents work for large agencies that represent many players, and can make large sums.
• The agents’ fees are often subject to regulation.

The Problem with Agent Fees

• FIFA's recent move to increase transparency and limits agent fees is an attempt to resolve issues of excessive fees and disproportionate compensation.
• Agent fees can be significant in international transfers.
• There was a lack of regulation in several years for agents’ compensation.

FIFA's New Regulations for Football Agents

• In 2023, FIFA capped agent fees at 3% for salaries above $200,000 and 5% below.
• The new regulations aim to reduce issues that arise from excessive agent fees.
• Making agency dealings more transparent can bring benefits to fans, clubs and other players.