Managerial Change and Team Performance in Football - Essay Example

Football and Finance Background of the Project According to the recent ment release by the Union of European Football Associations (UEFA), about 46 European football teams would need funds to satisfy the incoming fiscal control regulations. The statement was based on an assessment report that exposed that losses by clubs had increased by 2 percent to approximately €1.68 billion in 2011. According to the Telegraph Sport (2013), an assessment of the finances of approximately seven hundred clubs released by the Uefa indicated a reduction of 2011 sales of €13.2 billion by €9.4 billion expenditure on players and salaries. The spending on salaries and players was 43 percent up over the previous five years. European clubs assessment is a requirement of Uefa’s financial fair play policies, which focuses on reducing debt and stopping teams from spending above their capability. According to Uefa’s rule of financial fair play, teams that fail to meet the requirements of the union’s policies face sanctions or suspension from participating in the continent’s major competitions. According to 2009, 2010 and 2010 financial reports, many clubs participating at both clubs and European competition levels exhibited significant amount of losses in relation to the Uefa’s minimum low of €5 million. Many European football clubs including top flight clubs have recently shown numerous financial drawbacks adding to recent increase in the total loss experience in the European football industry. There have been public outcries from some clubs regarding financial fair play by some of the continent’s top division clubs. A considerable number of clubs have undergone liquidation while many more face the threat of possible bans from taking part in Uefa Champions League and Europa League, which are the continent’s most prestigious football competitions. Liquidation is the worst experience any club would ever wish to undergo. Apparently, cost control has been one of the most challenging tasks for European football clubs. Many clubs, including the most famous clubs in the recent history of football, have failed maintain low and sustainable expenditure levels, which calls for robust research into the issue of finance and football. There Owing to the increasing margins of losses incurred by European football clubs and many reported cases of possible liquidations of clubs, there is clear need for information supply for football club managers and committees on sustainable cost management approaches, which this project intends to establish through review of literature on some of the main causes of financial dismay for many football clubs. Preliminary Review of Literature The strong economic growth that football industry exhibited during late periods of 1990s prompted academicians and researchers to shift their attention towards issues that relate to the administration of performance of football clubs. Many of the available literature have focused on the performance of football clubs based on various performance variables. Garcia-del-Barro and Szymanski (2006), argue that the performance of a football club reflects on sporting and its financial performance. Some of the main determinants of performance in football include strategic actions of clubs, market size supported by clubs, frequency of changing coaches or managers, skills of players and general management of clubs (Audas,Dobson & Goddard 2002; Heij, Vermeulen & Teunter 2006). According to Rosner and Shropshire (2011), any profit seeking firm on the basis of its ability to survive and thrive over time must be capable of generating funds to reward its production factors. As such, the performance football clubs is highly dependent on their ability to generate and utilise funds effectively in their sporting activities. The financial performance of any football club portrays the value that the clubs create for their investors. The assessment of financial performance of football clubs is highly linked with strategic objectives of club managers. It exposes the management efficiency and strategic approaches used by managers. Garcia-del-Barro and Szymanski (2006) assumed in their study that football clubs are profit maximises. On the contrary, Kesene (2007) argued that football teams ought to be perceived as utility optimisers in their pursuit of non-profit objectives such as club popularity through winning games. In his study of profitability of Greek football clubs, Panagiotis (2009) concluded that the number of wins for a football club positively influences club sales. They postulated that one win for a club boost profitability margin by approximately 14 percent. Pfister and Hertel (2008) argued in their book that larger clubs have higher capacity to generate high performance levels by efficiently organizing their assets, including players, in such a manner that leads to profit maximisation as compared to small clubs. Generally, the European football industry has registered poor fiscal performances. Many clubs have posted huge losses, which have aggravated the overall industry loss. According the Telegraph Sport (2013), there has been a substantial fall in the total revenue in the previous five years with revenue dropping from €9.4 billion from €13.2 billion in 2011. This reduction in profitability represents about 43 percent increase in spending on players and salaries. Most clubs, including prestigious and very popular clubs, have faced financial troubles in recent times. Cost control has featured as one of the most challenging aspect of managing football clubs in Europe with many clubs spending more than they can finance. According to the policies of Uefa, clubs are permitted to incur up to a deficit of €5 million. However, the teams are also allowed to incur up to €45 million so long as the loss is catered for by equity contribution within two years including 2013, after which the duration will be extended to three years. Based on the financial reports of 2009, 2010 and 2011, fourteen clubs participating in the continent’s club competitions this season carry a total loss of more than €45 million Uefa limit. Further, thirty two more clubs reported a total loss ranging from €5 million to €45 million. According to the Uefa’s rule of fair play, clubs should not spend more than they can finance. The fair play rule aims at helping clubs to control their expenditures and keeping their costs at manageable levels. Some of the clubs which are at a potential risk of failing to fulfill Uefa’s fair play policies are 2012-2013 English Premier League champion Manchester City, Inter Milan (three-times Champions of European Cup) and Paris Saint-Germain, which has incurred the highest expenditure on buying players more than any other European club since 2011. According to Tremlett (2013), the Spanish football league bubble is about to burst with European football authorities threatens to stop public funding of football clubs with huge debts. The continent’s football authorities have been pushing the government of Spain to clarify its permission for clubs to accumulate extremely huge tax Owings and social security debts. This move could potentially lead to the downfall of a football system founded on untenable heaps of debt finance. With many clubs in the top two league levels facing a huge challenge in settling their bank debts, some clubs face possible liquidation (Barajas & Rodriguez 2010). Popular and world class football clubs like Valencia, which is among the Spanish football clubs plunged in great depth of financial crisis, will be compelled to sell their players (Barajas & Rodriguez 2010). The exit of world class players could possibly lead to the demise of big names in football history and decline in many more across Europe. Clubs in the Football League usually engage their players in short contracts, which tend to be more performance-oriented. This is to insulate the clubs from paying higher salaries I case of demotions (Humphreys & Howard 2008). A self-declared bankrupt clubs have the option of regaining higher status through promotions. For instance, Leicester, in 2002/2003 season purportedly spent too much on player contracts deliberately in a bid to gain promotion from Championship side. They failed to gain promotion retained their acquired players while in championship, which evoked complaints to Football League from rival teams in the Championship (Humphreys & Howard 2008). Research Questions (Aims) and Objectives This section deals with emerging research questions and the objectives of the research founded on the review of literature. Research Questions 1. How does finance affects the performance and operational efficiency of large European clubs and how do they operate financially with large player wages and transfer fees among other club expenditures. 2. To what extent do big and small football clubs participating in European Champions League and Europa League as well as national football leagues comply with Uefa’s policy of financial fair play? 3. How effective has Uefa’s policy of financial fair play been in controlling overspending by European football clubs on player purchases and salaries? 4. How do football clubs in Europe obtain finance to fund their daily operations including player purchases, paying salaries and remunerations and acquiring suitable play grounds? 5. What solutions are available for European football authorities to ensure that all European football clubs do not violate Uefa’s rule of financial fair play? Research Objectives 1. To determine how finance affects the performance and operational efficiency of large European clubs how the clubs function with large player transfer fees and salaries together with other expenses of the club. 2. To assess the extent to which big football clubs participating in both European competitions and national league level comply with Uefa’s rule of financial fair play. 3. To establish the effectiveness of Uefa’s policy of financial fair play in combating overspending by clubs on player transfers and salaries. 4. To establish the legitimate sources of finance for European football clubs for running their daily operations. 5. To establish possible solutions that can help European football authorities in successful implementation of the rule of financial fair play and ensuring that clubs do not violate the rule. Research Plan Research Design The researcher will use the design of Data Envelopment Analysis (DEA), which is a linear programming model useful in determining relative efficiency of numerous producers. DEA has been used in sports for determining managerial efficiency, payroll efficiency and club productivity in football in both England and Spain. This paper will use the model to determine how efficient clubs are in their cost allocation, thus providing information upon which inferences can be made concerning the recent trend of big debts owed by many clubs in Europe. The research will also employ the technique of correlation research design to evaluate the nature and extent of association between variables in the study. The correlation coefficient will be used to make inferences on how different factors influence the performance of a football club, both in the sporting and financial dimensions. Canonical correlation theory will be used to determine the nature and extent of correlation between the output and input variables used in the study. Regression analysis will also be used to determine the extent to which big clubs comply with the Union of European Football Association’s policy of financial fair play and also to determine the extent to which the policy is effective in helping clubs to maintain sustainable expenditure levels. Data Collection The researcher will utilise surveys, observations, interviews and previous scholarly works including journals, white papers, books and other reputable secondary sources. The researcher will also seek financial statements data from Deloitte and Touche Annual Reviews of Football Finance as well as financial reports of clubs in the FA premier league. The sample to be used is the twenty English premier league clubs. Additional information will be obtained from the Soccerway website (www.soccerway.com) as well as any other website that the researcher may deem relevant. The researcher will use online survey questionnaires to capture the views and experiences managers of the football clubs participating in the FA Premier League. There are numerous advantages that prompted the researcher to use online survey technique in reaching the participants in the study. Online survey is a faster means of obtaining the required information. The time needed to complete online survey is relatively shorter than the period taken to accomplish a conventional survey. Information is captured instantly and the researcher does not have to wait for the questionnaires to be sent back to him so that he can proceed with the analysis. Online survey is also a cheaper method of conducting research. It reduces the cost of research to a considerable extent. It is more accurate because participants feed in their responses directly, which minimises the chances of errors. It also offers a quick analysis of collected data and easier for the respondents to use. Further, online survey is easier to use and style for the researcher. It commands honest responses from participants and is more selective such that only the target respondents can complete the survey questionnaires. Finally, it offers great flexibility. Data Analysis The researcher will apply Data Envelopment Analysis (DEA) to analyse the level of efficiency of professional football clubs participating in the FA Premier league. The approach has been used by many researchers in determining the efficiency of multiple-input, multiple output organisational scenarios. DEA permits the use of numerous outputs and inputs. Mathematically, the technique allows the extraction of the required data about sample of observations in a case where the production function is unknown. DEA’s mathematical formulation determines a discrete piece-wise limit through decision making units (DMUs). The use of DEA in the economics of sport enables the use of multiple variables (inputs and outputs) depending on the nature of sport under study. For this study, the researcher will determine the efficiency of large European football clubs based on financial result of specific seasons. …………………………….. (1) …………………………………………………… (2) Ur, vi > 0, r = 1; I = 1… m …………………………………………………………(3) Where, Yrz is amount of the rth output produced by the zth DMU Xiz is amount of the ith input used by the zth DMU Ur is the weight given to rth output Vi is the weight given to ith input Z is the number of DMU assessed Hz is DEA score to the zth DMU Hz (efficiency ratio) is maximised subject to conditions [(2)-(3)] Canonical Correlation Analysis (CCA) will be used to determine the correlation between different categories of variables. Based on the dual performance of football clubs, that is, financial and sporting success, the research will utilise two performance variables of points won and the aggregate profit for the related fiscal year. Under points won, the researcher will consider the total points won by a club in the English Premier League, which will portray a club’s performance in a given season after playing a total of 38 matches in the FA Premier League. The total points attained by a club have been used as an indicator of club success by many scholars. For the second output variable: financial performance, the researcher will utilise published financial statements of clubs participating in the FA premier League. Financial statements are strong pointers of a football club’s financial success. The input variables to be used in the study will comprise directors’ salaries, player salaries and transfer fees among others. The third category of inputs will include each club’s general operating expenses. The researcher will also use regression analysis to determine the correlation between individual variables involved in the study. Limitations For every research, there are usually limitations that the researcher must experience. For this research, the researcher anticipates to meet financial challenges to facilitate research activities in the entire research period. Another possible limitation that the researcher is likely to experience is lack of guarantee of accurate information from managers of various football clubs such as the precise salaries that they are paid. The research will also be limited in scope and there might be limited respondent availability. That is, it will only use data that will be availed by the respondents. Inadequate time is also bound to affect the quality of data to be collected for analysis. Ethical Considerations It is crucial that a research is conducted in an acceptable and ethical manner. The research will abide by all the ethical concerns as stipulated in the BES ethical guideline. All the essential forms shall be completed before initiating the research process. Also, the researcher will seek permission to conduct the research from relevant authorities as required in the ethical procedure of the BES. The researcher will complete and forward an individual project application to the relevant authority at least two weeks before starting the actual research study. As required by the BES ethical guideline, all students must complete and submit the ethics form at least two weeks prior to commencing practical work. The researcher will also obtain informed consent from all the target participants in the study. Club managers will be contacted at least three weeks before posting survey questionnaires to them. The researcher shall keep confidential the identity of participants in relation to the information given. The survey questionnaires shall not demand that club managers submit their names and thus their identity will remain anonymous. The researcher shall take full responsibility of any potential harm to participants caused by leakage confidential information during and after the research process. Timetable and Special Resources Required For the Study The research task shall be carried out in the order in which they are outlined in the timetable below. Research timetable Task to be accomplished Estimated completion period Selection of topic of study 09/02/2013 – 12/2/2013 Identification of relevant literature 30/2/2013 – 15/3/2013 Completion of literature review 15/3/2013 – 30/3/2013 Formulation of research questions 1/4/2013 – 2/4/2013 Develop research methodology 2/4/2013 – 5/4/2013 Completion of draft proposal 6/4/2013 – 15/4/2013 Revision of proposal 16/4/2013 – 20/4/2013 Submission of Human Subject (IRB) Form 20/04/2013 – 1/5/2013 Approval of proposal Human Subject approval Data collection 10/5/2013- 15/6/2013 Data cleaning 16/6/2013 – 20/6/2013 Data analysis 20/6/2013 – 25/7/2013 Compiling final report 26/6/2013 – 10/8/2013 Submission of final project report 15/8/2013 – 20/8/2013 Bibliography Audas, R, Dobson, S & Goddard, J 2002, “The impact of managerial change on team performance in professional sports,” Journal of Economics and Business, Vol.54 pp.633-650. Barajas, A & Rodriguez, P 2010,”Spanish Football Clubs' Finances: Crisis and Player Salaries,” International Journal of Sport Finance, Vol. 5 No. 1 pp. 55-66. Garcia-del-Barro, P & Szymanski, S 2006, “Goal! Profit maximisation and win maximisation in football leagues,” Working Paper Series, Paper No. 06-21. Heij, R, Vermeulen, P & Teunter, L 2006, “Strategic actions in European soccer: do they matter?” The Service Industries Journal, Vol.26 pp.615-632. Humphreys, BR & Howard, DR 2008, “The business of sports,” Praeger, Westport, Conn. Kesenne, S 2007, “The peculiar international economics of professional football in Europe,” Scottish Journal of Political Economy, Vol. 54 pp. 388-399. Panagiotis, DE 2009, “PROFITABILITY OF THE GREEK FOOTBALL CLUBS: IMPLICATIONS FOR FINANCIAL DECISIONS MAKING,” Business Intelligence Journal, Vol.2 No.1 pp. 159-169. Pfister, M & Hertel, R 2008, “Performing national identity: Anglo-Italian cultural transactions,” Rodopi, Amsterdam. Rosner, S & Shropshire, KL 2011, “The business of sports, Jones & Bartlett learning,” Sudbury, MA. The Telegraph Sport 04 Feb 2013, “Uefa report reveals 46 European clubs need funds to meet financial controls with Man City one English club at risk.” Viewed on April 14, 2013 from Tremlett, G 21 March 2013, “EU prepares to blow final whistle on Spain's debt-ridden football clubs,” thegurdian, viewed on April 14, 2013 from Read More