A Much Feasible Option for Cash-Starved Smaller Clubs in Present Economic Scenario - Essay Example

The advancements in Information and Communication Technology (ICT), in mass media and networking have resulted in phenomenal growth of football game across the globe. Indeed, the invention of electronic media i-e television enabled media personnel to offer worldwide transmission and satellite coverage of major football tournaments and sporting events. In turn, this enticed people towards football grounds as well as led to commercialisation of game. Indeed, various clubs signed deals with leading sponsors, business organisations and advertisers for product marketing, which in turn increased the circulation of money in football sports. Most of the clubs are even registered at the stock exchanges. Unequivocally, football clubs have transformed themselves into real profit-maximising business entities, since every single club has its own board of directors, managerial hierarchy, marketing / advertising, finance and HRM departments that collaborate and coordinate to develop a team of professional football players (employees). Nevertheless, these professional players then serve their respective clubs to deliver want-satisfying products (a football game / event = product offered by a football club) for their supporters and fans. Undoubtedly, supporters / fans play the most important role in the success of a particular football club. They, in fact, have higher expectations of their teams (as well as their favourite players) as they show up at grounds after spending hard-earned money on tickets and match passes. It is worthwhile to mention that these supporters are now penchant to become members of football clubs and to enjoy mutual ownership for greater economic well-being of these clubs. (Gilmore and Gilson, 2007) Football pundits / experts, at the same time, have also raised arguments against this move towards mutuality of football clubs in England. This essay will critically examine the arguments raised for and against the viability of mutual ownership model in England. The paper will then throw light over the impact of mutual ownership upon the management and governance of a football club. Finally, the conclusion will reveal whether mutuality is plausible and sustainable for football clubs or whether they should enhance their existing private ownership model to ensure business growth and expansion. Evaluating arguments for and against the mutual ownership of professional football clubs in England: It is worthwhile to mention that most of the football clubs in England have adopted the private ownership business model as they are owned by private investors or business groups, which have an ultimate aim to maximise the return on their earnings. On the other hand, an alternative business model for club ownership is known as ‘Mutual Model’ in which numerous supporters or fans of a football club will retain an ownership share and voting rights for their small individual investments. It must be pinpointed that mutual clubs are referred to as non-for-profit organisations, which tend to offer their want-satisfying products (Michie, 1999, p. 13) (football game or event) to their potential customers / viewers / supporters / fans. (Burnham, 2005) and (Ward, 2009) The proponents of this mutual ownership model have pinpointed various benefits. The very first argument in favour of mutual ownership is greater customer / supporter loyalty as this will create a ‘We-feeling’ (socio-emotional and instrumental cohesiveness) between supporters and their respective football club. Secondly, it may help in the eradication of customer manipulation by private club owners who aim to maximise profits. Thirdly, mutual ownership may ensure availability of extensive financial resources. Fourthly, this will enhance the ability to cope with issues of poor management and internal inefficiencies because of voting rights to supporters (democratisation of clubs). (Adams and Armitage, 2002), (Hamil and Morrow, 2008) and (Ward, 2009) Evaluating the first argument, it must be highlighted that privately owned football clubs such as Manchester United, Chelsea, Manchester City and others have a large number of fans or supporters who show up at football grounds or stadiums to endorse their team against opponents (Brown, 2008). Nevertheless, these fans pay for tickets and food to watch their teams in action that provides them an internal satisfaction (Adams and Armitage, 2002, p. 10), but don’t receive any monetary benefits from the club owners who reap financial profits actually generated from customers’ money. Indeed, this loyalty continues due to geographic constrictions or personal feelings (socio-emotional factor). Hence, it is justified to say that offering club ownership to loyal supporters will further intensify their loyalty and strengthen the existing “We-feeling” between the club and its endorsers. Mutual ownership will thus be a lucrative option because it may result in increase in club’s revenue from ticket sales and other products offered at home grounds. Analysing the second argument raised by advocates, it must be recalled that private club owners have transformed themselves as real business entities that produce want-satisfying products. These clubs manipulate their supporters or fans by increasing the prices of tickets during busy seasons or important tournament matches. They actually use the economic principle of inelasticity (APFG Report, 2009, p. 15) (Adams and Armitage, 2002, p. 10), which says that consumers are ready to purchase and pay higher for products with high price inelasticity but tend to purchase fewer products with high price elasticity. Indeed, the demand for tickets becomes relatively inelastic during busy seasons or important matches so their prices escalate while revenue generation by clubs increase simultaneously. In short, this exploitation of fans could be thwarted through the mutual ownership model that endorses the idea of affordable or reasonable ticket prices for supporters. Hence, this will improve ground attendance and result in genuine football growth. These private football clubs only reduce prices when face stiff competition or price wars from rivals or when demand for tickets plummet due to any external economic factors such as recession, financial crunch, unemployment or surge in inflation. (Michie, 1999) and (Adams and Armitage, 2002) and (Hamil and Morrow, 2008) Evaluating the third argument, it must be pointed out that supporters are keen to make investments in their club that will disburse profits in return at the end of the season. Since, there is an increasingly large pool of club supporters or fans (in millions) with positive intentions, issues regarding investments or funds availability will get resolved thereby enabling the management or administration to spend stupendous amounts on auction of professional players, selection of coaching staff, enhancement of facilities and fringe benefits etc. This, in turn, may result in mammoth future gains and economic benefits. In simple words, mutual ownership will result in resolving financial worries of medium sized and small clubs (for example Portsmouth FC). Adams and Armitage (2002) mentioned the example of Chesterfield Football Club that resolved its financial issues after its mutualisation in 2001 by its supporter’s society (Hamil and Morrow, 2008). Moving towards critical analysis of the fourth major argument, it must be emphasised that mutual ownership will provide the voting rights to all supporters or members of a club thereby enabling them to vote for their desired directors or top management personnel. This democratisation of the club will not only strengthen the relationships (and loyalty) between club and supporters but also result in recruitment and selection of professional executives and business managers with pertinent experience in sports sector. In turn, these managers will formulate the most relevant strategies for a club’s well-being that will lead to club’s survival, growth and sustainability. Managers will relevant administrative and sports experience help eradicating the inconsistencies, inefficiencies and structural issues that reduces organisational harmony, internal unity and productivity besides increasing total costs. In short, there will be greater check and equilibrium in a mutual club by supporters than in a privately owned club. (Adams and Armitage, 2002), (Burnham, 2005) and (Hamil and Morrow, 2008) On the other hand, the analysts have also raised arguments against this mutual ownership model. The first argument is that there will be what could be termed as ‘greater financial risk for supporters’ (Adams and Armitage, 2002, p. 9) as football is a chance game. Secondly, the unnecessary demands or unrealistic expectations from supporters or in fact mutual owners regarding modifications in decision making and problem solving process, club’s mission and vision, selection of coaches and directors, auction of players, ground facilities, ticket pricing etc. will result in management and administrative problems that may adversely affect club’s financial position and performance. Thirdly, the board of directors of a mutual club will be less accountable to supporters. (Adams and Armitage, 2002) and (Miche, 1999) As far as the first argument against the mutualisation of English clubs is concerned, it must be recalled that the risk factor in football club business is higher compared to other businesses. The reason being the fact this business requires massive investments for players’ auction, selection of coaching personnel, improvement of ground and training facilities, advertising and marketing etc. These stupendous investments are required usually to meet short and long- term goals, which add to financial worries of small and medium-sized clubs with fewer monetary resources and greater cash outflows. In short, football is a chance game in which performances of small teams, with fewer top quality professional players, is relatively inconsistent; hence they attract fewer supporters towards their grounds thereby generating low revenue. In simple words, mutualisation of small clubs at one extreme may resolve some of their financial worries, whereas, on the other hand, it may result in financial risks for supporters who may not be inclined to support a clubs with relatively weak financial position. Obviously, every supporter also expects some monetary gains, for their hard-earned money, on investments in their beloved football clubs. The second major argument against mutualisation exercise is the fact that mutual owners or supporters may have unrealistic expectations or unnecessary demands about modifying the club’s strategies. They may compel the managers or executives to formulate different policies that could go against the club’s long run interests; therefore, mutualisation in that way will not lead to sustainability of business and genuine football sports growth. Finally, the executive directors and non-executive directors are more accountable for their acts, policies, tactics and strategies to owners of a private club. However, the opposite is the case in the mutual ownership model because they will be less accountable to a diverse group of countless members or supporters. (Adams and Armitage, 2002) and (Hamil and Morrow, 2008) The large clubs such as Chelsea, Manchester United, Arsenal and Manchester City are excluded from the above as they already enjoy mammoth financial resources due to extremely large fan group (ticket sales), sponsorship and broadcasting revenue generation. Moreover, the performance of their teams is relatively consistent as they are among the dominants in sporting events and tournaments. Hence, their management often disburses cash dividends to their shareholders. (Brown, 2008) Evaluating the impact of mutual ownership of a football club upon the management and governance in comparison to private ownership: Any business organisation must adopt and implement the essentials of business management and corporate governance principles to ensure its survival, expansion and sustainability. A football club, as mentioned earlier, is also a commercial enterprise that has established a managerial hierarchy and board of directors, which work in collaboration to formulate and implement various short and long run business strategies that enhance the trust of investors, partners, customers and other stakeholders. Indeed, this improves internal efficiency, effectiveness and corporate performance (Michie and Oughton, 2005). The mutualisation of a football is a tedious step-by-step procedure. The first step in this process is to ‘acquire all the shares from existing shareholders’ followed by second step that involves the ‘cancellation’ of entire treasury stock. The last step is about ‘re-writing of club constitution to reflect mutuality’ (Michie, 1999, p.16). The administration does not necessarily enjoy similar powers and authority that it had before under private ownership model. In addition, a supporter starts playing the role of organisational watchdog, which in turn though apparently, ‘increases the accountability’ of club’s managers and strategic planners to their members (APFG Report, 2009, p. 15). To elucidate the scope of the aforementioned argument raised in APFG Report (2009), it must be emphasised that mutual ownership does assist in mitigating issues related to poor management because of direction from members; however, accountability tends to decrease because of highly dispersed members in comparison to the private ownership model. In simple words, the argument in APGP report has no real scope as it can’t be supported. In short, the above provides the evidence of what structural and management changes may take place during and after transformation from private ownership to mutuality. After the change of ownership, as mentioned before, the supporter receives a voting right that is then used to elect directors, executive directors, committees’ and task force members. The elected personnel then have to consider the demands, suggestions and recommendations of their voters that might not be in favour of club’s economic and financial well-being. The research has revealed the fact that supporters may select the right persons (through voting), in other words, the professionals to manage club’s operations. However, they may not have the ability to exactly define what is right or wrong for a club because of their zero or limited firsthand professional football experience. Indeed, only specialised who have glib expertise and proficiency in implementation of management functions can come up with most feasible and pragmatic strategies that are in greater interest of their respective football club. Nevertheless, the supporters or members may disregard some policies that in turn results in creating obstacles or impediments for elected club officials. Indeed, this is the point where management and corporate governance becomes problematic for representatives who are unable to meet unrealistic expectations or unnecessary demands of their members. In simple words, members after mutualisation may intervene (because of their emotional and financial attachment) in technical matters, beyond their expertise, that in turn sabotages club’s reputation and goodwill, besides adversely impacting its internal efficiency and performance. The opposite is the case in Private Ownership, which does not allow supporters to interfere in organisational decision-making and problem-solving process. (Emery and Weed, 2006, pp.7-9), (Dobson and Goddard, 2001) and (Shackleton, 2000) On the positive side, the mutual ownership model compels the executives and strategic planners to devise long-term strategies rather focusing on short-term goals and targets, which can be attributed to supporters’ personal interest in their football club’s affairs (APFG Report, 2009, p. 15). Hence, managers have to adjust their existing policies and corresponding objectives to bring them in-line with their customers’ expectations. (Shackleton, 2000) In conclusion, it must be stressed that although most of the football clubs in England are privately owned business entities with an aim of profit-making, many football clubs (especially medium and small-sized) have incurred mammoth losses and have significant financial liabilities or debts that are to repaid to financial institutions and investors. Indeed, there is higher financial risk in this business, hence after conducting the costs and benefits analysis based on previously discussed arguments, it is justified to conclude that small and medium-sized football clubs could adopt mutual ownership as an alternative business model. This will not only resolve their financial worries but also help in alleviating poor management issues and structural problems that exist in these clubs. Large clubs such as Liverpool, Chelsea, Arsenal and Manchester United, however, are mostly profit-making enterprises that have, at least, the ability to survive because of extensive financial resources that enable them to invest in top quality professional players. In fact, there teams then become highly capable for showcasing optimal performance that entice their supporters towards their football grounds, greater media attention, interest of sponsors and broadcasters to finalise deals for marketing and advertising purposes. In this way, the monopoly of large club continues whereas smaller clubs tend to lose their existing supporters and observe diminishing trend in revenues. In simple words, they can either adopt mutual ownership or improve their existing private model after evaluating their financial position and revenue streams. On the ending note, it is justified to say that mutual ownership model would be a much feasible option for cash-starved smaller clubs in present economic scenario compared to large clubs that can compete on the basis of their team’s performance. Bibliography / References: Jonathan Michie and Christine Oughton (2005) “The Corporate Governance of Professional Football Clubs in England” Blackwell Publishing Ltd Volume 13 Number pp. 517-531 Ross Emery and Mike Weed (2006) “Fighting for survival? The financial management of football clubs outside the‘top flight’ in England” Taylor and Francis Group pp. 1–21 Dobson, Stephen and John Goddard (2001) “The Economics of Football” Cambridge University Press pp. 3-31 David Kennedy & Peter Kennedy (2007) “Supporter Trusts and ThirdWay Politics” Taylor and Francis Group Vol. 10, No. 2, pp. 285–303 Paul Martin (2007) “Football, Community and Cooperation: A Critical Analysis of Supporter Trusts in England” Taylor and Francis Group Vol. 8, No. 4, pp. 636–653 Adam Brown (2008) “POLITICS, THEORY AND PRACTICE ‘Our club, our rules’: fan communities at FC United of Manchester” Taylor and Francis Group Vol. 9, No. 3, pp. 346–358 Hamil, Sean, Jonathan Miche, Christine Oughton and Steven Warby (2002) “Recent Developments in Football Ownership” Ebsco Publishing pp. 1-10 Dominic Malcolm (2002) “Football Clubs and Football Businesses in Twenty First Century” Ebsco Publishing pp. 102-113 Andy Burnham (2005) “The real deal for footballs future” Guardian Newspapers Limited Johnston Birchall and Richard Simmons (2004) “The Involvement of Members in the Governance of Large-Scale Co-operative and Mutual Businesses: A Formative Evaluation of the Co-operative Group” REVIEW OF SOCIAL ECONOMY, VOL. LXII, NO. 4, pp. 487-515 Andy Adams and Seth Armitage (2002) “MUTUALITY FOR FOOTBALL CLUBS? LESSONS FROM THE FINANCIAL SECTOR” pp. 1-11 FA Report (2005) “THE FOOTBALL ASSOCIATION FINANCIAL ADVISORY COMMITTEE” pp. 1-12 J. R. Shackleton (2000) “Football as a Business – Review Article” Football Studies, vol. 3 no. 1 pp. 80-89 Jonathan Michie (1999) “New Mutualism -A Golden Goal?” Trafford Press Ltd pp. 1- 28 Hamil, Sean and Stephen Morrow (2008) “The People’s Game and Community Ownership of Football Clubs: A Mutual Solution to a Market Problem” pp. 1-8 Sara Ward (2009) “What Alternative Business Models Exist in the Organisation of Professional Football Clubs?” pp. 1-11 Stephen Hope (2003) “The Ownership Structure of Nationwide League Football Clubs 2002-03” pp. 3-35 Sarah Gilmore and Clive Gilson” (2007) “Finding form: elite sports and the business of change” Journal of Organizational Change Management Emerald Group Publishing Limited Vol. 20 No. 3, pp. 409-428 JON MAINWARING “Fan activism may hold lessons for directors and shareholders” Wall Street Journal Available at http://online.wsj.com/ad/article/businessoffootball-fan APFG Report (2009) “English Football and its Governance” All Party Football pp. 3- 24 Available at http://www.allpartyfootball.com/APFG_Report_on_English_Football_&_Its_Governance_April_2009%5B1%5D.pdf Read More