The New Football Business: a Challenge for Elite Followers
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International Business Master Thesis No 2000:18 The New Football Business: a challenge for elite followers. -A CASE STUDY FOR IFK GÖTEBORG- Monica Marquez & Heliodoro Martin Graduate Business School School of Economics and Commercial Law Göteborg University ISSN 1403-851X Printed by Novum Grafiska ABSTRACT A decade ago, as the 1990’s opened, many small tentative steps were ventured into the new (at that time) business age. Which of football’s leaders could then have foreseen the sheer scale and speed of football’s economic revolution? Associated industries such as media, sportswear, advertising, and so forth have seen football as an attractive business and thus many off-the-field developments have speeded up its expansion. On the other hand, some sensible and regulative issues are threatening the traditional structure of European football. The change in the international transfer system, the continuous threat of a Super League, the discussion about regional leagues and the supremacy of UEFA as the single governing body are important matters that have to be handled carefully. The situation has become almost dramatic at the European level. Most of the participants are now swept along, whereas very few can claim to be in control. To have a chance within an era of stock market flotation, corporate takeovers and digital television, it is needed a defined strategy, a clear focus, top class people, financial resources and some luck! In this thesis we analyse how football is changing nowadays and which forces are pushing the industry to another direction at the clubs’ level. The question here is to see to what extent the “golden era” for football – with colossal sums of money entering the game through TV deals, sponsorship contracts, etc. - is turned into a situation where the football authorities put things back on an even keel. The particularities of football as a sport of masses and passions make it a very special business, where pure business strategies have to be combined together with social, cultural and educational issues totally intrinsic into the game. Those competitors taking part in UEFA competitions must look for profitable opportunities, where they can perform and increase their appeal among fans. Thus, the UEFA Champions League, as the most lucrative and prestigious European competition must be the target market for those “small” clubs outside the football elite. This study regards business strategy as mandatory for the survival of non-elite clubs in European competitions. We dearly hope to see investment in youth development, stadia & facilities, skilled business managers, the marketing and commercial infrastructure and brand development that will secure revenues for many years to come, community and fan base programmes, etc. But we worry that the lack of both support from the EU to the UEFA and powerful recognition of the specific nature of sport might drive the industry to a paradise just for the elite, where individual interests overwhelm the traditional football economics (competitive balance, solidarity mechanism, input allocation, etc.). Key Words: Football industry, transfer system, commercialisation, UEFA Champions League, elite followers, business strategy, and sport specificity. ACKNOWLEDGEMENTS Many people helped us in many ways when we were writing this mater thesis. We are therefore grateful to all of them for letting us undertake this study. This project was initiated in August 2000 and has going through up to December 2000. We are particularly grateful to IFK Göteborg. Credit should go to IFK’s chairman Bosse Gentzel and Jan-Olle Folkesson, who suggested writing a study on the football business to us in August 2000. A big thank is also to the President of UEFA, Lennart Johansson, and the President of the Football Swedish Association, Lars-Ake Lagrell, who both kindly agreed to meet us for the purpose of explaining the football industry and the problems of small clubs, respectively. Special mention goes to Deloitte & Touche Sport’s team in Manchester – Robert Elstone and Jake Wilson -, who kindly gave us the opportunity to meet them and provided us with some of the company’s primary information, the best financial data source for football clubs currently available. We would also like to extend our thanks to Rogan Taylor and the Football Research Unit that he manages at the University of Liverpool, due to their availability and kindness for our stay in Liverpool. Other people also merit a mention, specifically Stefan Szymanski, the real inspirer of our thinking in this thesis and who was always available for e-mail comments; Soccerex 2000’s people, who was the main reason of our visit to Manchester; Maurice Watkins from Manchester United, who agreed to interview with us at Soccerex 2000 despite his commitments; UK Sport’s staff by arranging all the documents and bibliography for our one-day visit; Rudolph Rothenbuholer from the UEFA Communications Department by providing us with valuable information about the UEFA Champions League. We thank Deloitte & Touche in Spain, Denmark and Italy; Ashurst Morris Crisp; the Spanish Professional Football League, Sportbusiness.com, Townleys Sports Lawyers, The Centre for Research into Sport and Society and The Sir Norman Chester Centre for Football Research from the University of Leicester (UK). All of them provided us with helpful information. We would finally like to thank our professors, Sten Söederman and Hans Jansson, who supervised and encouraged us during the process of thesis writing. Oh, and yes, before we go, a very, very big thank you to the Graduate Business School and to all of our mates and professors in the MSc in International Business. We honestly would never have had the opportunity that led to this dissertation without the knowledge they all have provided us throughout this program. MONICA MARQUEZ & HELIODORO MARTIN “A mi familia que siempre me apoyo dándome ánimos desde México. A Oscar por haber hecho de mis estudios en Suecia una excepcional experiencia”. Mónica “To my parents, Heli and Mari. To Football, my real passion, and for Spain, simply my home-country”. H.M. TABLE OF CONTENTS 1 INTRODUCTION 1 1.1 Personal Interest in the Football Industry 1 1.2 A Brief Story About Football 1 1.3 Background: A Developing Industry 2 1.4 Problem Analysis 4 1.4.1 Football Business Research 4 1.4.2 The UEFA Champions League and the Small Clubs 5 1.4.3 Main Problem 7 1.4.4 Research Problems 8 1.5 Definitions 10 1.5.1 European Clubs 10 1.5.2 European Leagues 12 1.5.3 Commercialisation 12 1.5.4 Exchange Rate 12 1.6 Delimitations 13 1.7 Purposes 15 1.8 The Company Pushing this Study 17 1.8.1 IFK Göteborg 17 1.9 The Outline of the Thesis 18 2 THEORETICAL FRAMEWORK 25 2.1 The Research Model for Industry Analysis 25 2.1.1 Beyond Porter’s Five Forces Model 25 2.1.2 The Industry Model 26 2.1.3 Market Dynamics 29 2.1.4 Industry Structure 30 2.1.5 Industry Development 32 2.1.6 The Specific Market 34 2.1.7 Market Actors 37 2.1.8 Scenario Analysis 38 2.2 Internal Micro-Environment Analysis 38 2.2.1 Internal Micro-Environment Model 39 2.2.2 Values 41 2.2.3 Objectives and Goals 41 2.2.4 Resources 42 2.2.5 Capabilities 43 2.2.6 Competitive Advantage 45 2.2.7 Industry Key Success Factors 48 2.3 The Structure of the Thesis 49 3 METHODOLOGY 55 3.1 Research Strategy 55 3.1.1 Choice of Research Strategy 55 3.1.2 Case Study Selection 56 3.1.3 Design of the Case Study 57 3.1.4 Scientific Approach 61 3.2 Research Method 62 3.2.1 Empirical Evidence and Analysis 62 3.3 Data Collection 63 3.3.1 Primary Data 63 3.3.2 Secondary Data 67 3.4 Evaluation 68 3.4.1 Validity 68 3.5 Summary of the Chapter 72 4 THE EUROPEAN FOOTBALL STRUCTURE 77 4.1 The Football Framework in Europe 77 4.1.1 The Hierarchy in European Football 77 4.1.2 Football as a Congestion of Interests 78 4.1.3 Football Competitive Structure 80 4.2 Football Organisation: Supply and Demand 82 4.2.1 The Structure of Revenues and Costs 84 4.3 The Major Actors in European Professional Football 86 4.3.1 Analysis of Influential Actors 87 5 FOOTBALL DEVELOPMENT 93 5.1 Introduction 93 5.2 A Major Trend in Football: Internationalisation 93 5.3 Three Main Driving Forces in Football 98 5.4 The International Transfer System 98 5.4.1 Introduction 99 5.4.2 History of the Transfer System 100 5.4.3 The EU and the Football Transfer System 101 5.4.4 The Transfer Fees 103 5.4.5 The New Transfer System 104 5.4.6 Transfer System and Income Redistribution 105 5.4.7 Redistribution Across Leagues? 106 5.4.8 The Transfer System, Competitive Balance and Youth Development 111 5.4.9 How Will Compensations Be Established? 113 5.4.10 The Transfer System and Accountability Problems 116 5.4.11 A Wave of “Alliances” Between Clubs 117 5.4.12 Conclusions 118 5.5 The Commercialisation of Football Through TV 119 5.5.1 Commercialisation and Football 120 5.5.2 TV and Football 120 5.5.3 Overview of the History of TV Rights in Football 121 5.5.4 TV Transmissions 122 5.5.5 The Future Evolution of the TV Market 124 5.5.6 The Differences Between Leagues 126 5.5.7 TV Income Redistribution 127 5.5.8 Corporate Ownership 128 5.5.9 The Impact of the Technological Development in Football 130 5.5.10 EU Involvement in the Sale of TV Rights 132 5.5.11 Conclusions 134 5.6 The UEFA Licensing Procedure 136 5.6.1 Introduction 136 5.6.2 The Effects of UEFA Licences on Competition 138 5.6.3 Conclusions 146 5.7 Benchmarking: The American National Football League (NFL) 146 5.7.1 Introduction 146 5.7.2 National Football League (NFL) 148 6 MARKET AND ACTORS IN UEFA COMPETITIONS 155 6.1 Introduction 155 6.2 Union of European Football Associations (UEFA) 156 6.2.1 The UEFA Cup 157 6.3 The UEFA Champions League (UCL) 157 6.3.1 Market Size 157 6.3.2 Market Growth: The European Audiovisual Market 158 6.3.3 Champions League’s Profitability 161 6.3.4 The Price of Being Competitive 164 6.3.5 Entry Deterrence in the Champions League 165 6.3.6 Other Aspects of the Competition 168 6.3.7 Industry Life Cycle and the UCL 172 6.4 The European Super League 173 6.4.1 Background 174 6.4.2 Purposes of the Super League 174 6.4.3 Possible effects of the Super League 175 6.4.4 Super League vs.