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A combined methodology for the concurrent evaluation of the business, financial and sports performance of football clubs: the case of France

  • Analytical Models for Financial Modeling and Risk Management
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Abstract

The recent transformation of football clubs to businesses and the challenges posed by this transformation motivate us to study the financial, business, and sports performance of French football clubs. We propose a two-stage method that can be applied to other settings, especially when there exist sample size and theoretical/model specification issues: first, Multicriteria Analysis is used to rank clubs on their financial and business performance dimensions; second, these rankings and the league standing (capturing sports performance) are used to assess the interrelationships of the different dimensions by means of a Partial Least Squares Structural Equation Modeling Approach. We find an amphidromous positive relationship between business performance and sports performance, and a one-way inverse relationship where financial performance affects sports performance. Put simply, more revenues affect sports achievements positively and these in turn impact positively on revenues in a virtuous cycle. The higher revenues do not aid financial performance given a race for success that can be possibly augmented by stakeholder myopia: the inherent to the sport pursuit of short term objectives to the detriment of long term sustainability. Consequently, the role of regulators (national authorities, UEFA Financial Fair Play) as custodians, is ever more important in protecting clubs from financial distress.

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Notes

  1. For some recent instances, the total cost of the FIFA WORLD Cup 2014 in Brazil was estimated to be around $ 11.6 billion, while FIFA was able to generate revenues of $ 4.8 billion (FIFA.com). Football clubs around the world spent $ 4.1 billion on player transfers during 2014 (BBC News Business, 28 January) and the aggregate annual revenue of the twenty highest earning clubs in Europe has amounted to $ 7.9 billion in 2014 (€ 6.4 billion) which is double to the amount spent a decade earlier (Source: Deloitte, Soccer Money League, 2014). At the same time, according to the Forbes Magazine (Ozanian 2015) the twenty most valuable football companies in the word are all European (and have been so for many years) with a combined 2015 market value and projected revenues of more than $ 23 billion and $ 8.3 billion respectively.

  2. In March 2015, the Serie A club Parma was declared bankrupt by an Italian court with debts of more than $ 220 million (The New York Times, March 20 2015).

  3. Please note with regards to the sample end date, that some of the data we use become available in France 1 year after the end of the season, hence the latest period we could apply in the study that commenced in 2015 was for 2013 end data, obtained in 2014.

  4. Based on UEFA’s rankings for club competitions, France ranks consistently at the top 6 positions during the sample period, and it has gained one place moving up to 5th out of 54 of European leagues in 2014–2015. http://www.uefa.com/memberassociations/uefarankings/country/.

  5. TV rights are not considered in the research model as this would introduce a bias in the analysis of the relationship between sports performance and business performance. In France, TV rights are allocated to football clubs at the end of each season according to the rank in the league.

  6. For example, these rules can protect stakeholders vis-à-vis management, given the presence of information asymmetries (e.g., protect professional footballers from not receiving their wages, as in Dimitropoulos 2010).

  7. Managerial myopia is a well-known phenomenon in the neoclassical finance literature according to which in the presence of information asymmetries, managers need to provide short term results to boost reputation and therefore become short-sighted like myopia sufferers, focusing on short-term results at the expense of long-term outcomes and interests of the firm. This has been linked to agency theory (Jensen and Meckling 1976) the method of payment of managers (gratification) as well as to information asymmetries (Narayanan 1985).

  8. For example, player and trainer compensation schemes contain a large number of short term bonuses, linked to game-by-game results and performance, with some also linked to attaining titles or certain positions in competitions. Similarly, club owners receive short-term ethical gratification by supporter appreciation and monetary gratification and success from direct and indirect revenues linked to club game-by-game wins, especially at the Champions League level.

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Authors and Affiliations

  1. Audencia Business School, Institute of Finance, 8 route de la Jonelière, B.P. 31222, 44312, Nantes Cedex 3, France

    Emilios Galariotis, Christophe Germain & Constantin Zopounidis

  2. Financial Engineering Laboratory, School of Production Engineering & Management, Technical University of Crete, University Campus, 73100, Chania, Greece

    Constantin Zopounidis

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  1. Emilios Galariotis
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  2. Christophe Germain
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  3. Constantin Zopounidis
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Correspondence to Emilios Galariotis.

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Galariotis, E., Germain, C. & Zopounidis, C. A combined methodology for the concurrent evaluation of the business, financial and sports performance of football clubs: the case of France. Ann Oper Res 266, 589–612 (2018). https://doi.org/10.1007/s10479-017-2631-z

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