Private Firm, Public Corporation or Member's Association Governance Structures in European Football

Summary


Based on the analysis of the specific environment in which football clubs compete, this paper presents a comparative institutional analysis of three paradigmatic structures of football club governance: privately owned football firms, public football corporations (stock corporations with dispersed ownership) and members' associations with an own legal personality (Verein). Against the background that "spending power" is the main driver of competitive advantage for clubs in the overinvestment environment of European football, the governance structure of the privately owned football firm exhibits superior abilities to tap sources of funding and channel them into playing talent. The results of the analysis are applied to current developments in German and English football and to recent initiatives of the Football Governing Bodies.

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Private Firm, Public Corporation or Member's Association Governance Structures in European Football

Introduction

The "peculiar" economics of sports (Neale, 1964) has always raised governance questions. 1 It has been widely accepted that the championship race, being the joint product of the participating clubs, requires more than the degree of regulation typical for other industries (Noll, 2006). In recent years this sports governance discussion has intensified significantly with respect to European football leagues due to the general perception that they were going through a severe financial crisis. Important contributions studying the link between governance and finance have been for example made by Baroncelli and Lago (2006) for Italian football, Buraimo, Simmons, and Szymanski (2006) for English football, Gouguet and Primault (2006) and Andreff (2007) for French football, and Frick and Prinz (2006) and Dietl and Franck (2007a) for German football. Typically the sports governance discussion focuses the level of the league or industry.2

This paper is different because it aims to present a governance discussion, which focuses instead on the club level. It abstracts from league or industry governance structures by treating them as elements of the environment, in which clubs operate. The concept of the paper is rooted in the tradition of comparative analysis of firm governance structures as pioneered by Fama and Jensen (1983a) and Fama and Jensen (1983b). According to the basic assumption of this tradition the environment, in which football clubs operate, generates specific requirements, which not all club governance structures are equally well suited to meet. In the resulting competition of governance structures those best adapted to the requirements of the environment will prevail.

In the first step of the following analysis the specificities of the environment in which football clubs compete nowadays will be outlined. The second step is devoted to the comparative analysis of the three paradigmatic governance structures: privately owned football firms, public football corporations, and member's associations with an own legal personality. In the final section, the results of the analysis will be applied to current developments in German and English football and to recent initiatives of the football governing bodies.

The Environment: Overinvestment and the Relevance of Spending Power

Compared to firms in other industries, professional football clubs seem to face a constantly poor business environment. Based on operating profit, which is defined as earnings before the deduction of interest payments and taxes, the recent Deloit...

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