Football Business Management

Intermediate International

Football Business Management

This paper seeks to present a report in the subject of intermediate international football business management. It has involved selecting two professional football clubs that have played in European competition this season from different countries. The report sought to critically evaluate the clubs' legal structure along with their current key sources of revenue and levels of expenditure. This report also considers the level of competitive balance within the respective domestic leagues that may serve to affect their European performance as well as the level to which they are able to comply with the demands of the UEFA Club Licensing Scheme.

“Football”; “Business”; “Management”

Intermediate International

Football Business Management

Executive Summary

Having selected two professional clubs in the form of Manchester United Football Club of England and Real Madrid Club de Fútbol of Spain that have played in European competition in the current season 2009/2010 from different countries it has been necessary to look to write a report that accounts for specific areas of football business management. Therefore, the report seeks to critically evaluate the legal structure of the clubs along with their key sources of revenue and levels of expenditure. In addition, this report will also look to consider the level of competitive balance within Manchester United and Real Madrid's respective domestic leagues which may affect their European performance as well as the level to which they are able to comply with the demands of the UEFA Club Licensing Scheme.

Findings & Conclusions

(a) Legal Structure

(i) Manchester United

Manchester United is a private limited company with share capital, a board of directors and shareholders with company shares that can be transferred in the company and may carry rights including to vote (Dignam & Lowry, 2006). The ‘rules' that such a company must adhered to are founded upon its Memorandum and Articles of Association filed at Companies House - although there may also be rules in place for dealing with affairs of the company that could go beyond matters normally covered by the Articles of Association so long as they conform with the Articles of Association (Dignam & Lowry, 2006). In view of the capacity of the brand's global nature for its potential profitability it is little wonder the American investor Malcolm Glazier and his family sought to take private ownership of the club and remove it from the stock exchange to make a profit and distribute that profit internally (BBC News, 2005).

(ii) Real Madrid

Conversely, Real Madrid are owned by the 'Carnet Madridista' who are official club members and pay an annual fee to be recognised as such for benefits including discounts and priority access on tickets, some free matches, and access to exclusive website content (Real Madrid.com, 2010). In addition, a 'Socios' is a an official club member with voting rights having paid a greater premium for membership with an extensive waiting list. This is because not all members are able to purchase a season ticket but 'Socios' can and could also run in an election for club President (Real Madrid.com, 2010). Real Madrid is, therefore, a private, non-profit club supported financially, at least in part, by over 100,000 club members (Reference for Business, 2010). Therefore, by way of a comparative with the position at Manchester United, it is interesting to note that the club is still privately owned as shares in it are not publicly available - it is just that the ownership of the club is much more broadly spread than with regards to that which the Glazers have in place at United (Dignam & Lowry, 2006).

(b) Key Sources of Revenue & Levels of Expenditure

(i) Manchester United

Manchester United has previously been recognised as the most valuable club in the world at £900 million in 2008 (Forbes.com, 2008). In addition is currently the club with the third highest revenue having been impacted upon not only by the depreciating value of the pound sterling on the international market against the Euro - its scale is effectively illustrated by the fact if exchange rates had remained the same as June 2007 they would still be top of the Money League (Deloitte, 2010). Such revenue generation was significantly influenced by the shirt sponsorship deal that the club signed in 2006 with AIG worth £56.5 million that became the most valuable in the world and is due to end in May 2010 (BBC News, 2006) and the diverse nature of the brand accounting for varying activities, services and products including their own TV channel and financial packages (Hill & Vincent, 2006). Manchester United have also accumulated a significant amount from the sale of Cristiano Ronaldo (£80 million) at the start of the past season (BBC Sport, 2009). However, the club has been somewhat less speculative in the transfer market having always placed a significant reliance upon the development of the club's youth academy and the purchase of potential from around the world - for example, the club has just purchased the Mexican international, Javier Hernandex, for an undisclosed fee (Telegraph.co.uk, 2010) - to further the club's appeal and potential for merchandising, sponsorship and prestige friendlies.

(ii) Real Madrid

Real Madrid has been recognised as the second most valuable club in the world (Forbes.com, 2008a) and is also the world's largest revenue generating football club for the past five years and has just become the first team in any sport to record revenues in excess of €400m in one year (Deloitte, 2010). This arose despite a relatively disappointing season both in La Liga and in UEFA competition with, for example, broadcast income having provided the club with its largest increase in revenue at £137 million that is a figure larger than the total revenue of all but the top ten Money League clubs (Deloitte, 2010). Overall, it has been recognised that Real Madrid generates roughly 25% of its revenue from ticket sales, 36% from television agreements, and 38% from merchandise and marketing deals (Reference for Business, 2010). In seeking to optimise the Real Madrid brand the club has sought to purchase the best players in the world having seen the impact the signing of David Beckham had upon the club's revenue streams by taking ownership of 50% of their image rights (Lowe, 2005, p.32). This led to the purchases of leading players in the global game including the Portuguese winger Cristiano Ronaldo and the Brazilian playmaker Kaka at approximately £80 million and £56 million respectively on the basis of the potential rewards likely to accumulate from sponsorship, merchandising and prestige friendlies (Dart, 2009).

(c) Competitive Balance

For both Real Madrid and Manchester United it is interesting to note that both experience limited competition in their respective domestic leagues - although as Burnley's 1-0 win over Manchester United at Turf Moor showed even those threatened with relegation can still beat the top teams (Taylor, 2009). However, over the nine month period of a domestic season the clubs will move to in and around the top of the table and, besides, whereas in the past to enter UEFA's top level European competition it was necessary to finish top of the league, in view of the success of both clubs and national teams from the respective countries, now up to four sides can enter the UEFA Champions League. As a result, although they would have to play a qualifying round, both Manchester United and Real Madrid can afford to finish fourth and still potentially compete in the Champions league the following season. Nevertheless, that is not to say both Real Madrid and Manchester United are willing to settle for that in view of the rivalries they have domestically and the weight of expectation of their fans both in the present and derived from history. For example, Real Madrid and Barcelona are currently tied at the top of their league (some 21 points ahead of Valencia) (Sky Sports, 2010) whilst Manchester United are in a three-way tussle with Arsenal and Chelsea (Ladyman, 2010) that have ultimately arguably led to their elimination from the Champions League this season in view of the difficulty involved with keeping up with the competition.

(d) The UEFA Licensing Scheme

The level at which Manchester United and Real Madrid are able to comply with the UEFA licensing scheme, it is to be appreciated that the new club monitoring requirements sought to - (a) introduce more discipline and rationality in club football finances; (b) decrease pressure on players' salaries and transfer fees and limit inflationary effect; (c) encourage clubs to compete with their revenues; (d) encourage investment for the long-term benefit of clubs (i.e. youth); (e) protect the long term viability and sustainability of European club football; and (f) guarantee clubs settle their liabilities on a timely basis (UEFA Club Licensing Discussion Paper, 2010). However, the problem for Manchester United in particular is that the club is currently in significant debt that the Glazier family put onto the club when purchasing it through the bank loans that they had to take out to do so (i.e. around £700 million) (BBC News, 2010). With this in mind, Manchester United sought to refinance the debt through a bond issue that raised around £500 million to pay off most of the international banks they owed - although the annual interest payable on the bonds is approximately £45 million each year (Wilson, 2010). As for Real Madrid, they are also some £296 million in debt - although their current club president believed that this would be cut by some £180 million by June 2010 so that they would then be living more within their means (BBC Sport, 2010). Therefore, significant question marks are likely to arise in relation to the extent to which these club are able to the meet the requirements of the UEFA licensing scheme and still be able to compete at the levels that they were hoping to - although it is likely, in view of the value of the brand, that further investment will materialise (Barclay, 2010).

Bibliography

Text Books

Dignam. A & Lowry. J (2006) ‘Company Law' Oxford University Press

Lowe. S (2005) ‘Reap What You Sow, Real Madrid' Europe Intelligence Wire (14th March)

Websites

BBC News (2005) 'Glazer Man Utd Stake Exceeds 75%' (16th May) (http://news.bbc.co.uk/1/hi/business/4550141.stm)

BBC News (2006) 'Man Utd sign £56m AIG shirt deal' (6th April) (http://news.bbc.co.uk/1/hi/business/4882640.stm)

BBC News (2010) 'Manchester United debt hits £716m' (20th January) (http://news.bbc.co.uk/1/hi/business/8470595.stm)

BBC Sport (2009) 'Man Utd accept £80 million Ronaldo bid' (11th June) (http://news.bbc.co.uk/sport1/hi/football/teams/m/man_utd/8094720.stm)

BBC Sport (2010) 'Real Madrid debt spirals to £296m' (20th September) (http://news.bbc.co.uk/sport1/hi/football/europe/8265563.stm)

Barclay. P (2010) 'Super-rich owners should feel in debt to Uefa over new plans' Times Online (29th March) (http://www.timesonline.co.uk/tol/sport/columnists/patrick_barclay/article7079512.ece)

Dart. T 'Florentino Perez defends Real Madrid's spending spree on Kaka & Cristiano Ronaldo' Times Online (12th June) (http://www.timesonline.co.uk/tol/sport/football/european_football/article6486341.ece)

Deloitte (2010) 'Real Madrid becomes the first sports team in the world to generate €400m in revenues as it tops Deloitte Football Money League' (2nd March) (http://www.deloitte.com/view/en_GB/uk/industries/sportsbusinessgroup/d039400401a17210VgnVCM100000ba42f00aRCRD.htm)

Forbes.com (2008) 'Soccer Team Valuations - #1 Manchester United' (30th April) (http://www.forbes.com/lists/2008/34/biz_soccer08_Manchester-United_340001.html)

Forbes.com (2008a) 'Soccer Team Valuations - #2 Real Madrid' (30th April) (http://www.forbes.com/lists/2008/34/biz_soccer08_Real-Madrid_340002.html)

Hill. J. S & Vincent. J (2006) 'Globalisation & Sports Branding: The Case of Manchester United' International Journal of Sports Marketing & Sponsorship (1st May) (http://www.accessmylibrary.com/article-1G1-146893579/globalisation-and-sports-branding.html)

Ladyman. I (2010) 'Are Chelsea, Arsenal, Liverpool & Manchester United still Premier class after Champions League failures?' Mail Online (8th April) Real Madrid.com (2010) (www.realmadrid.com)

Reference for Business (2010) 'Real Madrid C.F.' 2nd Edition, Encyclopedia of Business (http://www.referenceforbusiness.com/history/Qu-Ro/Real-Madrid-C-F.html)

Sky Sports (2010) 'Real Madrid v. Barcelona Preview' (9th April) (http://www.skysports.com/football/match_preview/0,19764,11065_3265121,00.html)

Taylor. D (2009) 'Burnley's bolt from the blue floors United as Carrick fluffs spot kick' Guardian.co.uk (19th August) (http://www.guardian.co.uk/football/2009/aug/19/premier-league-burnley-manchester-united)

Telegraph.co.uk (2010) 'Manchester United sign Mexican teenager Javier Hernandez' (8th April) (http://www.telegraph.co.uk/sport/football/leagues/premierleague/manutd/7568181/Manchester-United-sign-Mexican-teenager-Javier-Hernandez.html)

Wilson. B (2010) 'Manchester United raise £504 million in bond issue' (22nd January) (http://news.bbc.co.uk/1/hi/business/8475317.stm)

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