For the last thirty years, footbal championships have been ...



Shedding Light on the Business Model of Italian Professional Football Clubs: A Critical Perspective Over the ‘Dogma’ of Football Clubs as Mere Entertainment Providers

Abstract

Several research contributions have investigated the operations of professional football clubs (PFCs). These studies identify the economic essence of PFCs in the production of entertainment. The aim of this study is to provide evidence that the business model developed in these previous researches does not hold for all PFCs in the Italian “Serie A” league.

The paper first identifies the potential drivers of profitability of PFCs in the “Serie A” in terms of financial and governance related variables. Secondly, the paper tests the association – via the application of an OLS multivariate model – of these factors with the actual profitability of clubs over a seven-year period, from 2006 to 2012. The paper shows that the business model that best explains the profitability of PFCs is one where: (i) the core activity is not merely the provision of entertainment; and (ii) as a consequence, it pursues objectives of profit maximization.

The main limitation of this study lies in its focus on the Italian domestic professional football market. Further research may provide evidence of the validity of our conclusions to a wider set of clubs at an international level.

The business model of Italian PFCs, as resulting from our findings, may drive a revision of the annual reports of these entities to better reflect their economic and financial position. Ultimately, the paper tries overcoming the ‘dogma’ of PFCs being looked at as mere entertainment producers by showing that they perform other (more profitable) operating activities which characterize a different business model.

Introduction

A recent market research (Deloitte 2012) on the European football industry has highlighted that this sector has reached a total turnover over almost EUR 17 bn in 2012 with the English “Premier League” leading the ranking with total revenues of approximately EUR 2.5 bn followed by the German “Bundesliga” (EUR 1.75 bn), the Spanish “Liga” (EUR 1.72 bn), the Italian “Serie A” (EUR 1.55 bn) and the French “Ligue 1” (EUR 1.04 bn). While the Italian football market only ranks fourth in terms of revenues, it presents the highest cost-to-revenue ratio signalling that containing the costs associated to football players is a key factor to improve the economic and financial performance of Italian clubs. At the same time, according to this research, the level of revenues is still concentrated around the “traditional” ticket sale and “show-related” activities and therefore the search for new strategies to increase revenues will become a pivotal factor of future economic viability of football clubs in Europe.

While showing the status quo of the European football market, this evidence raises a question for academic researchers: what is revenue for football teams? From a normative perspective, in the IFRS Conceptual Framework revenue “arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent” (IASB 2012). Considering that most EU football clubs file their financial statements according to IFRSs, from this perspective, the notion of revenues proposed in the Conceptual Framework could be accepted as describing the “operating” top line of football entities. What is then “ordinary” or “operating” activity for football clubs? This question further links to the issue of business model in the context of football clubs. In fact, today, while football clubs are subject to the strict conditions imposed by the UEFA financial fair play (2012) which pushes in the direction of requiring clubs to secure – by almost any means – their financial break-even, it is still to understand what features make football a business which is still worth investing in for many private entrepreneurs. Understanding the business model of football clubs can therefore help assessing the areas where it is worth investing to balance the two conditions of existence of these peculiar entities: (a) the economic viability of clubs; and (ii) their sporting performance. If those revenues which are traditionally regarded as being the “operating” ones for football clubs – that is revenues from sporting events and related ones – no longer explain the profitability and market persistence of certain football clubs, other sources of income need investigation in order to identify elsewhere in the financial statements the drivers of profitability of these entities and, by this means, better defining their business model.

Furthermore, professional sport clubs are subject to significant stakeholder pressure, especially where clubs’ supporters are particularly attached to local teams. The stakeholder management approach (see ex multis Freeman 1984) is quite familiar to for-profit firms, especially in Western countries, where internal and external stakeholders have gained increasing importance and power so to influence the way in which firms try reaching their business objectives. Even more important, in the specific field of football clubs, seems the approach provided by the legitimacy theory (Suchman 1995) to depict the peculiar importance of the social contract that exists between football firms and their reference environment (especially supporters) and to explain that these firms, at each point in time, “fluctuate” between at least two orders of objectives: (i) maintaining their economic equilibrium; and (ii) meeting foreseeable and reachable sport results. In fact, in professional sport business, possibly these issues are even stronger because directors may find it quite difficult to choose strategic plans if these result in poor sport results and they make supporters unhappy, even when such plans are deemed necessary for the firm’s survival. Therefore, the governance model of professional sport clubs is an important factor when defining the clubs’ approach to achieving business objectives.

In the paper, the Italian “Serie A” league is observed on a time frame considering the last 7 years (2005-2012). Particularly: the latest financial statements (2012-2013 season) of “Serie A” teams are analysed, in order to find evidence regarding the business model of those teams which have achieved positive financial results over this timeframe. The business model of any firm “at a minimum, […] would indicate: what activities it undertakes within the firm and how these are organised; what it buys and sells in market transactions, which markets it operates in (i.e. who it buys from and who it sells to), and the nature of its relationships with these parties” (ICAEW 2010, p.10); therefore, in broad terms, a firm’s business model can be identified by considering both performance-related and governance structure-related features. In fact, corporate governance characteristics[i], such as Board of Directors’ size, are an integral part of a firm’s business model as they indicate – from the lowest operational level to the highest strategic level in an entity – how the production is organised.

By looking at financial and governance factors, we tested the existence of any statistical association between those aspects (explanatory variables) and football clubs’ profitability (dependent variable) as expressed in terms of yearly net earnings.

We believe that the relevance of this contribution is two-fold:

i) in the recently published new UEFA’s Financial Fair Play Regulation (2012) no reference is made to the concept of a business model, therefore football clubs are looked at only from the perspective of their cash flows, to ensure their ‘financial’ viability. However, in this paper we show that there are some economic – rather than merely financial – determinants of clubs’ performance that should be looked at, in order to better understand their economic model; and

ii) this work may help overcoming the usual ‘dogma’ of football clubs as being mainly entertainment producers, by highlighting the economic factors that show a significant degree of association between the operating performance of Italian professional teams in the “Serie A” league and the business activities they perform.

The paper is structured as follows:

i) in the first section, the general context of the paper is set by providing a theoretical perspective (literature review) which helps us shaping our research questions; further, a snapshot of the Italian Serie A market (economic context) is sketched out in order to allow for the definition of research hypotheses consistent with the status quo and the pre-defined research questions; this section concludes with the indication of the expected relevance of this paper as a contribution to existing research;

ii) the second section concerns the identification of the methodology used to verify the research hypotheses;

iii) the following section presents the empirical results showing the extent to which research hypotheses have been verified and the cases in which this has not occurred;

iv) the last section addresses comments on the empirical results, offers possible explanations to them in line with the theoretical reference framework and answers the research questions proposing some considerations for further research.

1. Literature Review, Economic Context and Research Hypotheses

1.1 Existing Literature and problem setting

For the last thirty years, football championships have attracted significant interest not only by club supporters, but also by accounting academics. Many studies have tried to investigate from an accounting perspective this particular business, shedding light on several features of the income statement or the balance sheet (e.g. depreciation of players’ registration rights and the related recognition and measurement of intangible assets; see ex multis Trussel, 1977; Morrow 1992, 1995, 1996a, 1996b, 1999; Michie and Verma 1999; Rowbottom 2002; Amir and Livne 2005; Forker 2005[ii]).

Regarding these studies, we noted that the debate around the option between expensing or capitalising and, in general, regarding the methodology to evaluate players’ intangible assets in the balance sheet sometimes reopens: Morrow 1996a and 1996b concluded that “there are convincing arguments for the conceptualisation of the services provided by football players as accounting assets, and recommends a system of valuation in which players are valued at their realisable value by independent experts”; Amir and Livne 2005 argued that players rights should be expensed because of the weak evidence of future cash inflows (before 1998, the British FRS 10 gave the expensing option), whilst, according to Forker 2005, capitalization should remain the right way for accounting for these intangibles[iii]. A peculiar view on the determinants of the transfer value of these rights is discussed in several papers, with interesting results (Carmichael, Forrest and Simmons 1999; Dobson, Gerrard and Howe 2000; Tunaru, Clark and Viney 2005)[iv].

However, only a few researchers have tried to find evidence regarding one aspect of deeper concern when looking at football club activities, that is the determinants that are able to explain their economic durability in their ‘market’.

In addition, we found that most studies have only considered either (i) major teams and/or listed teams (in the Italian context, see Risaliti and Verona 2013), or (ii) aggregated and often by country data (Lago, Simmons and Szymanski, 2006; Buraimo, Simmons and Szymanski, 2006; Lago and Baroncelli, 2006; Gouguet and Primault 2006; Frick and Prinz, 2006; Ascari and Gagnepain, 2006; Morrow, 2006; Barros 2006; Dejonghe and Vandeweghe, 2006; UEFA, 2010; Deloitte 2003, 2004, 2005, 2006a, 2006b, 2007, 2008, 2009, 2010). However, none of the Italian studies (see footnote 1) considered the whole “Serie A” league, as it has been done for other countries with their respective major leagues, although from a more limited perspective (for example, Hall, Szymanski and Zimbalist (2002) test the existence of an association between clubs’ performance and level of payroll expense).

Regarding the former, as a matter of fact, we notice that the conditions of economic durability of those clubs largely depend on robust equity injections by their main shareholders. Also, a pure ‘surplus-maximization’ approach similar to those applicable to proper businesses is difficult to apply to those teams, as their strategic and managerial choices are seldom comparable to those of firms (in this respect, we recall that Guzman and Morrow 2007 refer to football clubs as “unusual businesses”, p. 309)[v].

For what concerns the second group of studies, instead, the co-existence of a few large teams together with many small ones generates some distortions in the market: for example, if one club alone loses EUR 100 mln and eight other smaller teams in the same league gain EUR 10 mln each, then the balance of the whole sector indicates a situation of economic tension, whilst a deeper look into the specific economic conditions and business model[vi] could let us conclude differently.

For these reasons, most studies focusing on football clubs have restricted their analyses to the description of the ‘status quo’ rather than providing the ‘economic rationale’ that is able to explain the business model of football clubs and their performance patterns.

One common misconception about professional football clubs is, in fact, that their existence would be largely explained by their efforts in winning competitions and championships. We believe that this is where the difficulty in trying considering professional football clubs as proper businesses is rooted. Of course, we do not necessarily hold that professional football clubs are ‘profit maximisers’ tout court, but we note that even ‘proper’ businesses seldom operate as pure profit maximisers. Therefore, a focus solely on the economic and governance determinants of football clubs’ operations may shed light on the drivers of their performance and better explain their activities in terms that differ from their claimed nature of ‘sui generis’, mere sport result-maximiser entities.

Particularly, we noted that for Szymanski e Kuypers (1999) revenues depend on sporting results (see also Hoehn e Szymanski 1999) which in their turn depend on the average level of football player wages in the long term. Therefore, those clubs which are relatively wealthier than others are more likely to rank in higher positions (Murphy 1999a and Murphy 1999b), and relegation causes several financial problems (Gerrard 2002).

Nevertheless the link between sporting results and revenues remains unclear when measuring revenues (also “sporting revenues” for Barajas et al. 2005) as the sum of “the income from match tickets and the pools (combined as the TAP variable), television rights (TV) and advertising/sponsorship (ADV)” (Barajas et al. 2005, p. 12), excluding the results of, for example, the trading activity of players’ registration rights.

Moreover, only these latter consider a different hypothesis: do economic results (not only revenues, but all other sources of income) depend on sporting results? The answer to this question shows that when profitability is considered in association with sporting results, as opposed to considering the mere dependence between sporting results and the level of revenues, the degree of significance of the association tested becomes much weaker (Barajas et al. 2005, par. 5, pp. 14-17; Bollen 2010).

As previous literature contributions have rarely addressed the issue of the determinants of football teams’ economic results, we try entering this research field by proposing an alternative model to the ordinary one that looks at the performance of these clubs by underlying any association between their sport results and their economic performance. In fact, football clubs are generally regarded as entities which are unable to translate their operational objectives in profitable targets. Instead, we believe that: (i) football teams pursue different patterns of profitability which differ from the mere production of revenues by means of ticket sale or brand merchandising; and (ii)sporting results are far from being the unique or the ordinary focus of these entities when it comes to setting their profitability targets.

In fact, when looking at professional football leagues in their entirety, and particularly when focusing on the Italian case, it is clear that: (i) most teams - generally the small and medium ones - do not necessarily compete with the realistic expectation to win the championship or to rank in the first few top positions of any tournament; and (ii) their choices in terms of best players’ retention and players’ trading policies do not necessarily seem consistent with the objective of increasing a team’s potential to win competitions.

If “the mission of professional football clubs can be described as to offer entertainment to their spectators through the game of football” (Cincimino et al. 2012, p. 116) and therefore the only ‘customers’ of football clubs were theirs fans, then probably none of the Italian professional teams would reach the economic equilibrium.

At the same time, we noted that in the Italian premier league, the “Serie A”, most small and medium sized teams are generally profit-makers as opposed to some of the major clubs which are loss-makers.

The existence of those clubs that, on one hand, are not the best performers in their league in terms of the number of competitions won, but that, on the other hand, are profit-makers raises the question of why this happens and what are the determinants of such state of things or, in other words, what their business model is. We agree with Lago and Baroncelli (2006, p. 22) that “if for the leading clubs, sporting results can be expressed in terms of victories (in the championship, European Champions League, UEFA Cup, etc.), for the provincial teams, they can be expressed in terms of them having managed to remain in Serie A and their promotion from Serie B”, however we believe that there are also other factors of the operations of Italian professional football clubs that need to be investigated in order to identify the proper determinants of the economic durability of those clubs.

In fact, the ‘ordinary’ lenses through which football clubs are usually analysed, that is looking at them as mainly show-business providers, appear to be unsatisfactory. We note that this may be a relevant and even sustainable business driver if: (i) the club is renowned as being a competitive one (and, as such, it relies on strong and generally expensive players); and/or (ii) the club has a quite large fanbase either locally or in even remote regions which, however, are reachable via satellite television. Again, this is not the case for small and medium clubs which do not always meet either conditions and we agree that, “the provincial teams are forced to replace a large number of their players every year. Teams that easily retain their position in Serie A let two, three, or even more talented players go each year, whom they replace with young players whose performance at the start of a season is uncertain […] although paradoxical, […] have more clearly defined economic objectives. These are clubs that are often linked to entrepreneurs who have no desire or cannot afford to run a business at a loss, and they must thus make a profit from invested capital” (Ibidem, p. 23 emphasis added).

Nevertheless, as opposed to what stated by these authors, we believe that this way of performing is not a constrained choice, but it is rather a sought-after model.

Furthermore, even for major clubs, which the ‘business model’ of show providers seems to best fit, the mere sale of TV rights and tickets proves not to be economically sustainable (as shown in Risaliti and Verona 2013 and also noted in Lago, Baroncelli and Szymanski 2006; Dobson and Goddard 2001; Antonioni and Cubbin 2000). Therefore the question of what factors are able to explain the existence and the economic durability of football clubs still remains unanswered[vii] also for those teams.

In sum, when looking at both small/medium sized clubs and major football teams their respective conditions of existence seem not to be explained by the ordinary paradigm which indicates that they are businesses whose core characteristic is the subordination of profitability targets to sporting targets. Therefore it is worth investigating the specific economic and governance-related conditions which may explain the performance of these entities.

Based on the considerations developed above, we identify a threefold research question:

1. What are the determinants of football clubs’ performance for the Italian “Serie A” league?

2. What is their economic raison d’être?

3. What are the conditions of their durability as economic entities?

To answer these questions, we considered the whole population of Italian football teams focusing, at a first stage, on small and medium clubs and then including in the sample also the major teams. We notice that, by not limiting the analysis to the ‘top-tier’ clubs, we look for the key features of football activities which are able to explain their performance over a fairly long (seven-year) period in terms that differ from the usual show-provider model. The search for the conditions of the economic viability of football clubs (in the first place, small and medium sized ones) suggests that we look more in depth into their financial statements. In analysing the financial statements, our search for a business model for professional Italian football clubs belonging to the Serie A league will not simply consider the accounting model as a given (in the Italian context many studies follow this approach; see ex multis Cesarini 1985; Committeri and Melidoni 2003; De Vita 1998; Manni 1990; Rusconi 1990; Teodori 1995; Bianchi and Di Siena 2000; Bianchi and Corrado 2004; Melidoni and Committeri 2004; Regoliosi 2006; Pezzoli 2007; Valeri 2008; Mancin 2009; Gravina 2012), that is we will not merely rely on the representation that statutory accounts give of the business model of the reporting entity. Also, as mentioned earlier, the identification of the business model of professional football clubs will rely on a review of their governance structures.

1.2 The Italian “Serie A”

Aggregated data from PwC (2013) seem to be very useful in providing a snapshot of the Italian professional football industry. In this report, several measures have been observed, such as total sales (broken down by revenues from competitions, revenues from TV rights, merchandising, etc.), and asset and liability key factors (including players’ registration rights and net financial position) for each of the following groups: “Serie A” league, “Serie B” league (Italian second division) and “Lega Pro” league (Italian third division) during the period from season 2007-2008 to season 2011-2012.

Data relating to Serie A are given more emphasis and space in the document and, looking at the associated graphs and tables (pp. 84-95), it is possible to note some interesting factors which are useful in describing the economic status of Italian professional football teams:

1) the increasing weight of income from the sale of players’ registration rights on total revenues (from 12% in season 2007-2008 to 20% in season 2011-2012);

2) the decreasing weight of TV rights sales (in absolute terms the relative weight is quite high at 43% in season 2011-2012, but it was far higher four seasons before, at 53%);

3) the relative growth of players’ wages (from EUR 949 M in season 2007-2008, to EUR 1,182 M in the latest season); and, eventually

4) the trend of the cumulated net income (from a cumulated loss of EUR 150 M during season 2007-2008 to a cumulated loss of EUR 282 M in latest season).

The following graphs help summarising the situation of the Italian professional football industry in recent years (Serie A only).

Graph 1 – Total Sales

[pic]

Graph 2 – Gains from Players Trading

[pic]

Graph 3 – Annual Total Players Wages

[pic]

Graph 4 – Annual Net Income

[pic]

The teams of the Italian “Serie A” league which we refer to in this paper are listed in table 1 here below (in alphabetical order)[viii] (these teams differ from those considered in the PwC report, as we have considered teams playing in the Serie A as of beginning of season 2012-2013):

Table 1 – Italian “Serie A” 2012-2013 teams

|Atalanta |Milan |

|Bologna |Napoli |

|Cagliari |Palermo |

|Catania |Parma |

|Chievo |Pescara |

|Fiorentina |Roma |

|Genoa |Sampdoria |

|Inter |Siena |

|Juventus |Torino |

|Lazio |Udinese |

For each of the listed teams, we analysed the annual reports of last 7 years (annual reports relating to fiscal years 2006-2012), disregarding the league they belonged to in the seasons preceding season 2012-2013[ix].

First of all, we have to underline that in the Italian Civil Code and according to Federal accounting rules, even if the percentage of income from players trading on Total Revenues is increasingly important, not all football teams include these gains in the “Total Revenues” section (“Valore della produzione” according to art. 2425 Civil Code).

If we sum the “ordinary” revenues (i.e. sporting-related revenues, such as TV right sales, ticketing and merchandising revenues) to the line item relating to revenues arising from players’ transfer (which are often regarded as being “residual” ones) ) for the 20 teams listed above, we have the results listed in tables 2, 3 and 4 below (please note that Pescara did not exist during years 2006-2009; fiscal year 2012 financial statements of Atalanta, Fiorentina, Genoa, Milan and Torino have not yet been issued at the date this paper is published):

Table 2 – Italian “Serie A” 2012-2013 teams aggregated Revenues and Other Income (R&I)

|EUR |R&G 2012 |R&G 2011 |R&G 2010 |

|BUS_MOD |0.32223 |0.0000 |*** |

|LEV |-0.001668 |0.1190 | |

|INTANG |-0.00000045 |0.0000 |*** |

|DEP&PERS |0.09431 |0.1230 | |

|SIZE |0.30585 |0.0000 |*** |

|BoD SIZE |-0.022233 |0.0000 |*** |

|AUDIT |-0.17374 |0.0000 |*** |

|Adjusted R-square | |0.593 | |

|***; **; * Significant at the 0.01; 0.05; and 0.10 levels; respectively |

As shown in Table 9, the Adjusted R² is 0.593 which is fairly high compared to regression models applied in previous similar studies.

We also tested the Durbin-Watsons statistics and do not reject the null hypothesis for autocorrelation.

Adj ROI is significantly positively associated with BUS_MOD (p < 0.01) and negatively associated with Board Size (p < 0.01).

Regarding our control variables; Adj ROI is significantly negatively associated with INTANG (p < 0.01); and AUDIT (p < 0.01); while it is positively associated with SIZE (p < 0.01).

The positive association between Adj ROI and BUS_MOD is consistent with our initial hypothesis and with the theoretical framework which we referred to (Baroncelli and Lago 2004). These results indicate that the business model of Italian professional football clubs in the Serie A league would be better described with reference to the main determinant of its operating activities; that is the trading of players’ registration rights; rather than the provision of entertainment services through sporting events.

The negative association between Adj ROI and Board Size is also consistent with our initial hypothesis and with part of the literature. This association could be explained by highlighting that a close board concentration allows for more profit-oriented activities and partly ‘immunises’ the club from social pressures on improving competitive sporting results at the expense of economic performance. This evidence also suggests that further research may confirm whether our understanding of the governance structure of football firms is correct in terms of the ownership structure of the club. In fact; the combination of the two factors; (i) negative correlation between operating performance and board size and (ii) positive correlation between ownership concentration and operating performance; would indicate that clubs with a closer ownership oversight and with a direct involvement in the management of the club’s operating activities are key factors to explain football clubs profitability.

On the other hand; larger boards may suffer from social pressures more significantly than smaller ones; this may be particularly true in the Italian case as football is certainly regarded as being the “national sport” and; especially in local communities; a right balance between profitability and reasonable competitive results may be difficult to achieve.

Furthermore; the positive and negative associations concerning control variables are; in our opinion; consistent with previous literature. Particularly; the negative association between Adjusted ROI and the presence of an external (single person or firm) auditor can be explained with the fact that in Italy; especially individual entrepreneurs may be more willing to perceive external auditors as a burden to their ‘entrepreneurial freedom’ due to their lack of information with respect to the importance of having strong external monitoring bodies (such as an external auditor). In fact; the preference on appointing the Board of Statutory Auditors as external auditor adds a supplementary task that may reduce the level of oversight; leading to weaker attention in guaranteeing that reliable and faithfully representational financial statements are issued. By this means; clubs could more easily implement earnings management practices by reducing the degree of oversight (even if this could also increase the level of risks in operating and financial activities the club is exposed to).

4. Conclusions and suggestions for future research

In this paper; we tried providing some evidence that football clubs; and particularly Italian professional clubs in the “Serie A” league; can be investigated with the lenses of ordinary business and that there exist profitability and governance patterns that are worth investigating to better understand the conditions of economic durability of football clubs.

The importance of understanding the economic determinants of football clubs is two-fold: (i) expressing more informed judgements regarding the economic viability of football clubs; in order to put into effect any reward mechanisms for those teams which show a certain ability to remain fairly competitive and; at the same time; maintain a reasonable level of profitability; (ii) gaining a deeper understanding of the business model of football clubs; allows for better economic planning and for sharper actions in case of any restructuring plans.

We also note from our analysis that the core activity driving the operating performance of football clubs identified in this paper; is poorly described in the accounting model provided by both groups of clubs; ie listed and not listed ones. We believe that the income statement should at least highlight the balance of the two main activities performed by Italian football clubs: (i) the result of the provision of sporting events to the public; and (ii) the result of players’ registration rights trading.

Finally; this research may represent a seminal work for future contributions in the area of business and accounting research on football clubs; at least in two respects:

i) on one hand; it would be interesting to investigate whether the general business model identified in this paper can be equally applied to all football clubs regardless for their dimension; popularity; ownership structure and nationality. We believe that this is not necessarily the case. Particularly; our findings suggest that within the general business model identified in this work; future research may look at identifying at least two possible clusters of football clubs in the Italian “Serie A” league (and possibly in other national or international leagues as well): (i) the “providers” of players; and the (ii) “consumers” of players.

ii) On the other hand; our identification of the business model of Italian professional football clubs may suggest a revision of the existing accounting schemes (or models) under which; at present; financial information of football clubs are reported in Italy. For example; an accounting model consistent with our findings would be one that shows; in terms of presentation of the income statement; at least a distinction between the balance of “sport shows-related activities” and “players’ trading activities”[xiii]. Furthermore; in light of our conclusions; also the measurement aspects of the “available for sale” or “held for trading” players may need to be revised in order to present their current values; rather than their historical cost information; in this respect we believe that for football clubs could apply the following: “Where the firm’s business model is not to transform its inputs; but to buy and sell assets in the same market with the intention of profiting from changes in market prices; we would expect that fair value would generally be the most useful basis of measurement” (ICAEW 2010; p. 42). In this respect; a relevant question arises about the correct classification of players’ rights in the financial statements and also the annual impairment assessment of these assets. These issues may be considered for further analysis (possibly by broadening the scope of the study to other European football teams) not only by academics; but also by accounting standard setters which will be increasingly interested in the next future in assessing the “real” value of the intangible assets embedded in entities’ financial statements (IASB December 2012).

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[i] We note that in the particular context of professional football clubs –at least in Italy – the traditional Agency (Jensen and Meckling 1976) and Managerial Capitalism (Berle and Means 1932) theories do not necessarily explain the nature of the relationship that exists between clubs’ owners and managers. This is because the degree of control that the former exercise on the latter, with respect to the core business decisions (such as buying/selling key players or hiring/firing a team’s coach), is so pervasive that there is a low level of information asymmetry. Furthermore, at present, most chairmen or CEOs of Italian football clubs are the owners themselves. This may suggest that governance-related features need to be interpreted in a way that considers this peculiarity of football teams, so that for example, a small number of members of the BoD does not necessarily signal a situation of lack of transparency or a reduced degree of collegial decision making, but it reflects the fact that majority owners are also directly involved in the clubs top management.

[ii] In the Italian context see Catturi 1984; Manni 2000; Bauer 2001; Fiori 2003; Busardò 2004; Onesti and Romano 2004; Frau 2004, 2007; Lacchini and Trequattrini 2008; Dello Strologo and Celenza 2008; Regoliosi 2010; Cincimino 2008; Nicoliello 2011; Risaliti and Verona 2013.

[iii] Regoliosi 2010, eventually, proposed an alternative model to fair value and historical cost for the measurement of players’ registration rights.

[iv] Lucifora and Simmons 2003 tested the existence of determinants of superstar wages in Italian context, even if with reference to a short period.

[v] From a purely economic perspective, football clubs are very peculiar entities as the competitive conditions of the market they operate in are different from the ordinary competitive conditions of firms which do not operate either in monopolistic or oligopolistic conditions. In fact, as opposed to ordinary businesses, football (as any other sport) clubs benefit the most when there is a perfect degree in competition with the other teams in the same league. The existence of a team that is far more competitive than the others in the same league (a sort of monopoly situation) pushes its earnings close to zero, and even in the case of a few strong competitors (a second-best hypothesis in main stream economic theories) the reasonable expected returns are lower than those arising from a market with a situation of perfect competition. See Neal 1964. From this perspective, in fact, it has also been noted that “sports fan interest is greatest when sporting competition is at its most intense” (Boughes and Downward 2003, p. 88) and that sports fans are football teams customers. See also Rottenberg 1956, Cairns, Jennet, Sloane 1986 and Dobson and Goddard 2001. From a different perspective, El Hodiri and Quirk (1971) contributed to better understanding the peculiarities of the football business environment according to antitrust rules (for the Italian antitrust regulation, see Autorità Garante della Concorrenza e del Mercato 2008; 2013).

[vi] We acknowledge that the notion of ‘business model’ has assumed several meanings and that no shared definition exists among different disciplines where this term is most frequently adopted (for example, Zott, Amit and Massa 2010 considered the concept of business model in the following areas: e-business, information technology in organizations, strategy, innovation and technology management), also Page 2012 provided an overview of the term business model in the context of financial regulation. Throughout this paper we will consider the notion of business model by referring, in general, to those factors that are able to explain the operating performance of football clubs.

[vii] This seems to be a key issue for the owners of professional football teams; in fact, we noticed the growing tendency to select different managers to cover different positions in football teams, by separating, for example, those who are in charge of technical-sport issues (attributed to a general manager or to an operating one) from those involved in economic, financial and commercial issues (whose responsibilities are attributed to internal sector specialists or to external professionals). The importance of effectively managing business-related aspects is particularly important nowadays due to the growing pressure that the strategic option to build club-owned stadiums has gained as a means for increasing volume and nature of revenues by expanding the portfolio of business activities (e.g. hospitality, food services, shopping center, etc. also by means of selected agreements with travel agencies and tour operators, schools and universities, etc.).

[viii] Fiscal year aggregated results are the sum of results of the same 20 teams, even if some of them had undergone relegation in past seasons, or have classified in different tournaments.

[ix] The different timeframe considered also explains the differences in our balances for each measure compared to those from PwC (2013).

[x] The reference to the term “market” is not intended in the sense of “active market” as defined in IAS 38 Intangible Assets as the market for players’ rights does not qualify as an active one according to the requirements of this standard.

[xi] “We do not argue that good corporate governance produces good corporate performance. Some of the most successful companies are managed by entrepreneurs who disdain what we view as good corporate governance” (Lipton and Lorsch 1992, p. 64).

[xii] In NOIF accounts (the Italian football federation accounting and organizational rules), any club may choose to recognize gains and losses from trading either as extraordinary or operating items.

[xiii] Recently, according to the NOIF regulation, Italian teams have to disclose in a specific section (in tabular form) of their annual reports, the result from players trading, however this additional information have not attracted significant interest so far.

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