There are signs that the football businesses of a number of countries are finally starting to pay attention to social responsibility and sustainability
It’s a funny old game and an even funnier old business. By the standards of the corporate world, most football clubs are minnows. Even English champions Manchester United earned only £320m over the 2011-12 season – about half as much as a medium-sized high-street name such as bakery chain Greggs.
But even the smallest clubs have something that most companies can only dream of: unquestioning brand loyalty. Manchester United calculates that it has 659 million followers and is the “favourite football team of 277 million of those followers”. Lower down the leagues, in England and elsewhere, the customer base is smaller but no less dedicated. Support for a club is tied in with community identity – something that for most people is unchangeable.
The blind commitment of fans makes them vulnerable as corporate stakeholders. Supporters care about what happens on the field and pay little attention to the management of clubs’ business affairs, or to related questions about ethics and sustainability. Winning is everything, and if a benefactor wants to buy into a club and lavish money on better players, supporters will rarely question the benefactor’s credentials or motivations.
Rolf Schwery, founder of Swiss sports consultancy Schwery Consulting, says: “The loyalty of the fans does not depend on the quality of the management of the club. Fans cannot change; there is no exit option.” Football clubs are unlikely to face a consumer boycott, or a significant loss of customers to a rival brand, if the quality of the product is poor, or the club engages in unpopular or unethical behaviour.
Glazer trail blazer
Manchester United demonstrated this when it was taken over in 2005 by Florida sports entrepreneur Malcolm Glazer. Fans protested about Glazer’s loading of debt onto the club, and a group of fans did actually break away, forming FC United of Manchester, which has been strikingly successful in the non-league divisions. But this barely rocked the Manchester United bandwagon, which continues to roll on and to richly reward Glazer.
At least the Glazer takeover of Manchester United was motivated by straightforward business considerations. In other cases, the blind faith of the fans is combined with a benefactor who is prepared to lose money, meaning that clubs do not necessarily need to be run well as businesses, because they will always be bailed out by their rich owners.
Prof Wynford Grant of Warwick University, who has written widely on the economy of football, says many clubs have become “trophy assets for particular individuals” who “often have quite complex motives” including the need for “some form of political protection or political insurance”.
Chelsea owner Roman Abramovich, Grant adds, is the “classic example”. Abramovich’s fortune came from obtaining Russian state assets at knock-down prices after the collapse of the Soviet Union. Since he bought Chelsea FC in 2003, he has reportedly poured between £700m and £1bn into the club – in return for a mere £1.4m profit in 2011-12, Chelsea’s first year in the black under Abramovich.
And the benefactor syndrome is not confined to the biggest clubs. In June 2013, KEH Sports Limited, headed by a Kuwaiti property investor Abdulla Al Humaidi, took over tiny English club Ebbsfleet United, who play in the Skrill Conference South in front of crowds of about 1,000.
The takeover, says Wynford Grant, is “a way of giving KEH Sports some profile and attention”, especially in the south-east of England where KEH’s parent company owns an Eastbourne hotel, and has looked at other acquisitions, including an unsuccessful deal to buy Eastbourne Borough football club.
The motives of benefactors at other English clubs have been downright criminal. In the 1990s, the former owner of Doncaster Rovers was jailed over a plan to burn down the club’s main stand in order to claim the insurance money. In other cases – including at Brighton and Hove Albion, Luton Town and Mansfield Town – asset stripping was the aim.
Some benefactors might be looking to park money and see football clubs as easy targets. One football insider told Ethical Corporation that an English lower league club was recently approached by Egyptian businessmen who had been close to the Mubarak regime. The potential investors lost interest, however, when they found that the club’s ground was not owned by the club, but by the local council.
Rolf Schwery says there is little media scrutiny of such business arrangements, which again means little pressure for clubs to be run on a sustainable, ethical basis. “If you go to a press conference, no one is asking about [the club’s] social responsibility. They want to know who is playing the next day. The journalists are just interested in the [off pitch] results,” he says.
The emphasis on money and results over good management, Schwery says, means football clubs “are far behind ordinary business” in their approach to corporate responsibility, even though clubs in principle represent and should act in the interests of their communities.
Schwery Consulting has designed the Responsiball Ranking to score the corporate responsibility performance of Europe’s top-tier football leagues. The latest edition of the ranking finds that the most socially responsible clubs, in general, are found in Germany’s Bundesliga, the English Premier League and the Dutch Eredivisie. The ranking is based on an assessment of how transparently clubs communicate on governance, community and environmental issues.
The ranking does not yet provide a breakdown by club, though Schwery says this could come once the methodology has been sufficiently independently audited. Overall, he says, clubs’ corporate responsibility performance is middling at best. Clubs score higher on governance and community involvement than on environmental performance, which for most clubs is not a priority.
The Responsiball Ranking report also notes that clubs’ communication on social responsibility is generally poor, and there might be more going on than is reported. English Premier League clubs are the “frontrunners in transparently communicating their social responsibility activities to the public,” the report says.
Possibly Europe’s most progressive club on social responsibility is Germany’s VfL Wolfsburg. In February 2013, Wolfsburg became the first football club to publish a sustainability report that conforms with the Global Reporting Initiative guidelines. Schwery says that corporate-responsibility-focused sponsors can prompt clubs to think about their responsibilities. In Wolfsburg’s case, the main influence is Volkswagen, which owns the club. VW has “a long-term interest in the club’s success, an interest not limited to financial aspects,” the Wolfsburg sustainability report notes.
Relationships with sponsors and other partners also provides the motivation for the second club to produce a GRI sustainability report: Swedish top division outfit Djurgårdens IF.
Filip Lundberg, the Djurgårdens CR manager, says that in Sweden, clubs from smaller cities and towns tend to have solid local backing, but in Stockholm, where Djurgårdens is based, “we have to compete with a lot of other interests”. It is easier for the club to obtain sponsorship or, for example, partnerships with local politicians to promote sporting initiatives, if it can demonstrate “genuine good intentions”. Lundberg says: “A lot of clubs say they do good things but we know we do really good things.” The corporate responsibility report provides “the facts behind that”, and the club hopes that financial benefits will eventually result.
Joakim Lundquist, the Swedish founder and head of Milan-based sustainability consultants Lundquist, says Djurgårdens is a relatively small club, but it made sense for it to invest in the sustainability report because it “enhances their immune system” and provides a “stronger case to attract sponsorship”.
The majority of football clubs, which do not have the spending power or reach of Manchester United, “need to have a sustainable business also in bad weather”, Lundquist says. He adds that the efforts of Wolfsburg and Djurgårdens are among a number of “embryonic” initiatives indicating that clubs are becoming more concerned with their long-term sustainability, rather than relying on bailouts from benefactors.
The Italian football federation, for example, published its first sustainability report in October 2012, prepared according to GRI guidelines. The English Premier League and some clubs such as Chelsea publish corporate responsibility reports, though these are largely accounts of community initiatives. The most recent such reports from Aston Villa and Manchester City cover the 2009-10 season, and Manchester United and other clubs publish information on corporate responsibility policies and on community activities. More systematic social responsibility among the bigger clubs is starting, but “from a very low level”, Lundquist says.
One prod for clubs to raise their business sustainability game is a set of financial fair play rules, adopted by Uefa in 2009.
The rules require clubs to at least break even over a three-year period, and to pay their bills – transfer fees and salaries – on time. The first break-even assessment will be carried out during the current 2013-14 season, and will take into account clubs’ financial performance from 2011 to 2013. Clubs that fall short could be barred from UEFA competitions, such as the Champions League. Other leagues, such as the English Football League (comprising the Championship and Leagues 1 and 2) have adopted similar codes.
One objective of the rules is to prevent clubs obtaining an advantage because of the generosity of wealthy benefactors. Simon Chadwick, a professor of sport business strategy and marketing at Coventry University, says financial fair play “opens clubs up to more scrutiny” and makes it harder for benefactors with ulterior motives to escape the spotlight. “We are now on the cusp of some possibly deeper changes,” he says, though he adds that it will take time for the effects of the change to be seen.
Financial fair play also has loopholes. An “acceptable deviation” from the requirement to break even is allowed, meaning that clubs can lose up to €45m over two seasons if that €45m represents a cash injection in exchange for shares. It also remains to be seen how strictly any sanctions will be enforced.
Outside football’s top level, research by accountants BDO published in August 2013 found, encouragingly, that the majority of English Football League clubs expect to comply with financial fair play rules without major changes to their financial models. Only 15% expected to have major problems.
BDO partner Trevor Birch says the rules could encourage better stewardship of clubs. There is “evidence that football clubs recognise the need for good corporate governance”, he says. “We’re seeing signs that the benefactor model is beginning to lose its allure.”
One sign of this, Birch notes, is that “outside of the Premier League, buyers [of clubs] are increasingly likely to be supporters, who recognise the important role that clubs play in their local communities and seem to be willing to go back to basics, with overly ambitious promises of silverware traded for closer ties and greater financial stability – a backlash, perhaps, against the profligacy of previous regimes”.
Most recently, in May 2013, Portsmouth became the largest English club to be acquired by its supporters – a deal brokered by BDO. Simon Chadwick, however, says that fan ownership should not be seen as a panacea. Fans who buy clubs are not necessarily business people, and can make the same mistake as benefactors – overspending in pursuit of elusive success.
But this argument is rejected by James Mathie, development manager at Supporters Direct, an organisation that promotes and assists in supporter ownership of clubs. “The reality is that the clubs that are community-owned are not the ones going out of business,” he says.
Supporters, Mathie says, are “just like society; you get every sector represented”. This can include people with business expertise. Mathie cites supporter-owned AFC Wimbledon, which has as chief executive a retired accountant who does the job in exchange for a symbolic one guinea per year.
Mathie also rejects the argument that supporter ownership means lack of success on the field, because money is not thrown at new players. Supporters are “part of the local fabric and want their club to succeed in the long term”, he says. Success can be built from the ground up. Swansea City, for example, is 20% community owned and run on principles of sustainability. “They’ve made it all the way to the Premier League without making a loss,” Mathie says.
The game is “still set up to favour short-term interests and clubs that lose money”, Mathie says. But it does not have to be this way and a vision of sustainably run, responsibility-focused clubs with close community ties is achievable.
Financial fair play can help. For unsustainable clubs kept afloat by benefactors, Mathie says, financial fair play is “a noose that should start to tighten”.
A stewardship balancing act
Fan ownership of football clubs can be seen as another form of a more traditional model of club management – management by local oligarchy.
English League 2 outfit Cheltenham Town Football Club is one example. The share register includes about 340 people – a roster of supporters, some of whom hold just a handful of shares – though there are three main owners, including the chairman, local businessman Paul Baker.
Business decisions are taken by a nine-person board, some of whom are longstanding members who have been involved in the club since its non-league days – Cheltenham Town won a place in the Football League in 1999.
The club has a turnover of about £2m and about 50 full-time employees, making it a significant, if not huge, local business. It is financially sustainable, with a profit of about £100,000 in 2012-13. However, board member Paul Godfrey says the unpredictability of the business environment makes it hard to see very far ahead. “In the lower divisions, you rely on cup runs, televised games and selling players, so to a certain extent it’s the luck of the draw,” he says.
To find players that might later become high-value assets, Cheltenham Town has an academy. The club is also closely tied to the community through its community trust, a separate entity that carries out sports participation, health, education and social inclusion project
Initiatives include six-week “learning and football” packages for young people not in education, employment or training, and a “know yer balls” campaign on testicular cancer. Current and former players add an element of glamour to the trust’s activities.
Godfrey says: “The bigger clubs do all the community stuff as well, but it’s a smaller part of their overall strategy than it is for us. For us it is a necessity because we try to attract supporters.”
He adds that board members see themselves as “custodians of the club. The club exists for the people of Cheltenham.” There is always a fine balance to be struck, however. “The big problem is how much do you spend on the team. There is tremendous pressure from supporters, managers and players to spend more. There comes a point where to compete at the higher levels, you’ve got to have serious money. We try to be sustainable, but people get carried away in football.”
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