*Written by Kunwar Malhotra
Football clubs have evolved from being just a source of entertainment to becoming an attractive investment opportunity for individuals and businesses alike. The global football market is worth billions, making it a lucrative option for investors. However, owning a football club can be a complicated process due to a number of factors involved. There are numerous stakeholders, such as players, coaches, fans, and sponsors, all of whom have differing interests. Managing resources, such as player transfers, salaries, and stadium maintenance, is also complex. Additionally, unforeseen events such as injuries, bad form, and bad luck can have a significant impact on a club's success. This complexity gives rise to a variety of ethical issues that must be considered. Finally, unlike many other businesses, a football club’s final output, i.e. the game of football, is the lifeblood of millions of fans worldwide, which adds further complexities to club ownership.
History Of Different Ownership Models
English Model of Football Ownership
In the English Premier League, ownership of football clubs is regulated by the fit-and-proper-person test introduced in 2004. This test aims to ensure that only trustworthy and competent individuals serve in executive positions of major clubs. Anyone who takes over a club, runs one, or owns over 30% of its shares is assessed through this test. The objective is to prevent corrupt or untrustworthy individuals from having influence and to maintain a level of integrity within the league. The test is a significant step towards improving the transparency and credibility of football club ownership in England.
Spanish Model of Football Ownership
In Spanish football, the 'Sociedad Anónima Deportiva' (S.A.D.) model, introduced in 1990, plays a crucial role in financial management and transparency within sports clubs. Many Spanish football clubs add 'S.A.D.' to the end of their official names. However, notable exceptions like Real Madrid and FC Barcelona, do not hold S.A.D. status and remain non-commercial sports associations. This model aims to maximize revenues and promote financial stability. Furthermore, it was implemented to ensure improved financial management, accountability, and transparency across Spanish football clubs.
German Model of Football Ownership
The German model of football ownership is widely admired for its unique approach to club ownership and football management. German clubs follow the 50+1 rule, which promotes fan involvement and influence in decision-making processes. Under this rule, club members must hold a voting majority. Historically, German clubs were not-for-profit organizations run by members' associations, with private ownership being forbidden until 1998. The 50+1 rule, implemented that year, safeguards against investors prioritizing profit over the wishes of the fans. This ensures that German clubs maintain strong connections with their supporters, contributing to high average attendances, affordable ticket prices, and a vibrant club culture.
Celebrity Model of Football Ownership
Recent developments have seen the rise of celebrity owners in football clubs. For instance, Michael B. Jordan, LeBron James, Will Ferrell, and Matthew McConaughey are all involved in various ownership roles. However, actors Ryan Reynolds and Rob McElhenney are perhaps the most notable celebrity owners. Their purchase of Wrexham in 2020 led to the club's promotion and widespread support due to their documented journey in the acclaimed series "This is Wrexham." Beyond their business interests, Reynolds and McElhenney actively engage with the community, immersing themselves in the local culture and supporting local businesses.[i]
How Ownership Has Evolved
In recent years, there has been a significant shift in the ownership landscape of European football clubs, with powerful investors entering the scene. Previously, attempts by Middle Eastern investors to buy Liverpool and Manchester United were unsuccessful. However, the Abu Dhabi United Group's acquisition of Manchester City in 2008 marked a turning point, as they promised to bring top-tier players to the club. This move paved the way for state-backed clubs to compete on the global stage.
Manchester City's subsequent success, fueled by significant investments in players and training facilities, has set the stage for them to potentially become the first state-backed club to win the world's most prestigious club competition. This trend extends beyond football, with Saudi Arabia's recent partnership with the PGA Tour in the golf industry. A Bloomberg analysis of Europe's top five domestic leagues reveals how ownership has evolved since the Glazers' takeover of Manchester United in 2005. Sovereign-backed investment firms now own five clubs, including Manchester City. Moreover, private investment firms and sports management groups own or hold major shares in 12 clubs, including Chelsea and Lyon.
This transformation illustrates how football has evolved from a local pastime for wealthy individuals to a global arena driven by power and profit.
In recent years, several prominent European football clubs have witnessed changes in ownership. These new owners have diverse motivations, with some utilizing the clubs as diplomatic tools, others aiming to tap into the untapped revenue potential of football, and some taking advantage of financially burdened clubs amidst the pandemic. The allure is understandable considering the Premier League, Europe's wealthiest domestic competition, generates only marginally more revenue than the NHL ice hockey league. While the attempted creation of a European Super League similar to the NFL was unsuccessful, the desire for a lucrative, stable income stream persists.
The spending spree shows no signs of abating. Manchester United is currently contemplating offers from local billionaire Jim Ratcliffe, a Qatari group benefiting from the country's vast natural gas exports, and various US hedge funds and asset managers. However, investment fund-owned clubs have struggled to achieve consistent success in the Champions League. Real Madrid, under the helm of Spanish billionaire Florentino Perez, has emerged as the most victorious team since 2013. Interestingly, Real Madrid remains a club owned by its members, rather than any wealthy individual or group of investors. The upcoming prestigious final match presents Manchester City, a club owned by a sovereign-backed firm, with another opportunity to claim Europe's top prize. This comes just two seasons after losing to Chelsea, which was owned by Russian billionaire Roman Abramovich at the time. The clash in Istanbul will witness Manchester City facing Inter Milan, a club owned by a Chinese retail conglomerate that has borrowed heavily from a US asset management firm.
As the football ownership landscape continues to evolve, it becomes increasingly apparent that financial backing alone does not guarantee success on the field. It remains to be seen how these ownership changes will shape the future of European football and its pursuit of both profit and glory. [ii]
Exploring Football's Diverse Ownership Models
That's a comprehensive overview of the different ownership models in the world of football. Each model brings its own set of strategic objectives and influences how a club is governed and managed. Here's a summary of the strategic objectives associated with each ownership model:
· Promoting football globally.
· Supporting weaker federations and developing football in emerging regions.
· Ensuring democratic decision-making involving various stakeholders in the game.
· Achieving sporting success.
· Ensuring member satisfaction.
· Making decisions based on the interests of members and supporters.
Multiple Ownership Model:
· Balancing both sporting success and financial stability.
· Engaging fans and shareholders in the governance of the club.
· Providing a sense of community ownership and involvement.
Single Ownership Model:
· Investing significant capital into the club.
· Seeking public recognition and reputation enhancement.
· Pursuing synergies with other businesses or personal interests.
· Striving for sporting successes and on-field achievements.
Share Ownership Model (Stocks):
· Combining aspects of multiple and single ownership models.
· Generating revenue through share sales and dividends.
· Balancing the interests of shareholders and the club's long-term stability.
· Dealing with pressures related to share prices affected by sporting activities.
Regardless of the ownership model, revenue generation is a common objective among football clubs. This revenue may be used to sustain the club's operations, invest in player transfers, improve facilities, expand fan engagement, or pursue other strategic initiatives. It's worth noting that the football industry is dynamic, and ownership models can evolve over time as clubs adapt to changing circumstances and market conditions. [iii]
Structures Behind Europe's Soccer Powerhouses
Ownership Structures of Leading European Soccer Clubs by Country:
· Juventus: Controlled by the Agnelli family, founders of Fiat, and listed on the Milan stock market.
· Inter Milan: Acquired nearly 70% by Chinese electronics retailer Suning Commerce Group Co Ltd in 2016.
· Manchester City: Majority owned by Sheikh Mansour bin Zayed Al Nahyan through City Football Group (CFG), with investments from Chinese and US entities.
· Manchester United: Owned by the American Glazer family, listed on the New York Stock Exchange but with majority ownership retained by the Glazers.
· Liverpool: Owned by Fenway Sports Group, also owners of the Boston Red Sox baseball team.
· Arsenal: Fully controlled by American billionaire Stan Kroenke since 2018.
· Bayern Munich: Majority owned by their fans, with stakes held by Adidas, Audi, and Allianz.
· Barcelona: Owned by their fans through a membership scheme.
· Real Madrid: Owned by their fans through a membership scheme.
· Paris Saint-Germain (PSG): Majority owned by Qatar Sports Investments, established by Sheikh Tamim Bin Hamad Al Thani.[iv]
Ownership in the Premier League
The Premier League exhibits a range of ownership models, with notable examples highlighting the influence of individual investors on club success. Roman Abramovich's investment (2003) in Chelsea and Sheikh Mansour's ownership of Manchester City have brought them on-pitch achievements. However, both clubs heavily rely on the financial backing of these individuals rather than self-sustainability.
On the contrary, Portsmouth serves as an example of the risks associated with foreign ownership. Despite spending significant sums and winning the FA Cup in 2008, excessive spending led to financial struggles and eventual relegation to League Two. Portsmouth's ownership has shifted to the Pompey Supporters Trust, adopting the supporter trust model to secure the club's future.
The Glazer takeover of Manchester United faced opposition from fans due to the club's increased debt. However, the club has since thrived financially and maintained on-field success. Manchester United's long-established history, global brand, and consistent trophy-winning have contributed to their overall success.
Liverpool, too, experienced ownership changes, with John Henry of Fenway Sports Group taking over. Despite not matching the on-pitch success of United or Chelsea, Liverpool's strong business position is anchored in the club's history and brand recognition.
Tottenham and Arsenal, the only clubs listed on the stock market, have enjoyed both on-pitch success and financial stability. These factors are increasingly crucial given the Premier League and UEFA's financial regulations. While domestic ownership remains for a few clubs, foreign owners prioritize on-pitch success. The authors emphasize that clubs aiming for long-term viability and profitability should consider the stock market ownership model, as it allows clubs to operate within their means and generate profit.
Overall, the Premier League presents a diverse range of ownership models, each with its own implications for the financial stability and sporting success of clubs.[v]
The Rise of Chinese Investors in La Liga
In recent years, there has been a remarkable surge in the involvement of wealthy Chinese investors in various sports ventures, indicating the expanding influence of Chinese capital globally. This trend was further highlighted by the recent acquisition made by a Shanghai businessman named Jiang, who became the first Chinese minority owner in the NBA by purchasing a 5% stake in the Minnesota Timberwolves. Prior to this, he had also acquired Granada, a Spanish football team competing in La Liga.
What is astonishing is that Chinese investors now own or co-own 16 out of the 20 clubs in Spain. This trend follows a pattern established by Russian and Arabic investors during the flourishing period of gas and oil industries, and the Chinese have continued it owing to their substantial financial resources. While their domestic football leagues may not be as strong, Chinese investors tend to make smaller investments there and focus on expanding their presence in top leagues that have a wider consumer reach. Although this strategy can be costly, it has proven to be effective in terms of global influence and brand recognition.
Real Madrid and Barcelona, two of the most prominent football clubs in the world, have historically been owned and operated by their members and supporters, respectively. As of 2023, Real Madrid has been estimated to be worth $6.07 billion, making it the second-highest-earning football club globally with an annual revenue of €769.6 million in the 2022/23 season. On the other hand, Barcelona, ranked as the second-most valuable sports team in the world in 2022, has a worth of $5.1 billion and remains fan-owned and operated.[vi]
The Power of the Fans: Germany's 50+1 Rule and Sustainable Club Ownership
The German 50+1 rule is widely regarded as the best long-term option among various ownership models in football. Under this rule, club members and fans own over 50% of the club, ensuring that private investments are possible while preventing complete control by owners who may prioritize their personal interests. This model upholds democracy within clubs, allowing members to vote for the composition of their club board and enabling the replacement of those mismanaging the team. By keeping football connected to its roots and giving fans a voice, the 50+1 rule effectively maintains the integrity of the sport. However, like any model, it is not perfect.
While the Bundesliga in Germany has well-run and successful clubs like Bayern Munich and Borussia Dortmund, it is also known for its strict ownership requirements that prioritize fans over financiers. These rules prohibit commercial investors from holding more than 49% of voting shares in any club, ensuring fans have co-ownership and influence over strategic decisions. While this has kept wage bills and ticket prices low, it has limited the Bundesliga's ability to secure multi-billion-dollar deals seen in other European leagues.
There are exceptions to the rule, such as VfL Wolfsburg owned by Volkswagen AG and Bayer 04 Leverkusen owned by Bayer AG, as they have consistently invested in the clubs for over two decades. RB Leipzig, backed by Red Bull GmbH, has also made its mark. Nonetheless, the German football market remains unattractive to many large investors due to the lack of decision-making power that comes with ownership. Despite this, German clubs continue to thrive financially, boasting high attendance and low-ticket prices. The active support and engagement of fans ensure the clubs' and the league's future success. Models like socios, where fans have majority ownership and control over the board of directors through elections, further emphasize the importance of two-way communication and fan engagement.
By reducing dependency on wealthy investors and sponsors, clubs can focus on fulfilling their business and marketing potential. The most successful and renowned clubs in the world are those that have consistently performed well and garnered large fan bases. With a strong fan base and effective engagement strategies, clubs can attract foreign investors while retaining the power to prevent individuals with private interests from becoming majority owners.[vii]
The Complex Reality of Fan Ownership in Football: Challenges and Opportunities
Problems of Fan Ownership in Football
1. Financial Mismanagement: Instances of financial mismanagement are prevalent in fan-owned clubs, leading to financial difficulties and potential collapse. Examples include Leeds United's prolonged financial struggles and the mistreatment of supporters by the chairman.
2. Lack of Communication and Consultation: Fans are often excluded from decision-making processes that affect their clubs. This lack of communication and consultation undermines transparency and fan engagement.
3. Exploitation of Loyalty: Owners may exploit the loyalty and devotion of fans for their own financial gain, using the aspiration for success as a justification for economic abuse.
4. Limited Expertise: Fan ownership may lack the necessary expertise and business acumen to effectively manage the financial and operational aspects of a football club, leading to inefficiencies and instability.
5. Divided Decision-making: With a large number of fan owners, reaching consensus on important decisions can be challenging and time-consuming, hindering the club's progress and growth.
6. Lack of Financial Resources: Fan-owned clubs often struggle to attract substantial external investments due to the limited financial resources of individual fans. This can hinder the club's ability to compete and invest in player recruitment and infrastructure.
7. Difficulty in Attracting Top Talent: Without significant financial backing, fan-owned clubs may find it challenging to attract top-tier players, leading to a competitive disadvantage on the field.
8. Limited Commercial Opportunities: Fan ownership models may restrict the club's ability to explore lucrative commercial partnerships and sponsorship deals, limiting potential revenue streams.
9. Potential for Mismanagement by Fan Groups: In some cases, fan ownership can lead to internal conflicts and power struggles within supporter groups, which can negatively impact the club's stability and decision-making processes.
10. Limited Accountability: While fan ownership aims to increase transparency, it can also lead to diffusion of responsibility and a lack of clear accountability for financial and operational decisions, potentially resulting in ineffective governance.
Benefits of Fan Ownership in Football
1. Stability and Continuity: Fans who have a lifelong devotion to their club provide stability and continuity in terms of financial backing. Their unwavering support and loyalty contribute to the club's revenue and financial sustainability.
2. Increased Fan Engagement: Fan ownership ensures that supporters have a direct say in the club's decision-making processes, fostering a sense of belonging and engagement among the fan base.
3. Preservation of Club Culture and Identity: Supporters play a crucial role in shaping the club's culture and identity. Their passion and involvement contribute to the unique character and traditions associated with the club.
4. Financial Influence: Gate money and ticket sales significantly contribute to a club's revenue. Fan ownership ensures that the financial benefits generated by supporters' involvement directly benefit the club rather than being exploited for external interests.
5. Resolution of Mismanagement: Fan ownership provides a potential solution to instances of mismanagement and financial abuse by private investors. Supporters who own their club are more likely to prioritize its long-term success and well-being.
6. Sustainable Future: Successful examples of fan ownership, such as Hereford FC, demonstrate that supporters can create a sustainable future for the club. Under fan ownership, clubs have the opportunity to attract members, secure sponsorships, and manage their finances responsibly.
7. Democracy and Inclusion: Fan ownership promotes democratic decision-making processes within the club, ensuring that supporters have a voice and are included in important discussions and choices.
8. Community Benefits: Fan-owned clubs often have strong ties to their local communities, fostering community pride and social cohesion. They can contribute positively to the local economy and create opportunities for grassroots initiatives.
9. Greater Transparency: Fan ownership encourages transparency and accountability in club operations. Supporters have a vested interest in the club's affairs and can demand transparency in financial matters and governance.
10. Positive Examples: Successful fan-owned clubs like FC United of Manchester and Portsmouth FC demonstrate that fan ownership can lead to positive change, bringing about sustainability, democracy, and continuity to the club.[viii]
*The author is a lawyer from India
(The image used here is for representative purposes only)
[i]https://www.masterstudies.com/articles/football-ownership-unveiled-insights-and-tips-for-business-students [ii] https://www.bloomberg.com/graphics/2023-european-football-owners-premier-league-la-liga-serie-a/ [iii] https://ghanalysis.wordpress.com/2016/03/08/models-of-ownership-in-football/ [iv] https://m.allfootballapp.com/news/EPL/Understanding-ownership-of-leading-European-football-clubs/2161555 [v] https://playmakerpress.com/2013/05/15/the-football-business-club-ownership-and-the-measurements-of-success/ [vi] http://promoovertime.com/foreign-owners-football/ [vii] https://www.bundesliga.com/en/faq/what-are-the-rules-and-regulations-of-soccer/50-1-fifty-plus-one-german-football-soccer-rule-explained-ownership-22832 [viii] https://sportshistoryculture.blog/2016/02/11/fan-ownership-whats-the-problem/