AndrewSweeney Mushonga
Special Correspondent
THE constant reminder that football is now big business globally may sound like a broken record when played on the local front, but it is in fact the reality.
Many national associations, especially in Europe and some parts of Africa, as well as the most successful clubs, have capitalised on the growth of the football industry and are applying business principles to cash in on it.
The business model is premised on a pyramid structure as depicted in Figure 1.
At the apex is the league, which owns the product, and the product is the game.
At the base of the pyramid we have the media and the sponsors.
The league has the responsibility to develop a product which appeals to the sponsors, who, in turn, invest in clubs through a variety of advertisement packages. In the process, the sponsors get the desired exposure.
The media equally benefits through the creation of quality content for viewers and in return invest back to the leagues through television rights and other packages.
The success and continuous growth and improvement we see in European teams is not born out of chance, but hard work and visionary leadership by UEFA through a lot of strategies to keep their clubs afloat.
These interventions were meant to curb club financial mismanagement, hence support their continued existence.
The financial mismanagement of clubs had resulted in some clubs facing bankruptcies and some struggling to meet their financial obligations, including fulfilling fixtures.
In the midst of all these challenges, UEFA implemented FIFA’s Club Licensing and Fair Play Regulations.
The main aim of these regulations is for clubs to at least invest enough resources to break even and force clubs that seek to participate in future UEFA competitions to radically improve their financial position.
The financial criteria categorises club income as operational revenue and non-operational revenue.
Whereas operational revenue is made up of commercial revenue and match-day revenue, with commercial revenue constituting sale of merchandise, stadium rights, advertising and promotion.
Match-day revenue consists of ticket sales, food and hospitality.
The regulations stipulate that operational revenue must make up at least 70 percent of total club revenue, meaning that non-operational revenue, which includes television rights, only accounts for less than 30 percent.
The rationale behind the above income distribution emanates from the realisation that operational income is broadly under the control of respective clubs’ purview and generally less contingent to market cycles.
Thus, from this assertion, clubs are duty-bound to sweat their assets and grow their operational income and create the right product quality before they can think of sponsorship income.
Table 1 shows a snapshot of EPL clubs’ revenue income distribution for the 2013 season.
Those figures are only possible when a club invests commensurate resources.
Sponsorship income is a mere derivative of such investment. It is not a secret that the big six clubs in the EPL account for the greater share of television rights, simply because of their massive investments and brand position.
The above glamorous results are a manifest of guidelines and regulations as contained in the Finance Criteria, whose objectives, among others, include to:
- Improve the economic and financial capability of clubs
- Increase club’s transparency and credibility
- Develop financial controls, which are both retrospective and preventive, to keep abreast with the ever-changing operating environment
- Puts a limit on losses
- Report on all lawsuits
- Places the necessary measures to safeguard the interests of creditors
- Submission of audited accounts
- Ensures that there are no payables overdue towards football clubs
- Ensures that there are no payables overdue towards employees
- Ensures that there are no payables overdue towards tax authorities
- Ensures that there are tighter financial control systems for clubs
- Setting up of a “Club Financial Control Body”, which has the mandate to licence clubs in order for them to participate in leagues
- Ensure that accounts are prepared on a going-concern basis, and where the net equity is in the negative, the club must submit financial forecasts which demonstrate its ability to continue as a going concern until the end of the next season.
- Forecast accounts must include profit and loss statements, cash flow statements and stating possible risks which can affect future financial results.
The finance criteria takes into account that sporting success is most evident in financially strong and powerful clubs.
There has to be a transformation by clubs into commercial entities with a view to make profits. There is cut-throat competition between clubs for the highest possible revenue to enable clubs to recruit the best talent across the board and steer the club to greater heights.
The finance criteria seeks to identify club sources of revenue, which are classified as operational and non-operational income, and club expenses, mostly composed of player transfer fees, wages, infrastructure maintenance costs and dividend payouts.
The criteria is further supported by Rottenburg in his assertion that “professional teams are different from other kind of business ventures. If a seller of shoes is able to capture a market and cause other sellers of shoes to suffer losses and withdraw, the surviving competitor is a clear gainer. But in baseball no team can be successful unless its competitors also survive and prosper sufficiently so that the differences in quality of play among teams are not too great.”
It is also believed that as a product, sport requires coordination of participating teams.
The coordination entails coming up with binding rules and regulations before the competition takes off and the general management of the competitions.
Without coordination, professional sport competition will not occur.
It is also clear that one team cannot get revenue without other teams to play with.
The financial viability of a team is thus dependent on the success of other teams.
It is therefore impossible for teams to exist without rivals. The major objective is, however, to create teams of near-equal ability.
This reduces dominance by a small number of clubs as such dominance often kills excitement. It affects the interest of the viewing public and ultimately attendance at match venues, as the euphoria associated with the uncertainty in results may be gone.
In contrast, in the domestic league, there is a growing myth that more than ever success can be bought, as the impoverished traditional giants like Dynamos, Highlanders and CAPS United have found their perennial dominance challenged.
It had become the norm that the championship would literally change hands between those giants, despite the status quo being occasionally disrupted by teams like Amazulu, Motor Action, Monomotapa and Gunners FC, who sadly now only exist in history.
They won a league title each before they vanished, having been weighed down by a tough operating environment.
Lately, Chicken Inn and FC Platinum have become serious contenders for the title, with the former winning in 2015 and the latter claiming a hat-trick from 2017 to 2019.
Yet a brutal assessment will expose the quality of our teams, especially the big three and the other teams in general, which are run on limited financial resources.
Their lack of appropriate investment thresholds has seen them failing to attract the calibre of players who will deliver the right product on the pitch and, in the process, woo fans in their droves.
The arrival of company-owned teams on the scene has been a breath of fresh air and created a lot of enthusiasm, with FC Platinum emerging as a force, although their performance on the continental stage has been disappointing.
A quick analysis will show that FC Platinum’s balance sheet is of little significant size and value compared to most of the continental giants.
There is need for our PSL teams to benchmark their balance sheets and level of investment against the leading African giants such as Egypt’s Al Ahly, Kaizer Chiefs (South Africa), TP Mazembe (DRC), Esperance (Tunisia) and Wydad Casablanca (Morocco) and understand what is required of them to be able to compete at that same level.
As long as we continue to play deaf and dumb when all football stakeholders have embraced the modern methods of managing club finances, recent ugly developments which saw two clubs nearly failing to affiliate to the PSL will always be a common feature.
This can surely be avoided by implementing the Club Licensing regulations; in particular, the “Finance Criteria.”
The implementation of this code will ensure, among other objectives as enumerated above, that only financially sound clubs will be licensed to participate in our leagues.
Financially endowed clubs will do what is needful to grow their brand and in the process create the desired revenue streams.
The following is a possible revenue position once clubs focus on the financial pyramid as alluded to earlier own.
*TABLE: POSSIBLE FINANCIAL REVENUE*
Assumptions:
– Each club has its own stadium, located in an area where it enjoys a lot of support
– Unit cost of merchandise is equivalent to ticket cost and double supporters who watch matches
– Number of players and tech team is pegged at 35, and monthly costs per month per club as follows (CAPS, Chicken Inn & Ngezi $4 000, (Dynamos, FC Platinum, Highlanders $5 000), (Triangle & ZPC $3 000.00)
– Each club has a register of supporters
– Currency – USD
The above clearly illustrates that without the correct financial model, the above numbers will remain a mirage.
We need to invest in our game, develop our players and retain them.
We have gambled enough but figures do not lie.
Dwindling numbers of fans at our match venues, performance in continental tournaments and world rankings are good yardsticks.
Football success, like any business, is financially driven and the sooner we grasp that we will quickly stop the rot.
Our football association must be more concerned with the financial quality of teams plying their trade across the divide of our leagues.
We are missing an opportunity to introspect on the quality of our teams by moaning endlessly about the lack of sponsorships.
Sponsorship will come, for now it is more of charity case, or putting good money on bad money.
ZIFA must lead in understanding and implementing the necessary financial regulatory matrixes which will bring us the desired success, together with the lost crowds.
Most of them had their feelings wounded when their clubs folded.
An indication that authorities care for their feelings will bring back a lot of lost goodwill from the fans.
There is absolutely no reason to be shooting in the dark.
A firm resolve to fully implement Club Licensing regulations will be a good starting point, and this cannot be beyond us.
The right amount of finance will create a big industry that cannot be run like some pastime.
Online Reporter