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When did we hear this before? Over the last couple of months several stories on the poor state of Dutch footbalclubs popped up over and over again. RKC, Roda JC, ADO Den Haag, Willem 2, AZ, Vitesse, Feyenoord, just to name a few Eredivisie (Hollands premier division) clubs, that are suffering from financial problems. Even Ajax is now rumoured to significantly cut its number of players. In fact from the 38 Dutch professional football clubs only 10 seem to be financially healthy; clubs like Heerenveen and Heracles are for example healthy exceptions. Clearly governance is not to blame here; in fact without the Dutch Football Union (KNVB) the situation would likely be far worse. So where is the problem? The answer must be with the management of the different clubs.

Imagine the following situation. Fact 1: the season 2008/09 has come to an end and as a league a loss of EUR 34mln has just been realised down from a profit of EUR 64mln in 2007/08, a pretty hefty decline I would say, partly the result of a stagnating players transfer market. Fact 2: we are in the middle of a heavy financial and economic crisis. Fact 3: we keep our budgets for 2009/10 virtually unchanged at around EUR 410mln. Fact 4: average players salaries have just risen by EUR 65,000 to EUR 335,000 and are expected to rise further. Just read the facts again and let it sink in, does this make sense? Are we surprised there are casualties along the way? The answer is of course a capital NO. It was just a matter of time for this news to materialise.

Let us explain.
Fact 1 tells us that the season 2008/09 has been difficult and that the league as a whole suffered a loss of EUR 34m and could have turned out significantly higher were it not for the transfers of Huntelaar and Vermaelen (in spite of this Ajax still managed to suffer an overall loss of EUR 3.4m). The main reason for the overall decline could be found in a stagnating transfer market. Just think of it, it implies that the financial results of clubs are for a large part dependent on its ability to trade players. If there is a stagnating market (for example following a financial crisis) this means clubs immediately dip into losses. Even worse in case of cash flow problems they could even be forced to sell players (possibly with a loss) in order to generate cash. In any case, the fact that clubs partly rely on income from an irregular or exceptional item like transfers is asking for difficulties. Healthy clubs (and thank god there are a few) rely just on their regular income stream such as attendance, sponsorships and media rights. It is difficult enough to estimate these items.

Fact 2 tells us that we are in a financial and economic crisis. In such times football clubs should buckle up to weather the storm. Yes, similar to other industries, football is also very cyclical, albeit that awareness within football often does not align with the phenomenom of cyclicality. The football business is a very high fixed cost business (think of salaries and rent of stadium responsible for 70-90% of sales). This means that a club cannot afford to see its sales or top-line drop by too much as it will very quickly dip into losses. In an economic crisis companies either go down (see DSB/AZ and possibly Afab/Vitesse) or they cut heavily in items such as sponsoring in order to save money. Luckily some clubs have longer term contracts with their sponsors but renewals (if there will be a renewal) are likely to be difficult or are granted at a lower price. A second issue is of course that the number of spectators and skyboxes rented out might come under pressure as the consumer and companies prefer to keep his money in his pocket. In any case, it should be clear that it might be difficult for some clubs to realise similar sales levels, which are required to realise profits or to be at least break even. In such an environment you would expect clubs to become creative and find alternative ways to support the top-line. Somehow I am still surprised clubs do not make sufficient use of one of their most treasured assets, the supporters. Think of the hidden power here and the enormous database these supporters represent, think creative. I know there are exceptions but there is still lots to be done.

Nevertheless fact 3 tells us that clubs have kept their budgets virtually unchanged as far as income is concerned. Of course a budget is a budget and can be adjusted along the way. In the end it is cash management and contingency planning which determines the final result, but somehow we have our doubts whether such actions will take place, particularly given the high fixed cost base of some clubs as the recent past proves. Of course there are clubs that have reduced their budgets, but this also implies that others have increased it, which seems risky.

In the mean time fact 4 tells us that clubs are still raising their fixed cost levels, increasing player salaries by as much as 25-30%! This implies fixed cost levels are even increasing and that dependency on healthy sales levels even increases. There are around 644 contract players in the eredivisie. Their salaries alone (644 x average salary of EUR 335,000 = EUR 216m) already account for 53% of total sales. Adding the salaries of the remaining 1200 people (technical staff, management etc) employed by clubs in the eredivisie, we have assumed that by now salaries account for some 65% of total sales (vs 57% in 2006/07)! Come to think of it! And this is before stadium rental costs, variable costs, depreciation, selling costs, media costs etc. No wonder clubs are having difficulties to survive.

So it is clear something has to be done! Sales are stagnating, costs are rising! This has to be turned around, one cannot always count on the community (government money) coming to the rescue….Is management in Dutch football capable of doing it? I sincerely hope so. I hope they will find creative ways to grow the top-line, I hope they will be able to reduce costs (recent reports at least suggest that clubs like Ajax and Feyenoord are going to reduce salary costs), I hope they will implement contingency planning procedures. The proof of the pudding will be in cash flow management. I am sure some clubs with good management will be able to do this properly but there are also examples of clubs where I have my severe doubts. If I still hear management of clubs saying “ I am sure all clubs largely depend on transfer sums” or “ why always look at finances, it is good players which are important and then financing automatically will be allright”. Brrrrh, luckily the last comment was not from a financial guy, but it is exemplary for the mindset of some, which tend to be short term.

I do realise that better players will lead to better results, but reality tells us that we just will not be able to match the budgets of European clubs in the bigger leagues, which is a function of scale. Equal competition and a level playing field can only exist through rules of the regulators. In the mean time we have to start thinking longer term as in the end players are better off with a solid health of the clubs they are playing for. Holland has always been a producer of talent, our football schools are often examples for many clubs, this is a strength we should focus on. Financially it is also much more attractive then buying expensive stars from abroad. The youth is relatively cheap and by treasuring and growing talent in the right way and with the right values, the financial outcome will also be more attractive, a win win situation in my opinion.

See article in Telegraaf: bestuurders en BVO

3 Responses to “Dutch football: financial difficulties of clubs should be no surprise”

  1. Siu Says:

    Nice thanks for sharing..

    Watch live football

  2. jan-kees.mons Says:

    Thx, good luck with your live football site

  3. It's all about sports!! » Blog Archive » Bankruptcy of Dutch football club Haarlem likely to be followed by more Says:

    […] this a surprise? No, not really. In our article Dutch Football: financial difficulties of Dutch clubs no surprise, we explained the problems behind the financial crisis. The main reasons for the financial disarray […]

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