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After the recent bankruptcy of one of Holland oldest football clubs more negative news is hitting the press almost daily. Football club BV Veendam is close to bankruptcy, MVV (Maastricht) is not able to pay salaries to part of its staff, liquidity problems at several other clubs and even Ajax is heading for a loss of EUR 25mln this year. Adding that only 14 clubs out of 38 are profitable, sponsoring proceeds are likely to come down, transfer income is seen to drop dramatically, support from society is coming down and salary costs are still ridiculously high, the conclusion seems clear: Houston, we’ve got a problem.

Recent figures indicate deteriorating financial position of Dutch football. Recently the Dutch National Football Association (KNVB) came out with new figures related to the financial health of Dutch football clubs. I know I have been writing on this subject before, but the new figures reveal that things are rapidly deteriorating. This has already culminated in the first bankruptcy in Dutch football in a long time. The HFC Haarlem, one of Holland’s oldest football clubs, had the questionable honor to be the first victim and went bankrupt in January 2010. It now seems increasingly likely that BV Veendam, a club active in the Dutch Jupiler League, will follow Haarlem’s fate. The club is likely to ask for Chapter 11 today if it cannot obtain sufficient funding (equivalent to some 20% of the annual budget) for the remainder of the season. The other prime candidate seems to be MVV, again a club active in the Jupiler League (Holland’s 2^nd major division). Last week it became known that the club has difficulties in paying salaries to its staff. Moreover as it did not pay its premium to the Foundation of contract players in time, the club got a 1 point penalty in the league standings and a fine of EUR 25,000 for not handing in its financial plans in time. All signs of a club in severe difficulties.

Only 14 out of 38 clubs managed to generate profits and sadly there is more bad news on the way. Following is a list of recent news and facts pointing towards financial problems

• Nov 2009: RBC (budget 2008/09: EUR 4.2mln) requiring EUR 300,000-EUR500,000 of fresh liquidity
• Dec 2009: Cambuur Leeuwarden (budget 2008/09: EUR 3.7mln) heading for EUR 1mln loss after shortage of EUR 1.8mln in 2008/09. As a consequence the club is looking to sell its stadium
• Jan 2010: Willem II (budget 2008/09: EUR 10.8mln) seems to have bigger problems than anticipated. The loss in 2008/09 has turned out higher than expected at close to EUR 4mln. Stadium rental payments have been freezed.
• Feb 2010: AGOVV Apeldoorn (budget 2008/09: EUR 1.9mln) has not been able to adhere to the liquidity standard required by the football union. As a consequence it has received an official warning
• Feb 2010: FC Zwolle (budget 2008/09 EUR 3.7mln)  saved by EUR 1mln guarantee of municipality, so it can look for new investors
• Mar 2010: Ajax (budget 2008/09: EUR 67.1mln) heading for a loss of approximately EUR 25mln for the current season

The above list is exemplary for the difficulties which clubs are facing and then we even didn’t include clubs such as Feyenoord, RKC, ADO Den Haag, Omniworld, AZ Alkmaar, Sittard etc etc, which all are known to go through very difficult times. In fact, out of the 38 clubs in professional football only 14 clubs managed to generate profits in 2008/09 and things are likely to deteriorate in the current season. Around 14 clubs are believed to be in the so called category 1 (the watch list of the Dutch Football union), the financial danger zone of Dutch professional football. That is an astonishing number confirming that it is questionable whether Dutch professional football in the current state can sustain much longer.

Facts don’t bode well. Let’s examine!

• Fact 1: Both the Eredivisie and Jupiler League are generating losses As can be seen in the table above, profitability of the Dutch Eredivisie has taken a severe dent in 2008/09 in spite of the fact that sales actually have increased. The main reason for this can be found in EUR 60mln lower profit made on transfers of players. For the Jupiler League, things are more dramatic. After having suffered a loss of EUR 13mln in 2007/08, the league still generated a loss of EUR 10mln in 2008/09 in spite of several measures been taken.
• Fact 2: Personnel costs have risen to unacceptably high levels. As can be seen the personnel ratio as a % of sales has risen by 5% from 59% to 64% for the Eredivisie and from 72% to 77% for the Jupiler League. In a football environment salaries are always the biggest expense. A level of 60% is generally regarded as an acceptable level leaving sufficient room for stadium rental costs, general cost, marketing costs and all other costs related to a football organization. As most of these costs have a fixed nature, it is essential to generate sufficient
  
  
  

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  turnover to cover these costs or to cut costs in time. In this perspective and given the economic backdrop, it is somewhat surprising to see that the average Eredivisie club has further grown both its staff and number of contract players, making itself more vulnerable for an economic backdrop. For many it is not too late yet, but it is to hope management is not deaf and hearing the alarm bells. For the Jupiler League things are again much more dramatic. The division as a whole has a personnel ratio that is far too high, mainly the result of lower turnover. The clubs have managed to reduce the salary bill and the number of FTE’s on the payroll (average number of FTE’s down by 7.3%). However, the potential to further reduce the wage bill is limited as the KNVB requires a club to have a minimum of 18 contract players vs the average of 20 now; huge cuts seem to become increasingly difficult. It also implies that in case of a further decline in turnover, losses might increase again. Of course these numbers are averages. To shed some light on individual clubs, there are 19 clubs (10 Juplier League, 9 Eredivisie) that have a salary ratio of higher than 70%! No wonder there are that many clubs generating a loss! The most striking ones in 2008/09: RKC 123%, Fortuna Sittard 100%, AZ 96%, Utrecht 89%, MVV 88%, Cambuur 87%.

• Fact 3: Dependency on sponsoring has further increased. What the table also implies is that total income has become even more dependent on sponsoring, which tends to be the most volatile item of a profit and loss account. Sponsoring now accounts for 46% of annual turnover in the Dutch Eredivisie and even 56% of that of the Jupiler League. In absolute terms it is a surprise to see that income from sponsoring has actually increased by 10% in the Eredivisie and declined by a marginal 1% in the Jupiler League. Hence sponsoring has been one of the reasons, why turnover levels for the 2008/09 season have held up relatively well. Nevertheless it is very dangerous to extend this trend towards the current season.

Near term future appears to be bleak.The near term future seems to be very uncertain, particularly for the Jupiler League, which in my opinion will not survive in its current format. It seems unavoidable that losses will further deteriorate in the near term for the following reasons:

• TV income and ticketing income are unlikely to rise significantly
• Sponsoring income is likely to be significantly down. The impact of the economic crisis on last season’s figures may have been marginal, it is unlikely that this will be the case again in the current season. Sponsor contracts closed before the crisis are unlikely to be renewed, whilst several sponsors are in difficulties themselves (a crisis always has a lagging effect). This means I wouldn’t be surprised when sales levels would come down this year in both the Eredivisie and the Jupiler League, which has a dramatic impact on the bottom-line.
• Limited transfer activity. During the winterstop there was virtually no transfer activity (Honda being one of the exceptions), implying no bookprofits made on players, further limiting the profit potential. Moreover this also reduces the possibility to reduce the most important cost center, wages!
• Limited cost reductions possible for the Jupiler League: given that most of the clubs already have reduced their number of contract players to the absolute minimum, these clubs have limited potential to further reduce costs.

All in all I expect losses in the current year to be significantly down from last season and as a consequence several clubs might be facing liquidity problems.

Structural reasons for the backdrop are plentiful. I believe the main structural reasons behind the difficulties mentioned above can be summarized as follows:

• Poor management. In many cases Dutch football clubs are not properly managed. Professional football should be run like a business, not like a hobby. In a period of stagnating sales and rising costs, cash flow management is essential. I wonder, apart from the positive exceptions, whether all clubs have even heard of this. It is utterly irresponsible to buy new players, extend the number of staff or increase salaries in a period of an economic downfall, particularly as income of many clubs is largely dependent on discretionary items like sponsoring, TV and ticket sales. In an environment of declining revenues, it is surprising that many clubs are working with flat or even rising budgets or are spending money before receiving it. No wonder that problems arise. This is particularly the case for the first division clubs. If one realizes that clubs in the Jupiler League are largely dependent on sponsoring income, it is plain stupid and irresponsible to keep budgets flat. No wonder, casualties emerge, certainly in a high fixed cost environment such as in football. Football clubs should be run professionally. It means proper revenue management and proper cost management (remember that in many cases salaries and rent of the stadium already account for some 75-90% of sales!). It means creativity and contingency plans and it means accountability! If I still hear management of clubs saying “ I am sure many clubs largely depend on transfer sums” or “ why always look at finance, it is good players which are important and subsequently financing automatically will be all right” or “we have ambitions to go the Eredivisie and hence need extra money (everybody has this ambition I am afraid)”. Brrrrh,  it is exemplary for the limited mindset of some, which tend to be short term. Clearly there will always be friction between the technical and financial aspects of a football club but in the right setting (more long term oriented) they should peacefully co-exist as several clubs such as for example FC Twente, VVV and FC Groningen are proving.
• Limited viability for current number of football clubs. There are several ways to look at this, but the conclusion should be the same. The Netherlands counts 38 professional football clubs, implying one club per 429,000 habitants. However, it gets worse. These clubs are not spread properly over the country. For example Brabant counts 9 football clubs or 24% of total clubs, whereas Brabant only counts 15% of the total Dutch population; it means one football club per 268,000 habitants. No wonder many clubs in Brabant have financial difficulties. Hence mergers could be a solution here. Looking at a more financial angle, it is amazing that some clubs even still exist. Looking at the Jupiler League again, there are 8 clubs with annual turnover below EUR 2.5 mln. With a required minimum of 18 players under contract on say the average salary of EUR 35,000 and with additional staff and management, it means that the salary bill already accounts for some EUR 1.5 mln. 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.
• Declining community support. Whereas in the past many clubs always counted on community support (hundreds of millions have been invested) coming to the rescue, support for such action is rapidly declining. In the case of Haarlem, the local municipality was not prepared to bail-out the club and this seems increasingly the trend. In some cases there are still municipalities granting loans to clubs (which often is only temporary respite), but subsidies seem to be no longer in vogue, although in view that the European Union does not allow for such action (although there are always ways around). Although one can debate whether this is right or not, in the end a club should be able to survive on its own, also in view of creating a level playing field.
• Economic crisis. Finally there is the economic crisis, which is leading to lower sponsor and tv income. But this is an easy one to hide behind. It is just proper business sense to build up a proper reserve for more difficult times.  For many clubs the contrary has taken place, which brings us all back to management again I guess. Luckily there are good exceptions such as Heracles, Twente and several others. It is good to see that FC VVV is not immediately spending all the millions received for Honda on all kind of expensive players. The club is saving a large part of the money for its youth academy, the new stadium and possibly some players to be bought in summer.

So what could be the solutions? Clearly the current model is not sustainable and sooner or later more clubs will go down. In order to avoid this there are several alternatives (or rather a combination of them to accomplish this:

• Bundling/merging of clubs; although not easy to realize (given the example of FC Limburg), mergers should be considered in some parts of the country given that the sheer number of professional football clubs is not sustainable in those areas.
• Introduction of semi-professionalism in the first division or merger with amateur top-liga. Salary bills are too high, whilst minimum wages are often not a viable option for professional players. The result is that many opt for a semi-professional career at a top-amateur club. With the introduction of semi-professionalism the first division could possibly merge or cooperate with the top amateur leagues.
• Cross-border competitions. With the rich getting richer and the poor getting poorer, competitive balance seem to have long gone. Combining for example the Belgian and Dutch leagues should lead to a better balance and stronger competition. However, it should be realized this will not be acceptable to many clubs that would not be able to participate in this league as well as to their supporters. Food for thought.
• Improve quality of management. It seems many clubs are not managed properly, supervisory boards should carry part of the blame. It means that managing for cash has to become more important and that the long term existence of the club should not depend on irregular items such as transfers of players. It also should imply the build-up of reserves for more difficult times
• Salary adjustments. Wages are by far a club’s biggest fixed cost item. With the recent rise in salary costs this has become a heavy burden to many football clubs. Re-adjustment will take time, partly depending on the duration and mix of the contract portfolio.
• Creativity and innovation. Many of the current clubs tend to think in the old traditional way rather than out of the box. New business concepts, flexibility of costs, revenue management, a new (longer term oriented) business model are just a few principles where improvements may be made.
• Emphasize talent development

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. This is also the reason why I expect more clubs to go bankrupt.

I do realise that better players will lead to better results and greater recognition, 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 co-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 have often been examples to many clubs, although this strength has been neglected as of lately. By re-investing in good football schools we are better off in the future. 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 if and I emphasize if properly executed!

After having witnessed a couple of mediocre Formula One seasons, in which the sports lost popularity, the 2010 season promises to be a blast. Coming Sunday the new season will start in Bahrain and there is plenty to look forward to. Here are 10 interesting reasons why the 2010 season should become a thriller:

• The return of Michael Schumacher. You either hate the guy or you love him, but both fans and enemies probably agree on one thing: the return of Schumacher is a blessing for Formula One as the sport was lacking sufficient charismatic personalities. Schumacher is clearly a winner, being often seen as the bad guy given his controversial behavior; but don’t we have enough dull and programmed drivers in F1? Schumacher should bring the umpf factor back into the sports. It remains to be seen how he will do after 3 years having been away from racing, particularly given the changes since he left. But it usually doesn’t take long for true champions to get back to basics.

• New rules allow for more spectacular racing. A couple of new rules are being introduced, which may lead to more spectacular racing. The main ones are the following: firstly, refueling is no longer allowed. As a result bigger tanks are needed and more emphasis will be put on fuel consumption and tyre wear. As a result pit-stops will last less than 3 seconds, whilst drivers who can adjust the most easily to changing conditions are likely to have an advantage. Strategy (early pit-stop may pay but will it be at the expense of tyre wear-out) might become even more important and no doubt there will be mistakes in the beginning of the season. Those teams that will come quickest to grips with the new rules and strategies, will be winners. Secondly there will be a new points system. Rather than the old 10-8-6-5-4-3-2-1 points system for the first 8 finishers the 2010 (25-18-15-12-10-8-6-4-2-1) points system will reward the top 10 finishers. This clearly is putting more emphasis on victory and hence the fight for the number one spot could be fierce. Finally, the top 10 qualifiers have to start on the tyres on which they set their qualifying time, aiding of course the bunch following the top 10.

• Tight competition at the front end of the grid. At the final testing day at Catalunya, it became clear that the differences between the top teams are minimal. In contrast to last year, when Brawn and Co. only showed their tail to the competition, it now seems incredibly close. Last year’s front runners Brawn (now Mercedes) and Red Bull are now joined by the ones who you would expect; it’s good to see Ferrari and McLaren back at the front again, it just gives that extra bite! But that’s not all! The second bunch within the field consists of Williams, Force India, Renault, Sauber and Toro Rosso and testing proved they are not far behind!

• Which driver will cope best with the new rules? The 2010 season will have one of the best line-ups of star drivers in grand prix history. It will be tremendously exciting to see them fight for the championship. Note that there are 4 former world champions in the field: Schumacher, Hamilton, Alonso and Button. Adding Sebastian Vettel and you probably end up with the big favorites for the 2010 title. Alonso has great racing qualities and is probably best in nursing his car in all conditions, which given the rule changes will be very important. Having said so, his Ferrari is said to be high on fuel consumption, which could run against him. No doubt Michael Schumacher could win races again in 2010. Although he is super determined, it remains to be seen whether he will be able to grab the title after having been absent for 3 years. Lewis Hamilton is the big favorite in my opinion. The guy has matured, has shown he is a great and gutsy racing driver and in essence should be better than Jenson Button. And then there is the dark horse Sebastian Vettel. Could he do it? 2010 might still be too early for him, whilst he also might be pre-occupied with Michael Schumacher in the fight for best German racing driver. And what do the bookies say? The latest odds: Alonso 11/4, Hamilton 7/2, Vettel 4/1, Schumacher 4/1 and Button 10/1.

• Personality clashes and in-team fights. Feuds and personality clashes in F1 have been of all times. 2010 will be no different and there is plenty to look forward to. The in-team fights will be fascinating. No doubt Schumacher will blow away Nico Rosberg. Schumacher will do anything (and we know what that means) to avoid losing against his teammate with the risk of people saying he is over the hill. That will not happen! The fight between Ferrari’s Alonso and Massa will be interesting too; Alonso is desperate to get back into a championship-contending car and is potentially one of the best drivers in the field. However, he is new to Ferrari, whereas Massa is not. Moreover Massa will be eager to prove he has fully recovered from last year’s accident and can get back to old form. Undoubtedly the most interesting team relationship to watch will be that of Lewis Hamilton and Jenson Button. Button has taken up the gauntlet by moving to McLaren. However, trying to prove he is the best British driver won’t be easy There is no doubt about his pace and coolness, but will he be able to deal with adapting to constantly changing conditions? It will be a clash between two driving styles; Hamilton’s bold and aggressive driving vs Button’s conservative style of racing. Let’s see who will win and who will be able to maintain his personality best. And those are just the in-team fights! There is plenty more of touchy issues. The young Vettel fighting old dog Schumacher for German hegonomy, Schumacher fighting his old friends at Ferrari, Schumacher continuing his feud vs McLaren etc etc. One thing is for sure: it’s gonna be fun to watch!

• Large number of new teams. In contrast to what was expected (we had a financial crisis to deal with and 3 manufacturers withdrew from F1), the grid is counting 4 more cars rather than diminishing by 6. This means we will start this weekend with 24 drivers. It could even have been 26, were it not that US F1 did fail to be ready in time. So which are the new names? First of all Lotus, which seems to have a very reliable car, that has been clocking mile after mile during testing. No doubt racing fans will be happy to see the traditional yellow and green colours back on the roster. Moreover, Lotus has a good line-up with Trulli and Kovalainen. Richard Branson’s Virgin is a second new kid on the block, but later more on this one. Finally Hispania (Campos) is the last name that has made it. It remains to be seen, whether they will still be there during the last race as the team is said to have financial problems. Moreover the team will arrive in Bahrain without any pre-season testing. Hence its race pace remains a mystery. My bet is the tough gets tougher.

• And then there is Richard Branson with his “Virgins” No doubt the golden guy with the Midas touch will bring some extra glamour to F1, leveraging his Virgin brand now to car racing. If there is one guy who can do it, it is probably him. Branson has the smallest budget (only GBP40m) of the new teams, but no doubt he will get his fair bit of exposure by doing things differently, you have to give the guy the credits for it. His first bold move has been to design a car by Computational Fluid Dynamics, meaning the car is entirely designed by computer simulation rather than using a scale model in wind tunnels. Of course the car has to prove itself, but if it works, it will bring down costs tremendously. No doubt we will hear a lot more from Branson and his “Virgins” (as he calls his cars). He has done the trick before with his other businesses but F1 will be the ultimate test.

• Many rookies likely to provide for some interesting action. During the last few seasons we have not seen as many rookies as this year, clearly the result of several new teams on the grid. In total the start of the 2010 season will count 5 rookies: Nico Hulkenberg, Vitaly Perov, Lucas di Grassi, Bruno Senna, Karun Chandhok. But to be fair, Jaime Alguersuari and Kamui Kobayashi have barely any F1 experience either. Clearly these drivers can all drive a F1 car but the lack of experience in driving such a car for an entire race and being in competition with some very seasoned veterans might provide for some interesting viewing.

• Will Korea be ready in time? The F1 calendar is counting 19 Grand Prix and includes one new venue; Yeongam in Korea. The problem is that the track has not been finished yet and although there is still half a year left, it remains to be seen whether the Koreans will be able to win this race against the clock. We are positive they will.

• Politics, economics and rules….. And then there are always the arguments in the all-important periphery of the F1. No doubt there will be disagreements between teams on the interpretation of the rules, no doubt Berny will pull a few tricks out of his sleeve and no doubt the FOTA (F1 Team Association) and FIA (International Automobile Federation) will have their ongoing disputes. It will be interesting to see how the balance of power will change within the FOTA now that 3 large car manufacturers have disappeared and are replaced by several smaller teams. Finally, economics will play an important role again. Will F1 be able to find its way up again, will it be able to put constraints on budgets, will all teams survive this year? In any case, if races are not interesting, there is plenty of going on outside the racing track!

Whereas at the beginning of the Winter Games Sven Kramer of The Netherlands was widely seen to become the athlete winning the most gold medals, he did not manage to indeed become the king of the Games, mainly due to an unintended mistake of his coach. Local marketing buffs claim this mistake could turn out to be extremely expensive, costing him millions of dollars. I doubt whether this will be true; although his claim to international fame has not materialised to the extent he would have hoped, this should be more than compensated by his increased popularity at home, where he found a whole new bunch of supporters admiring him for the way he dealt with this issue.

Sven Kramer’s disqualification at Olympics costing millions of dollars?? It wasn’t meant to be. Dutch speedskater and national hero Sven Kramer did not manage to grab the three gold medals, he was predestined to win. Not because he was not the best…. The skater was well on his way to win his second gold medal when his coach made a big mistake by directing him into the wrong lane. As a result Sven was disqualified. Things turned worse in the team-pursuit, this time as a result of poor communication. Hence the world’s best speedskater did not become king of the Olympic Games. According to sports marketeers like Frank van de Wall Bake, this will have big implications as far as his income is concerned. As Kramer has not become Vancouver’s biggest star, the number of international endorsements (think cover on Sports Illustrated, international brands etc) will be significant less than anticipated, costing him millions of dollars. This is probably true from an international perspective, but these specialists fail to tell the entire story.

From star to icon: Sven Kramer’s unknown hidden values. Sven Kramer has always been known to the public as an extremely talented and ambitious athlete, a bit cocky and a humorous guy. The Dutch always embrace their skating stars and Sven Kramer has not been an exception. However, what the Dutch audience did not know was how Kramer would respond and behave in case of a setback or misfortune. Kramer’s enormous mature reaction after losing two gold medals has uncovered some hidden values that most people were not aware of: respect, dignity, responsibility and sportsmanship. Just after experiencing probably the biggest disappointment of his life, the guy was open to talk to the press, showing no rancour and behaving as a good loser. Moreover, a day later he was in good spirits with his coach and told the press that he and his coach had gone a long way and celebrated a lot of success. Clearly that could not be a reason for breaking-up. The way he dealt with this issue was one which only true big stars show. Sven lost two gold medals but gained an enormous amount of goodwill, well documented on television and on the internet. At once he gained thousands of additional admirers, probably elevating him from a star to an icon and role model.

Commercial exploitation of newly discovered values should compensate for the missed (international) income. These new values should undoubtedly make Sven Kramer more interesting for commercial purposes. Sven Kramer has shown the world he is extremely ambitious (like a sport star should be) but can also behave in a very responsible manner when taking an unexpected blow. He has shown he is authentic. No doubt commercial brands will use these values in their marketing campaigns, certainly in view of his increased and likely sustained popularity. Adding the new values and the popularity of skating in The Netherlands, this should lead to a longer and more sustained steady income flow going forward. I have no doubt that the discounted value of this stream of income will more than compensate for the loss of international endorsements. As speed skating is a very small sport globally, these endorsements will rapidly decline over time anyway.

Market value of Sven Kramer likely to increase further. Sven Kramer has lost two medals but gained tremendous appreciation. The guy is still young and has broken already all the records you can imagine. I would not be surprised when he will come back with a vengeance in Sochi. Rather than from “hero to zero”, I would like to say “claim to fame”. No matter what happens, Sven Kramer will end up in the row of the true big champions in skating like Ard Schenk, Johan Olav Koss and Eric Heiden. Soon Kramer and company will launch a new commercial brand named SvenK. Oakley, Giant and Viking are rumoured to have already closed deals with this brand. I am sure they are to be followed by many more over the coming years.