Recently Vitesse became the first Dutch football club to be acquired by a foreign investor. With this take-over Vitesse appears to be saved from bankruptcy as the club has been in financial difficulties for several seasons. Opportunism is the name of the game, as both supporters and new club owner expect to become national champions within 3 years. This may be a bit overly optimistic and lacking any realism. Clearly Vitesse’s financial situation is to improve but this will not mean the club now can spend zillions of money on buying new players. It’s precisely this what UEFA’s financial fair play plan is designed for; to stop reckless spending by clubs and to stop rich benefactors (or sugar daddies) from injecting large amounts of cash.

Caution required! Supporters and management of Vitesse are over the moon. The club appears to be saved. The Georgian investor Merab Zjordania has bought all the shares of the club and hence the club is no longer in financial troubles. Good news of course! Most of Holland’s football clubs have similar problems and any club saved from potentially going down should be cherished. Nevertheless, the club and supporters should be careful not to get totally carried away. For the first time since the nineties Vitesse is talking again of becoming national champions and entering the champions league. In the nineties this also happened when Karel Aalbers took the reigns. He also had big ambitions with the club, but we know what happened,  it all ended in tears; Vitesse almost went bankrupt and could just be saved by outside parties and the local municipality. We do not say the story will repeat itself as circumstances are different this time. What we do say is that the club should be cautious and manage expectations properly as there are several risks looming around the corner, which we will briefly address. See article Telegraaf

UEFA’s financial fairplay plan limits reckless spending. In Vitesse’s press conference there was mention of the club attracting all kind of new players. It is precisely this that the UEFA will attempt to stop. UEFA’s financial fair play plan (FPP) is designed to stop the reckless spending by clubs and to stop rich benefactors from injecting large amounts of cash as this distorts the transfer market. Supported by the European Club Association, the following main new rules will be set in motion:

  1. Clubs will only be allowed to enter European competition if their generated revenues – money from sources such as television rights, gate receipts, competition prize money and sponsorship – is equal to or greater than their expenditures. This rule will run into effect for the reporting season ending 2012 whilst the first season that clubs can be banned from European competition will be 2014-15. What this means is that UEFA is actually looking at the Profit and Loss account of a club. If paid salaries are over the top and not covered by revenues, it means PROBLEMS! So reckless spending on players won’t do the trick as salaries for these players will be too high! Revenues should be increased and this won’t be easy in the current Dutch setting! The creative masterminds  who claim that there are loopholes around this should be careful. Constructions such as benefactors paying excessive amounts for sponsoring or lounges in the stadium won’t work; the UEFA will likely judge at arm’s length! Moreover governance and transparency will become of extreme importance, something which will not always come easy. What does this mean? It means that wages and transfer fees in particular are under surveillance! However there is also good news; sugar daddies can still invest in stadiums, training grounds  and youth development  as these will be kept out of any calculations
  2. As of June 1, 2011 clubs will no longer be allowed to owe money to other clubs, players, tax authorities and social service departments.  Hence this concerns particularly the balance sheet. This is where benefactors can help out! In fact sugar daddies are allowed to contribute up to a maximum of 45 million Euros for the 2013-14 and 2014-15 seasons together. This will be reduced to 30 million Euros for the period covering 2015-16, 2016-2018. This obviously is good news for Vitesse as debt can be reduced and structural long-term  investments can be made. As far as investments in players are concerned, yes these investments can be made, but (as said) only if the accompanying expenses are covered by revenues. See recent article financial fair play 

For the non financial wizards amongst us, this may all sound like akakadbra, so let’s simplify it! Under the new circumstances Vitesse cannot  invest without any limits  in new expensive players. What it can do is investing  in the future of the club! In fact the new rules may be regarded as a blessing as they should guarantee the sustainability of the club! So every reason to cheer! With the help of the new investor Vitesse is here to stay and with a solid long term policy (see FC Twente) it might even become champion sometime in the future. However  this is unlikely to take place in the near future as revenues are not sufficient as of yet to allow the investment in expensive players. There is every reason to be happy but it should pay tribute to management if it would be a bit more cautious in managing expectations as far as the championship is concerned!    

The FIFA Worldcup is starting  and obviously the entire world is making predictions on who is going to be the next winner, the number of goals being scored, the number of yellow and red cards, favorites, number of spectators etc. Just for the fun of it we will briefly stand still with some relevant and less trivial questions regarding the history and the present.

Which countries have participated most frequently in the World Cup? There have been 18 World Cups organized so far and not surprisingly only Brazil has participated in all 18 events, followed by Germany and Italy both with 16 final tournaments, Argentina is following with 14 in 4th place. Not surprisingly all 4 nation are active in South Africa again.

Which nations won the World Cup most often? Again no surprise, Brazil won it 5 times, followed by Italy with 4 wins, West Germany with 3 wins and Argentina and Uruguay with 2 wins each. Conclusion, little variety! It is the big traditionals that win the cup virtually always.

Which nations have the best track record as far as winning their games is concerned? Obviously no surprise again, Brazil. Brazil wins its World Cup games in 70% of the occasion, well ahead of Germany with 60%, Portugal with 58% and Italy with 57%

Which nations are scoring the highest number of average goals per match during the World Cup? Yes, finally a surprise! It is Hungary with 2.71 goals per game, but it should be said that this was mainly realized in the old days, when Hungary was a frequent participant in the World Cup in a time when the number of goals scored during a tournament was much higher. Hungary is followed by Brazil with 2.18 and Germany with 2.06. To put it in perspective, an attacking nation as The Netherlands only scored 1.64 goal on average with a winning record of 44% only (again partly affected by some poor results in early editions)

Is it likely that the record of average number of scored goals per game in the World Cup will be surpassed?  Never say never, but very unlikely in our view. The average number of goals scored per game during the history of the cup amounts to 2.92, moving in a range of 2.3 in the edition of 2006 to 5.4 in 1954. We have to say that we have entered a downward spiral since 1982 when the average still was 2.81. Let’s hope this spiral will be broken, but we have our doubts.

Which of the current participating nations generally gets the least number of goals against? This should be seen as kind of an indication of which nations have the best defenses in football. And indeed not surprisingly it is Argentina that wins this category with 0.85 average goals against per World Cup match. They are followed by, no surprise again, Italy with 0.90 and Brazil with 0.91. A surprise to some may be the number 4, The Netherlands with 1.06, a team which is generally known to concentrate on offence rather than defense.

Can a smaller nation win the World Cup? If we look at history, this is very unlikely. The only small nation that managed to win the world cup twice is Uruguay, but both occasions (1934 and 1950) were in the first few editions of the championships. Clearly, there should be a relationship between the number of inhabitants of a country and the quality of a football nation. The argument behind it is simple; bigger countries with a traditional football culture just have far more people to choose their talent from. It should be interesting to see which countries historically have done well when correcting for the number of inhabitants. We have looked at this by dividing the total number of points realized during World Cup tournaments by the number of inhabitants. The result? Uruguay wins, followed by Serbia, Denmark, Paraguay, Switzerland and The Netherlands. Argentina would actually be the first traditional when measuring it in this way.

Do organizing nations have the often referred to “home advantage”? There certainly is a home advantage. Looking back in history there were six occasions that the actual organizing nation walked way with the Cup, which means historically there is a one in three chance. However, in this particular occasion the probability of South Africa winning it seems extremely low. Another interesting angle is to see whether the host usually wins its opening match? In all editions of the World Cup, the hosting nation has never lost its opening game. In fact the hosting nation wins its first game in most occasions.

Which country has the worst track record during the World Cup? It is Zaire! They participated once and played 3 games, scoring not a single goal and getting 14 against. Not surprisingly they lost all of their 3 games.

Which tournaments have enjoyed the highest and lowest number of attendants? Will South Africa break this record? The highest number of spectators during one World Cup tournament was in the USA in 1994 with in total 3.6 mln spectators and an average of 68,982 viewers per game. On the flip side it was Italy in 1934, that drew the lowest number of 361,000 in total. The lowest average number per game could be found in Sweden in 1958 with an average of 23, 411 per game. Let’s assume it must have been the cold. Will South Africa surpass the record? In order to realize this they should attract an average of 56,000 people per game. In our view this is unlikely to be realized. 6 out of the 10 stadiums have a capacity of lower than 56,000 and we believe the bigger stadiums will not be able to compensate for this, also in view of the schedule. The record that South Africa without a doubt won’t break is the highest attendance during a World Cup match; 199,854 in the Maracana Stadium in Brazil. The lowest? 300 in 1930 in Montevideo!

Discipline to deteriorate further? And then there is the subject of discipline. Over time discipline has deteriorated. Whereas the average yellow cards per World Cup game amounted to 1.88 per match in 1982 in Spain, this number has steadily increased to a whapping 4.8 in 2006. Over the same time period the number of red cards per game increased from 0.21 to 0.44. Obviously it is to hope this trend will not continue, but we have our doubts. The bookies seem to be more positive; 4.44 yellow cards per game and 0.33 red cards. The team receiving the most cards? Argentina.

What do the bookies say? And then the people who try to make a living of it, the bookies! Clearly the outcome does not surprise. Spain the big favorite followed by Brazil, Argentina, UK and Holland…..what else is new!?

I would say plenty of ammunition for the ones that are placing bets or playing all the World Cup football pools. But then again, history is by no means a guarantee for future success, that’s what makes it fun! Against all historic (and current) odds, I am with The Netherlands anyway! Enjoy all!  

For all you record buffs, a wealth of info can be found on the link below, enjoy!  

http://en.wikipedia.org/wiki/FIFA_World_Cup_records

 UEFA’s Executive Committee has approved a set of key regulations as part of the financial fair play concept designed to bring greater stability to European football in the coming years. This should be seen as a step in the right direction. Although the new rules will take nothing away from the financial muscle power of the bigger clubs or will lead to increased competitiveness within the leagues, it should particularly help the long term sustainability of clubs and hence the game.

Many clubs are in difficulties. According to UEFA around 50% of 650 professional football clubs in Europe is losing money each year and 20% is making massive losses, spending 120% of their revenue each year. Not surprisingly salaries are one of the main reasons; a third of the 650 clubs is paying out salaries in excess of 70% of total revenues. Moreover the annual increase in salaries of around 18% is exceeding the rise in revenues of 11%. Clearly this may result in bankruptcies, which could affect other clubs as clubs could no longer be able to pay each other. Examples of clubs in difficulties are popping up each week and hence it is clear that some measures had to be taken. UEFA’s financial fair play plan (FPP) is hence designed to stop reckless spending by clubs and to stop rich benefactors from injecting large amounts of cash, a practice which distorts the transfer market and pushes players’ wages to astronomical levels and has a knock-on effect as other clubs try to keep up.

The new rules……The main new rules that will come into affect can be summarised as follows:

  1. Clubs will only be allowed to enter European competition if their generated revenues — money from sources such as television rights, gate receipts, competition prize money and sponsorship — is equal to or greater than their expenditure. This rule will run into effect for the reporting period ending 2012, whilst the first season that clubs can be banned from European competition will be 2014-15
  2. As of June 1, 2011 clubs will no longer be allowed to owe money to other clubs, players, tax authorities and social service departments.
  3. Provision of future financial information – to ensure clubs can meet their future obligations

…..but some exceptions are allowed. The main ones are:

  1. Clubs will be assessed over 3 seasons and will be allowed a EUR 5mln leeway over that period
  2. Money invested in stadiums and youth development does not count in the expenditure for FFP purposes. The main targets are high wages and high transfer fees.
  3. Sugar daddies are allowed to contribute up to a maximum of 45 million euros for the 2013-14 and 2014-15 seasons together. This will be reduced to 30 million euros for the period covering 2015-16, 2016-17 and 2017-2018

What to think of it?  When analysing this new set of rules, several issues come to mind with mixed implications, unfortunately not all positive. Let’s start with the good news:

–        Improved level playing field for European top clubs. As the rules already are largely in place in France, Germany and Italy and The Netherlands adapted similar rules just this week, the countries to be affected most will be Spain and the UK. This obviously should be seen as good news as it would create an improved level playing field for the European top clubs. Note that it is the Spanish and UK clubs which carry the heaviest debt burdens in Europe; the 18 Premier League clubs combined are for more than EUR 4bln in the red. Also several Spanish clubs faced bankruptcy. The result of these rules will be that the upward spiral in salaries and transfer fees may be broken. To say the least, clubs cannot borrow endlessly to pay high transfer fees as their Profit and Loss accounts would no longer balance as a result of excessive interest payments and amortisation charges on players.

–        Debt is allowed but limited to a certain extent. Although the focus will be clearly on a balanced Profit and Loss account, it does not imply that UEFA will not look at the amount of debt on the books. Although debt is allowed (as it can fund additional growth) a red flag will be raised if net debt (including loans of the owner) exceeds annual turnover. In that case the clubs will be asked for additional information. Again this should prevent clubs to over leverage (for example in a leveraged buy out) and hence to either pay too high salaries or too high transfer fees.  

–        Emphasis on long term structural investments. Long term investments are excluded from these rules, which is again good news. Rather than short term investments in expensive players, long term investments in stadiums and youth development are allowed (interest on loans and depreciation on fixed assets are in that case excluded from the calculations). These investments should contribute in particular to the longer term health of the clubs, i.e bigger capacity, home grown players rather than paying high transfer fees. If sugar daddies mean well, it is in these items where they want to invest in. They do not help the sustainability of clubs with short term investment in players for two reasons. Firstly, when a sugar daddy or benefactor says goodbye to a club, the club is left in shatters and secondly even if they invest in players this does not guarantee success. Remember only a few clubs can run away with the gold, the majority will lose.

–        Lower burden on society. As football is seen as important to local communities, it is no exception that clubs facing bankruptcy obtain financial support from local municipalities. That is a burden on society and is under increased scrutiny. Obviously by sharpening the rules, football should be able to much better hold up its own trousers

–        Unanimous approval of ECA. The European Club Association, representing 137 leading clubs in Europe, has unanimously voted to approve the proposal. That should be seen as a surprise as some of the clubs might suffer from these regulations in the short term. Cynics might suggest that in that case there might be loopholes in these regulations, which brings us to the negatives.

So what should be seen as the bad news behind these regulations?

–        Loopholes creating governance issues. Clearly there will be creative masterminds finding loopholes in the regulations. The more apparent ones such as benefactors paying excessive amounts for sponsoring or lounges in the stadium are easy to counter. UEFA will likely judge at arms length and hence it won’t be easy to use such constructions. However, it seems somewhat less clear when benefactors would provide interest free loans, as interest would clearly not show up in the Profit and Loss account. No doubt there are similar constructions to think of. This means governance and transparency will become of extreme importance, something which will not always come easy.  

–        The rich will still get richer. Under the new rules, there will be few changes as far as the clubs that can spend the most. The clubs with the biggest attendances, sponsorships and media income will still generate the highest revenues and hence be able to pay the highest salaries and attract the best players. Subsequently these clubs are likely to benefit from additional income from the Champions League. As there is a strong correlation between salaries and results in the league, it means the rich clubs will remain on top. No wonder these clubs have agreed to the rule changes.   

–        The new rules will do nothing for the competitiveness intra Europe. The gap between clubs that play in big countries like the UK, Spain and Germany and clubs that play in leagues in smaller countries, is unlikely to disappear given the enormous differences in the level of sponsor money and media income. This means that there will still be no level playing field as far as leagues in countries are concerned. It also implies that in European club competitions like the Champions League clubs from the smaller countries are unlikely to bridge the gap. The only playing field that will be somewhat leveled is hence that of Europe’s top 10 top clubs.  

–        Wage inflation should decline but ticket prices could rise. As UEFA has chosen for a Profit and Loss approach, revenue maximisation might be the name of the game going forward. Generating more revenues means more can be spend on for example wages. This could mean that prices for tickets (albeit that ticketing income is a relative minor source of revenues) could increase.

Although a salary cap for clubs, rather than for individual players (which under European law is likely to be impossible anyway), might have been a better solution, this probably was not acceptable to many of Europe’s top clubs. That’s why UEFA has come up with the current set of rules. Hence the conclusion is that under the current circumstances, this is probably the best possible solution and certainly a step in the right direction. It is not solving all the issues but better than the old system and certainly addressing some of the most pressing issues.

 

  All candidates for the 2018 World Championships Football have handed over their bid books to the FIFA. Which will be the country that the championships will be awarded to? We have to wait until December 2 but will briefly compare the 6 major candidates and their bids as well as their chances to succeed. The UK and Russia seem to be favored by the bookies, but could they be wrong? 

Bid books for 2018 have been handed over. Delegations from each of the candidate nations have handed over their bid books for both 2018 and 2022 to FIFA. For 2018 the candidates are the UK, Russia, Spain/Portugal, Holland/Belgium, Australia and the USA. The final decision on to whom the World Cup 2018 will be awarded to will be taken on 2nd December 2010 by the 24 members of the FIFA Executive Committee. As history has proven, the best bid will not necessarily always win, as lobbying and politics play an important role in the process. In spite of this, each bidding country still has to demonstrate that: 1. It complies with the bidding process; 2. The anticipated impact on the game and society as a whole; 3. The support from the government, general public and football community; 4. The   Infrastructure and management capabilities to host the tournament; 5. An innovative and meaningful legacy programme for after the event. 

Bid likely to be awarded to Europe. On several occasions FIFA strongly hinted that Europe will be given the 2018 finals, with England and Russia competing against joint bids from Netherlands-Belgium and Spain-Portugal. All four are also in the 2022 race but will be barred if one of them gets the 2018 tournament. If indeed Europe will end up with hosting the World Cup 2018 this would effectively rule out the bids of the US and Australia, who in that case would have to put their focus on 2022. Europe seems to be the preferred choice as the powerful UEFA (which has a large number of votes) wants to see the tournament on the continent again, after South Africa in 2010 and Brazil in 2014. Moreover FIFA also seems to opt for a financially interesting tournament; TV income, ticketing and commercial deals in Europe no doubt would be strong. Although FIFA has stated in the past they would rather not see joint candidacy bids, FIFA’s Blatter specifically stated that this is no longer the case and that these bids will be treated the same as single candidacy bids. 

Politics and lobbying will be key determinants and that makes the outcome so unpredictable. Clearly the content of a bid is important, but politics and the lobby process in the end will be the key. The exact voting procedures to be adopted are still unknown. However, they will involve a majority decision. It means that in order to win, a bid has to have the vote of at least 13 members of the FIFA Executive Committee, which contains 24 members in total. This also means that each member needs to have a second and third choice ready in case their first choice does not make it passed the first vote. As said the exact procedure is not known yet; are the two World Cups being voted in sequence or are they for example being undertaken simultaneously. Those elements can be crucial for the lobbying process. In any case Michel Platini and his UEFA mates have 8 votes (more than any other blocs) out of 24 and no doubt he will encourage his allies to work together for Europe, particularly for round 2 and 3 of the voting process. As said politics will play a vital role. Different blocs will no doubt attempt to make deals in exchange for votes. Who will vote for whom? Will South America go for the Spain/Portugal bid, where will the Africa votes end up (in Russia maybe?) with? The political massaging and powerplay have already begun; England played Trinidad and Tobago in a friendly match in the hope that the CONCACAF president- a native of T&T- would support England’s 2018 World Cup bid. The Netherlands has already been in South Korea (also a member of the Execucutive Committee) with, no surprise, Korea’s much adored Guus Hiddink in the delegation. Coincidentally the proportion of friendly matches in countries with Executive Committee members has gone up over the last year etc etc. In any case without a good lobby a country bid won’t stand a chance! Countries should concentrate on both the first, second and third choices of executive committee members. Strategy required! 

The current bids explained! Clearly all bids are in line with the requirements. It means that all of the candidates have 11 to 12 stadiums capable of housing 40,000 people and one capable of housing 80,000, it means all of them have a legacy, organisational capabilities and government support. Nevertheless all of the bids vary in originality, viability etc. Each of the bids has advantages and disadvantages. We will briefly stand still with each and every bid. 

Australia 

Theme: Come play!  Australia is emphasising its experience, stability and certainty along with its great hospitality, many volunteers and friendliness. As known the country has a proven track record and has the backing of some famous names. There is no doubt that Australia can organize a great World Cup, but the odds for 2018 seem to be against. Firstly it would mean that for the 3rd time in a row the World Cup would be organised in the Southern Hemisphere, which seems to be a big disadvantage. Secondly there is some opposition from other sports leagues in Australia over stadium usage and scheduling. Thirdly and most importantly, it seems that the World Cup will take place in Europe. Hence we would not be surprised if Australia withdraws from the 2018 bid to concentrate entirely on 2022.   

USA  

Theme: The game is in US!  The USA plays the infrastructure card in its bid. The infrastructure is already existent, featuring some of the biggest stadiums in the world and offering large flexibility. The country focuses on the success of the FIFA World Cup 1994, which resulted in strong growth of the sports and now wants to extend that legacy for another 25 years. Additionally the organisation has the support of President Obama. The US would clearly be a safe play; the best infrastructure and scale should be a guarantee for record attendances similar to 1994. That would clearly result in windfall profits for FIFA. Nevertheless chances seem to be second to none as far as the 2018 bid is concerned. Yes, Mexico has announced it will support the bid and possibly some other countries in the region might do this as well, but this will be far from sufficient to convince the other members. As stated, it is very likely that a European candidate will be chosen, whilst an additional disadvantage can be found in the fact that it is not that long ago that the US hosted the World Cup. Again and similar to Australia we would not be surprised when the US would withdraw in order to fully focus on 2022.  

Netherlands/Belgium 

Theme: Together for great goals!  The Netherlands is generally seen as an outsider but they have a great package to offer, which goes beyond the tournament itself. This bid is clearly focusing on social responsibility, emphasising green, environmentally friendly and social themes. A few examples; it will offer a Sustainable Stadium Toolkit to the rest of the world, it will support the development of world coaches in developing nations (Train the trainer) and it aims to organise the most sustainable World Cup ever (giving  2 million bicycles away to fans during the cup). Adding to this, stars such as Ruud Gullit and Johan Cruyff, the countries organisational capabilities (EURO2000) and its famous orange army and we would argue that this is actually a quite charming bid. Will this be sufficient? Some argue that the size of the 2 countries may play a negative role, but one can also turn around this argument by stating that a big event such as the World Cup should not be monopolised by the big countries. Hosting the World Cup in a smaller country would be a good stimulus for many other countries to also organise big tournaments. Moreover, don’t forget that the majority of the FIFA Executive Committee contains members from, you guessed it, smaller countries….. The cons? Both countries have a lot to do on the expansion of their facilities, whilst they run the risk to be muscled out by their larger European rivals. Hence a lot needs to be done on the lobby and political front, but it is far too early to rule this bid out……..A role as outsider fits the lowlands well! 

United Kingdom  

Theme: England United, the World Invited!  England is the clear favourite under the bookies but is this really justified? Obviously the bid is playing out the economic benefits, its heritage and tradition and the popularity of the Premier League. Undoubtedly the UK has a lot to offer. It would clearly bring the highest commercial revenues for FIFA, backed up by the international appeal of the Premier League. Additionally, the infrastructure is already largely in place with a couple of very impressive stadiums lined up. Clearly the UK has football in its DNA, whilst it has been a very long time (1966) ago that it has hosted a major tournament. The fact that the country can organize the World Cup needs no convincing, it has already everything. However, this is also where the danger is. Arrogance and complacency may be on the lure; any hints of England being the divine candidate could be potentially damaging. Additionally the recent Lord Triesman (FA boss and leader of the bid team) scandal might have hurt England’s World Cup ambition. This also reveals another potential danger; the British press being permanently on the look-out for scandals. Summarising the main danger for England is probably the motherland itself! 

Russia  

Theme: Ready to inspire!  Russia seems to be a very solid contender. The country clearly plays the “legacy” card and tries to position itself as a new hidden continent for football, being a bridge between Eastern Europe with an enormous untapped reservoir of potential new football players; in the last few years football has grown by 50% in Russia. It also believes this could be a catalyst for social change. Additionally the country has promised new stadiums in 13 cities, all of them of the highest qualifications. The fact that the country has never hosted the event before could work in their favour, as Rio has blatantly proven. Finally Russia has deep pockets and a strong team with its key asset, Andreas Herren, who joined after holding the top PR role for years at Fifa, where he is well connected. Nevertheless there are some cons as well. Security is a main concern as are the distances between venues and the touristic infrastructure. With most of the stadiums still to be buid and the difficulties faced by South Africa and Brazil freshly in their minds, FIFA officials may be wary, particularly given the fact that the construction of the Zenith St Petersburg stadium is already behind schedule. In any case Russia should be seen as a formidable contender, particularly given the World Cup’s legacy being far bigger in Russia than in any of the other countries. 

  

Spain/Portugal 

Theme: Two nations, one common goal!  The Iberian bid aims to emphasize the unity between Spain and Portugal and their ability to organise safe, well organised and particularly a fun and entertaining World Cup event. The bid seems to lack a real legacy or theme and seems to be relatively introspective (for example no website in English etc). Nevertheless, the joint bid of Spain and Portugal is seen as a strong contender. The bid will probably get the support of the South American bloc Conmebol (good for 3 votes), whilst Spain and Portugal have a strong tourist infrastructure and two of the best stadiums (Bernabeu and Nou Camp) in the world, a desire for any tournament organizer. Both countries have good organising skills, having recently hosted some big tournaments. The latter could of course also be seen as a negative, whilst the country is also facing this other big negative: the state of the economy, which is not an easy one to pass by. 

Bookies still go for England, but race is far from over……I personally would be surprised when either the USA, Australia or Spain/Portugal would win the bid for 2018. The UK and Russia should be regarded as the big favourites, but I wouldn’t rule out the Holland/Belgium bid, which receives a lot of sympathy. We have to wait and see! If we have to believe the bookies it will be England, followed by Russia. Here are the odds of Betfair: England 2.54, Russia 3.5, Australia 5.5, Portugal/Spain 7.4, Netherlands/Belgium 12, USA 20. However we know, the bookies are not always right…….

Last weekend FC Twente was crowned as the new Dutch national football champions. This may have come as a surprise to many, certainly given the club’s history of almost being bankrupt just 7 years ago in the 2002/03 season. Strong leadership, a prudent policy, a strong team with high self esteem and a solid fanbase are the main pillars behind the success. We explain why. 

FC Twente? Foreigners may ask FC Who? However that would do the club injustice. FC Twente has been around in the Dutch League since 1965 and is a household name to the Dutch. The club only relegated once, played many times in Europe and sees itself as the pride of the eastern part of The Netherlands (note that FC Twente is named after a region in the East). In all these years the club never managed to become Dutch national champion albeit that they were very close in 1973/74, when they just lost out to Feyenoord.  In the 2002/03 season the club went almost bankrupt but since then it has risen from its ashes with this year’s championship being the cream on the pie. It has not been the locker room mental pep talk of Al Pacino which has brought the club this success but a mixture of different reasons, which we explain below.

1. The team. More than any other club in the Dutch Eredivisie (Premier League) FC Twente has been an example of a team without any prima donnas. There may have been stronger teams in the league, but none of them showed as much unity and mental toughness as FC Twente. With team discipline and character, the team won a lot of its matches in the last quarter of its games. Bryan Ruiz, Nkufo and Douglas are probably the big names in the team, but mentioning only these guys would fail to recognize the effort of all the other players, without whom Ruiz, Douglas and Nkufo would not have been able to excel. 

2. The coach and staff. The success of FC Twente is also the success of coach Steve McClaren. After having been written off in the UK, McClaren has come back with a vengeance. In just 2 years time, he managed to make the club national champion, after having already finished in the number 2 position last year, so no coincidence here. This should be seen as a formidable achievement, particularly given the number of important players that left the club last year. Few people would have given even a dime for Twente’s chances after the departure of Braafheid, Elia and Arnautovic. However, their replacements Tiendali, Ruiz and Stoch proved them wrong. The merits for this should clearly go to McClaren and his technical staff (including the scouts).

3. The Management. As stated earlier, FC Twente almost went bankrupt just 7 years ago with debt of around EUR 14mln, were it not for Herman Wessels and its current chairman Joop Munsterman, who took charge in 2004. Munsterman, who made his career in the newspaper business, has been the big architect behind the revival of FC Twente. He is known as a tough reorganiser and negotiator. With the help of Enschede, several sponsors and the founders of the stadium, he managed to salvage FC Twente and wrote black figures in 2005 and ever since. Thrift, prudence and hard work have been the main elements of Munsterman’s policy. He managed to grow the budget from just EUR 11mln in 2003 to EUR 33mln in the current season, making Twente the 4th biggest club of The Netherlands as far as turnover is concerned. With the prospects of the Champions League, this budget should grow even further to well above EUR 40mln in the coming year, implying the club will pass Feyenoord. Twente’s new stadium, the “Grolsch veste” has been instrumental behind this growth. In 2008 the club moved into this 24,000 spectator stadium, increasing capacity by 11,000 and hence substantially increasing turnover. This year capacity will be further increased to 32,000. The club managed to obtain the ownership of the stadium through a mortgage loan. However, the incremental operating income (including catering etc) of the stadium more than compensates the financial charges of these loans. Although debt is substantial (> EUR 30mln) and will rise further with the current expansion, this should be no problem. Firstly this debt is largely related to the stadium (serving as collateral). Secondly FC Twente is paying off this debt as the club is generating positive cash flow and also is using part of the proceeds on players. Secondly, players are valued at zero on the balance sheet! Thirdly, player salary costs are relatively low at only 52.4% of sales. Hence, from a financial point of view, FC Twente is one of the healthiest clubs in The Netherlands, which is reflected by the category 3 rating of the Dutch Football Union. All in all one can say that the management team of FC Twente has done a remarkable job! And the end is not in sight. No doubt Munsterman and friend will try to further leverage the function of the stadium; there are plans to make the Grolsch veste a regional centre for science, education, sports and recreation. A hotel, railway station, congress center, offices, skating hall, healthcenter etc should arise. Hence plenty of room to leverage!

4. The region and fanbase. FC Twente’s fanbase has been instrumental for its success. The club has always had a very loyal fanbase. The values of the club are football, atmosphere and solidarity, whilst the club is a symbol for the region. Hence the club has 10 official supporters clubs spread across the region. This hinterland should guarantee that the new extra capacity of the stadium will be filled up. The success of the club should fill the traditional laid back and reserved population with confidence, which should be good for the region. Additionally FC Twente is one of the leading clubs as far as socially responsible policy is concerned being active in many different educational and public health projects in the local district, an example of being good neighbours. This is exactly what Twente binds and connects to the region and vice versa.  

5. The league. Clearly the Dutch Eredivisie is not what is used to be. Quality has clearly detoriated and the height of a budget is by no means a guarantee for winning the league. Ajax, PSV and Feyenoord used to win the league each and every year, but these clubs no longer manage to outpace the competition as FC Twente and AZ last year have clearly proven. The main reason has been that it has become increasingly difficult to retain top talent. Obviously this has resulted in a nore exciting competition but clearly at the expense of quality.

The miracle of the east; FC Twente has proven it can be done! A club can become champion with a solid policy, good financial management and a good technical staff. In contrast with AZ Alkmaar, which entirely depended on a rich maecenas, the FC Twente model looks more sustainable. Nevertheless, the proof will be in the eating of the pudding. Twente will face two major challenges in the coming year; the pressure of being national champions and the departure of several key players (Ruiz, Douglas, Perez?) and possibly Steve McClaren. That won’t be easy and chances of a repeat performance are likely slim. So we said last year…….but then again, maybe it pays off to just put in that dime of last year……….

Recently Delloite published its annual Football Money League for the 2008/09 season, in which it profiles the European football with the highest revenue base. Simultaneously the Dutch National Football Union (KNVB) came out with the financial performances of Dutch football clubs. Not surprisingly the revenue gap of Dutch clubs compared to European clubs is substantial and has further increased. Ajax and PSV are leaders within The Netherlands as far as revenues are concerned. Will these teams ever be able to bridge this revenue gap?

Revenues are a fair indication of a club’s relative size. The Deloitte Football Money League is using revenues from day to say football operations to determine a clubs’ relative size. It believes revenues provides the best publicly available financial comparison, rather than fan-base, attendance, broadcast audience or on-pitch success. We tend to agree; revenues are a reflection of aforementioned elements. Moreover revenues are extremely important to the continuing existence of a football club. As fixed costs such as personnel costs (player salaries!) and stadium rent often take up as much as 90% of  total revenues, revenue maximization guarantees not only the ongoing existence of the club but is also providing a good base to improve the on-pitch success and hence fan-base, attendance etc. In this perspective it is not surprising to see that most of Europe’s top clubs (measured in revenues) have been able to grow faster than the second tier clubs.

The rich clubs growing faster than the poor ones…..When analyzing the current top 20 European football clubs measured by revenues, one can conclude that these clubs as a group have grown by 8% over the last 2 years. As a comparison the Dutch Eredivisie has grown 7.7% over the same period. The problem is not so much to be found in the relative growth as it is compared to absolute growth. The top 20 in Europe saw their turnover grow by EUR 290mln, whereas the 18 clubs in de Eredivisie saw their revenues increase by only EUR 30mln. To put it into perspective, Ajax was able to grow its revenue base by EUR 2.3mln from EUR 64.9mln in 2006/07 to EUR 67.1mln in 2008/09, whereas the number 1 in the league, Real Madrid noticed a EUR 50mln increase from EUR 351mln to EUR 401mln. This implies that Real’s increase in sales almost equals Ajax entire turnover level. We can put it differently; The clubs in the five countries with the highest average club turnover for the 2007/’08 season (England, Germany, Italy, Spain and France) represent 13% of the 732 clubs in the 53 highest divisions in Europe, but generate 69% of the € 11.5 billion total European turnover. No doubt the differences will grow further in the future in case there aren’t any changes. The rich will get richer…… It means the slow emergence of a super league consisting of clubs out of the aforementioned big leagues.

Market size essential for revenue generation. This is logical! Sponsors are attracted to the biggest markets and are willing to pay for this! For media the story is not that different; media companies are willing to pay big bucks for those clubs or in those countries, where there are most viewers. Analyzing the build-up of revenues of the top 20, 26% is derived from matchday revenues, 42% from media revenue and 32% from commercial activities. When comparing the Dutch league (Eredivisie), this compares with 27% from matchday, 12% from media and 51% from commercial activities. No doubt the biggest difference can be found in Media income. The average Dutch Eredivisie club receives EUR 2.9mln (ranging from EUR 1.1mln to EUR 6.7mln) in media income vs EUR 82.4mln (ranging from EUR 22mln to EUR 161mln) for a European top 20 club! Or to put it differently; Real Madrid’s media income of EUR 161mln alone already is 2.4x bigger than the total annual revenues of Ajax.

Gap with top 20 still substantial. Well now, would Ajax be able to bridge the gap with the European top 20? Let’s first look at where the club currently stands. As stated, Ajax generates annual revenue of EUR 67.1mln. This compares with EUR 401mln for the number 1 Real Madrid and with EUR 101mln for the number 20 Newcastle United. This also shows the huge differences within the top 20. In fact the top 11-20 all generate less than EUR 150mln. So in order to enter the top 20 Ajax should generate around EUR 35mln turnover. Clearly the easiest way to victory would be to participate in the Champions League. 13 clubs out of the top 20 played in the Champions League last year generating around EUR 37mln on average in additional revenues. Even PSV Eindhoven generated around EUR 36mln in Champions League income. In comparison Ajax generated only EUR 5.1mln from European football last year. Playing group levels in the  Champions League could hence lead to a top 20 place in Europe or at least very close to it. Nevertheless, it remains the question to what extent such a position would be sustainable. We should not forget that the number 18 Borussia Dortmund (revenues EUR 104mln), number 19 Manchester City (revenues (EUR 102mln) and the number 20 Newcastle United (revenues EUR 101mln) all generate these revenues without having played Champions League either. Hence it should be Ajax’ target to grow towards these levels even without playing Champions League. Can this be realized?      

Ajax Revenues (EUR000) 2004/05 2005/06 2006/07 2007/08 2008/09 % gr 09/05
Ticketing income            
Europe 9344 13304 4385 1111 5055 -46%
Season tickets 8999 8662 9280 9850 10122 12%
Other tickets 3418 5298 6646 6040 4232 24%
Other 1970 1030 1035 2129 786 -60%
Total Matchday 23731 28294 21346 19130 20195 -15%
Total ex Europe 14387 14990 16961 18019 15140 5%
             
Media income 8260 11871 8834 8207 5479 -34%
             
Sponsoring 18868 19328 18759 18781 25280 34%
Skyboxes 9586 9513 9833 10198 10031 5%
Merchandising 6180 5424 6119 5576 6169 0%
Commercial income total 34634 34265 34711 34555 41480 20%
             
Total revenues 66625 74430 64891 61892 67154 1%
Total ex Europe 57281 61126 60506 60781 62099 8%
Total Ex Europe + media 49021 49255 51672 52574 56620 16%

 

Ajax: 5 year revenue growth has been very disappointing.  Let’s first look at Ajax current growth and revenue mix. Revenues in general mainly consist of commercial revenues, media income and revenues generated during matchday. Over the last 5 years Ajax has barely been able to substantially grow its total revenues. In fact since the 2004/05 season, total revenues have grown by just 1% in total from EUR 66.6mln in 04/05 to EUR 67.1mln in 08/09. Revenues peaked in 2005/06 at EUR 74.4mln, but it has to be said that during that year both media revenues and matchday revenues peaked, mainly the result of the club being active in the Champions League. Because these items (media and champions league income) have an exceptional nature, they distort the picture: media income has come down as the Dutch Eredivisie exploits the television rights as an entity and Ajax has not included the income of the exploited channel as of yet, whilst income from European competitions was EUR 8mln higher in 2005/06 when compared with 2008/09. When stripping out these exceptional items, total underlying revenues have increased by 16%, equaling less than 3% growth per annum and particularly helped through a strong increase of 34% in sponsoring revenues in 2008/09. Without this jump in sponsor income, Ajax revenues would not have shown any increase whatsoever. 16% underlying revenue growth over a period of 5 years may look decent but for a club such as Ajax, but this is a very poor performance of course, certainly when compared to most top 20 clubs, of which most have been able to grow their revenues substantially across the line, so not only in media. Particularly the limited increase in matchday revenues, in merchandising and in sponsoring (with the exception of last year) is disappointing.  

What could Ajax do to bridge the gap with the other clubs without being too dependent on media income? I believe the main strategies forward can be summarized as follows:

  1. Ajax has to improve its Customer Relationship Management. The Ajax brand identity is exceptional and known across the world and hence should attract many fans. B2B and B2C relationships can both still be significantly improved and exploited. The national fanbase of both Ajax and Manchester United are pretty much equal with around 4mln fans. However, the international fanbase of United is many times higher than that of Ajax as United has been much more aggressive in marketing the club abroad. Ajax has cautiously entered China now but could be much more aggressive as revenues from commercial income blatantly prove. Ajax still has a great image and brand value; young and very talented players, offering attractive and spectacular football. Cruyff, van Basten and Bergkamp are just a few names which represent the brand. Their fame will be eternal but if Ajax waits too long the association with the club being a producer of talent will fade away. Fan connection and CRM should hence obtain much ore attention. As a result commercial income (both sponsoring and merchandising could grow much faster)
  2. Matchday revenues could be raised. Again when looking at the figures, one can conclude that matchday revenues over the last 5 years have grown by less than 1% per annum. Clearly it is more difficult to grow revenues when you already attract full capacity crowds, but improved yield management could possibly lead to higher revenues.  When analyzing the top 20 clubs in Europe, one can conclude that with the exception of Borussia Dortmund (explained by the fact that it has many cheaper standing places), Ajax generates the lowest income per seat, whereas it is in the top 10 of Europe as far as average attendance is concerned. Better yield management (has price elasticity ever been checked), on site sales and the likely expansion of the stadium should lead to higher matchday revenues.

Lack of media income remains a problem. Nevertheless these strategies are unlikely to compensate the lack of media income which is holding the club back. The lack of media income is and will remain a problem as long as Ajax is playing in a small country like the Netherlands. Clearly the club has been trying to market the right of its games itself but as long as it is a member of the Dutch National League, this will remain a problem. It’s only hope in this perspective would be the formation of a European Superleague or a merger of several national competitions. However, both seem to be far away at this moment.

Youth and consistency should be name of the game! As a conclusion one can state that Ajax is unlikely to enter the top 20 on a sustainable basis without regular Champions League performances and without putting more emphasis on the items discussed above. As the rich get richer and the poor get poorer, strategy should hence be into this direction. As Ajax is unable to generate sufficient income to attract the best players in the world, it should get back to its roots/values and brand identity; young technical players that can excite the crowd and stand for attractive football. As the club has potentially the biggest revenue base in The Netherlands, it should be able to attract the best young players and with this increased focus, it could possibly be active more often in the Champions League than it did during the last few years. Moreover by being a breeding ground of talent this could lead to an extra source of revenue. Only by being consistent going forward, such a scenario is possible. It is this way the club aims to be going. Consistency will hence be the proof of the pudding, let’s wait and see whether the club will be able to execute this.

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 2nd 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!

Eredivisie (EURmln)  07/08 08/09 %chg   Jupiler League (EURmln) 07/08 08/09 %chg
Turnover 421.8 429.0 1.7%   Turnover 63.6 57.4 -9.7%
– of which sponsoring 179.2 197.7 10.3%   – of which sponsoring 32.4 32.0 -1.2%
Sponsoring as % of sales 42% 46%     Sponsoring as % of sales 51% 56%  
Personnel ratio 59% 64%     Personnel ratio 72% 77%  
Personnel costs 248.9 274.6 10.3%   Personnel costs 45.8 44.2 -3.5%
Net profit 64.2 -31.0 -148.3%   Net profit -13.1 -10.2 -22.1%
– As % of sales 15% -7%     – As % of sales -21% -18%  
                 
FTE’s 1850 2088 12.9%   FTE’s 817 761 -6.9%
Wages per FTE 0.1345 0.131 -2.2%   Wages per FTE 0.056 0.058 3.6%
Average FTE’s per club 103 116 12.6%   Average FTE’s per club 41 38 -7.3%
Average # of players 36 39 8.3%   Average # of players 21 20 -4.8%
  • 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 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!

975e479f-a4d3-4cc2-9fdf-21432c4e0255_Eredivisie169Last week first division club HFC Haarlem filed for bankruptcy, no longer being able to fulfill its financial obligations. This should come as no surprise. Several clubs are in dreadful financial condition, mostly on the back of poor management and unfavorable economic conditions. Hence we expect more casualties along the way. We briefly explain and suggest some solutions.

Dutch footbal clubs facing difficulties. Last week, one of the oldest Dutch football clubs, the HFC Haarlem, filed for bankruptcy and hence this household name will disappear from Dutch professional football. In spite of several attempts, the club could not be saved. We are not surprised, Haarlem has been facing financial difficulties for quite a while and the club was placed on the watchlist (category 1) of the Dutch Football Association (KNVB). The problem is that Haarlem is no exception. Its situation is exemplary for many other clubs in particularly the lesser important first division (Jupiler League). It is believed that some 9 other clubs are on the same watchlist, with several more far from safe. At the moment Veendam seems to be the primary candidate to be next with a liquidity shortage of some EUR 600mln. Besides Veendam other clubs having difficulties seem to be AGOVV, RKC, RBC, Fortuna Sittard, MVV, Eindhoven and Cambuur. However, it is not only the first division which is facing difficulties, there are also problems in the Dutch Premier League (Eredivisie), where losses amounted to EUR 34m last year. Feyenoord, Willem II, Roda JC and Ado Den Haag are just a few names, which face a huge financial burden.   

Is 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 can be explained as follows: 

1. 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 or increase salaries by 25% in a period of economic crisis, 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 rising budgets. 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 (51% of total revenues), 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 allright”. 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.                  

2.  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 is just not big enough to host 38 professional football clubs. Let’s first look at the map of The Netherlands. The Netherlands has a population of 16.3mln, which implies one professional football club per 429,000 habitants, which intuitively already seems not that many. 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 1.5-1.6mln.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.

3. 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 argue 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.

4. 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:

1. 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.

2. Introduction of semi-professionalism in the first division. 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.

3. 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 their supporters. Food for thought.

4. Improve quality of management. It seems many clubs are not managed properly, supervisory boards should carry part of the blame.

5. 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.

6. 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.

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 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.

indgren-021508-ajaxnlAlthough borders in Europe have long gone, football in Europe is still very much a national affair. Each country still has its own national league, each and every one of them with their own identity and image. Whether it is the Premier League, Serie A or Bundesliga, one immediately has an image on whether these leagues are attractive in terms of football or not. Is the league competitive, are clubs generally playing attacking or defensive football etc? We have briefly looked at how many goals are scored in each league and which teams are scoring the most goals on average in Europe. In this perspective The Netherlands and Ajax are the winners.

Leagues have their own image. Come to think of it. In Europe the Dutch are wellknown for the attacking kind of football they play, which often is at the expense of defense. In contrast the Italians are known for their defensive style (still dealing with the relics of catenaccio), leading to the perception that not a lot of goals are being scored. The Premier League and the Primera Division are probably the leagues where the world’s best players are gathered, both in terms of defensive and offensive players. It should be interesting to see whether some of these perceptions are true and in which countries the most and the least goals are being scored. In the table below we have summarized how many goals on average are scored each game in a specific national league during the last 5 years.

 

Country Goals Matches Goals/Match
Netherlands 4598 1530 3.01
Norway 2826   968 2.92
Switzerland 2555   900 2.84
Germany 4342 1530 2.84
Denmark 2775   990 2.80
Austria 2509   900 2.79
Belgium 4123 1530 2.69
Turkey 3989 1530 2.61
Scotland 2959 1140 2.60
Sweden 2644 1026 2.58
Italy 4878 1900 2.57
Spain 4837 1900 2.55
UK 4794 1900 2.52
Greece 2752 1200 2.29
Portugal 3045 1332 2.29
France 4235 1900 2.23

 

The Netherlands most productive. It is interesting to note that some perceptions are indeed confirmed and that the overall ranking reasonably fits with what one would suspect. Not surprisingly The Netherlands tops the list, indeed confirming the attacking kind of football. It is also noticeable that the more northern European countries rank generally at the top half of the list, whereas the southern European countries rank at the bottom half. The last place of France surprises somewhat given the French generally play attractive football. The final conclusion is that the leagues where the most money is at stake (UK, Spain and Italy) also can be found at the bottom.

Productivity depending on different factors. We also looked at which clubs are most productive by taking the 5 year average number of goals scored during league matches. Clearly results partly depend on the strength of the league and the extent to which a club is dominating its league. Several weeks ago, we published an article on the competitive balance in European football, in which we concluded that this balance did not exist in most leagues. Hence it should be no surprise that the rankings are topped by either the European traditionals facing limited competitive balance in their leagues and hence often ending up in the top 3 or by clubs which are part of leagues where many goals are scored.

 

Club Goals/Match Club Goals/Match Club Goals/Match
Ajax 2.31 Manchester 1.90 Kalmar FF 1.75
Porto 2.25 Arsenal 1.89 Club Brugge 1.74
PSV 2.18 Real Madrid 1.88 AEK 1.69
Basel 2.17 Yboys 1.88 Brondby 1.67
Celtic 2.14 Rosenborg 1.87 Panathinaikos 1.65
Fenerbace 2.10 Inter 1.85 Besiktas 1.65
Lissabon 2.10 Galataseray 1.84 Liverpool 1.63
Barcelona 2.09 Rapid Wien 1.84 Lyon 1.63
Anderlecht 2.09 Juventus 1.84 IFK 1.63
Bremen 2.08 AC 1.79 Stuttgart 1.60
AZ 2.04 Chelsea 1.79 Schalke 1.52
Benfica 2.03 Standard 1.79 Sevilla 1.49
Bayern 1.98 Kopenhagen 1.78 Valencia 1.47
Rangers 1.93 Salzburg 1.77 Austria Wien 1.46
Zurich 1.93 AS Roma 1.76 Grasshoppers 1.46
Olympiakos 1.91 Leverkusen 1.76 Hamburg 1.45

 

Ajax is taking the number one spot. This may come as a surprise to many as the club has not been league winners during the last 5 years. However, it has consistently performed in the top 4 of its league, whilst performing in a competition with limited competitive balance, also explaining the high ranking of PSV Eindhoven. Moreover, the club has always been known for its offensive kind of football. In that perspective it is nice to see it taking the number one spot. For the number two, the story is not that different. FC Porto grabbed the championship four out of the last 5 times, again in a competition even less balanced than that of The Netherlands. In spite of the fact that they are playing in relatively low scoring leagues, Barcelona, Manchester United, Arsenal and Real Madrid are ranking high due to their consistent good performances.

Manchester_United_Premier_League_Champions_20_863950 It is still early days in the different European football competitions. In most cases we are not even halfway yet. Nevertheless speculating in the different countries on who will become the league champion has already started again. In most leagues the usual suspects are being mentioned, no surprise really….However, in some leagues there seem to be some new kids on the block. Whether it is FC Twente in The Netherlands, Sporting Braga in Portugal, Odense in Denmark or Bayern Leverkusen in Germany, all are relatively new to the art of winning their league, but all these teams are currently in the lead. The odds (as we will see) are against and I’ll bet you that in the end quite a few of these exotics will not realize their dream, at least not during this season.

Competitive balance in Europe appears to be far away. It seems to be a fairytale that leagues in the different European countries are highly competitive, they are not. Ask someone who will become champion in Spain? Nine out of ten will answer Real Madrid or Barcelona. So they should, as during the last 25 years the two of them won the national times 21 times out of 25. It can even be worse; Celtic and Rangers in Scotland have won 24 out of the last 25 times. In most leagues it is not significantly different. Clearly there is competition within the league but predictability on who will become champion is relatively large



  Number of times being league winner         Clubs having won
Country Best club 2nd best club Third best club Top 1 Top 2 Top 3 the league
   
Austria Austria Wien: 8x Rapid Wien: 5x Salzburg: 5x 32% 52% 72% 7
Belgium Anderlecht: 12x Brugge: 7x Genk: 2x, Standard: 2xx 48% 76% 84% 5
Denmark Brondby: 10x Kopenhagen: 7x Aalborg 3x 40% 68% 80% 8
England Manch. United: 11x Arsenal: 5x Liverpool: 3x 44% 64% 76% 7
France Lyon: 7x Olympique Mars: 5x Bordeaux: 4x 28% 48% 64% 8
Germany Bayen Munich: 14x Dortmund: 3x Werder Bremen: 3x 56% 68% 80% 6
Greece Olympiakos: 13x Panathinaikos: 6x AEK: 4x 52% 76% 92% 5
Iceland Akranes: 6x Reykjavik: 5x Hafnarfjordur 5x 24% 44% 64% 8
Italy AC Milan: 8x Juventus: 6x Inter Milan: 5x 32% 56% 76% 8
Holland PSV: 14x Ajax: 8x Feyenoord: 2x 56% 88% 96% 4
Norway Rozenborg: 18x Lillestrom: 2x 5 diff. teams each 1x 72% 80% 84% 7
Portugal Porto: 17x Benfica: 5x SC Portugal: 2x 68% 88% 96% 4
Scotland Rangers: 15x Celtic: 9x Aberdeen: 1x 60% 96% 100% 3
Spain Real Madrid: 11x Barcelona: 10x Valencia 2x 44% 84% 92% 5
Sweden Goteburg: 8x AIK: 3x Malmo 3x; Djurgard. 3x 32% 44% 56% 11
Switzerland Grasshoppers: 7x Basel: 4x Zurich: 3x; Servette: 3x 28% 44% 56% 10
Turkey Galatasaray: 11x Fenerbace: 7x Besiktas: 7x 44% 72% 100% 3
     
Average   45% 68% 80% 6.4


The table above summarizes how many times the best clubs have won their leagues during the last 25 years. One can see that Rosenborg from Norway is record holder in Europe: it has won the national title 18 times out of 25, closely followed by Porto, who won 17 times and Rangers, who won 15 times. The percentage columns tell it all; they are telling us on how many occasions during the last 25 years, the best 3 clubs in a certain country have seized the championship. So in Turkey and Scotland, things are really predictable. You are a pretty brave rascal if you are going to bet against either Galatasaray, Fenerbace or Besiktas of winning the league in Turkey. Besides these countries Portugal, Holland and Greece also score high on the predictability ladder. This is to say when looking at history and that is where the fun comes in. History is by no means a guarantee to the future as last year’s Dutch league winners AZ Alkmaar blatantly proved. AZ was the first league winner in 25 years outside the traditional top 3, PSV, Ajax and Feyenoord. Nevertheless, averaging the different European leagues, one can conclude that in about 80% of all cases, it is one of the traditional top 3 teams, which becomes league champion.

So which countries are giving us the biggest headaches upfront? Surely Sweden and Switzerland, where there have been 11 and 10 league winners respectively during the last 25 years. It is clearly difficult to predict the winners here, which must be fun. Hence in these smaller leagues competition seems to be more balanced. Let us briefly compare with American Football’s NFL. Looking over a period of 25 years, there have been 13 different winners, whilst the 3 best teams won the superbowl only 10 out of 25 times or 40%. The World Series Baseball even was won by 17 different teams over the last 25 years. Talking about competitive balance……. The reasons behind? I would not be surprised if it has anything to do with a phenomenon called salary cap……Food for thought I believe.

In the mean time, will the new kids on the block such as Twente, Braga, Odense and Leverkusen win their leagues this year? Never say never, but the odds are against. Do not forget they have not been in this position before; the closer one gets, the more difficult it becomes. Fighting for a national title will result in a different kind of pressure new to most of these teams. Surely there will be a surprise package somewhere, but I doubt whether all four of them will have this fortune.