Financial and economic performance rating factors in national football industry

PhD, Associate Professor O.V. Litvishko1
PhD, Associate Professor D.V. Vyprikov1
PhD E.A. Lubyshev2
1Plekhanov Russian University of Economics, Moscow
2Moscow City Pedagogical University, Moscow

Keywords: revenues, profits, financial and economic performance, management, legal provisions, market.

Background. It was in 2016 that the Russian Premier League clubs for the first time reported their total profits of RUR 3.2 billion – albeit only a year later they run into the total losses (‘aggregate financial and economic activity index’, FEI) of RUR1.7 billion. This imbalance may mean, on the one hand, that the 2016 success was momentary due to a variety of non-systemic factors including the successful interclub transfers, and on the other hand, that the financial and economic performance rates for the last two years have still been on the rise versus the 2014-15 period (when the Russian Premier League reported losses of RUR8 billion and RUR9.4 billion, respectively). On the whole, for the last 5 years the Russian Premier League has managed to cut down the total costs – e.g. the costs were reported to fall by 12% from RUR68.5 billion in 2015 to RUR58.5 billion in 2017 г. [14]. It may be due to the fact that the academic Financial and Economic Management discipline has been in progress in the national academic and advanced education systems. Plekhanov Russian University of Economics, for instance, has reported a growing popularity of its Crossfit [1-3] and Russian billiards [7-9] training curricula; with a special interest in the newly developed football training course.

The Russian Premier League financial and economic performance trends are generally much the same as in the European football industry – which has reported the total losses of top-ranking clubs being on the fall since 2011 when they peaked at Euro 1.7 billion, and presently they report profits of Euro 600 million [12]. This progress of the football industry may be due to the financial fair play rules introduced by UEFA in 2011 that largely helped the clubs to make their financial policies more balanced and disciplined to invest more resources to the national youth sports and infrastructure.

One more reason for the Russian Premier League financial and economic performance improvement may be the better psychological and instructive support [5] with a special priority to the game quality and popularity advancement aspects. In 2018, the total Russian club investments in the youth sports were reported to reach RUR3.2 trillion, with more than 20 stadiums being upgraded or constructed for the period since the new rules were introduced.

Objective of the study was to analyze the factors of influence on the recent financial and economic performance improvement in the national football industry.

Methods and structure of the study. Methodologically, the study was designed on a systematic approach to analyze the subjects of the football industry with account of the social aspects of the football competitions on the one hand, as their economic performance indicators on the other hand, with the relevant qualitative and quantitative performance rates – to provide a basic objective management data for the club holders and other relevant interests.

Results and discussion. Despite the positive effects of the new UEFA rules on the club financial and economic performance, the national football industry was particularly sensitive to the new requirements – that actually prohibit the operational costs being financed from the budgets and outlaw such investments from the club holders. These challenges forced the Russian Premier League to upgrade its financing mechanisms to adopt them to the market situation and optimize the flow of finance so as to improve the fund management efficiency, particularly for the public funds [11].

Furthermore, the Russian Premier League efforts to improve the financial performance have been facilitated by the modern stadiums commissioned for the 2018 FIFA World Cup – that increased the inflow of supporters and, hence, the club revenues from matches and associating businesses. The share of these incomes in the total Russian Premier League revenues is reported at about 6% - versus the European average of 12%. The Russian Premier League vs. EU match attendance statistics (27 thousand people vs. 14 thousand per match, respectively) and revenues per capita (Euro 27.4 vs. 15.3, respectively) show that the Russian Premier League has a room for progress, conditional on the new effective club business/ stadium management models are implemented. The FIFA World Cup heritage management concept assumes that no more funds will be assigned from the national budget for the stadium management since 2023; with these costs (estimated at more than RUR 2.1 trillion) put on the clubs and local governments since then. As a result, the clubs and local governments may run into losses and may have to suspend operations of their stadiums in case of inefficient financial performance – as was the case in a few countries that hosted the major international tournaments [13]. That is the reason why a growing priority is given today to the club management policies and practices.

The club financial and economic performance analyzing methods generally depend on the club management style – that may prioritize either profits or public benefits [6], with the profit-centered policies normally pursued by the private football clubs; and the public-benefits-centered policies by the public sports organizations – that strive to improve images of their home locations, popularize their sports, train prospects for the picked regional/ national teams and meet the local communal demand for the mass sports and sporting entertainments. The first (profit-centered) business model efficiency may be rated by the standard return-on-investment criteria and the relevant accounting tools (business profitability, liquidity, stability) plus compliance of the financial fair play provisions, with the performance expected to be at least at the break-even arrears-free level [4].

The second (public-benefits-centered) business model (typical for the Russian practice) efficiency may be rated by a variety of criteria – in addition to the mandatory compliance with the UEFA rules on the financial viability and income diversification. Such criteria may reasonably include the following: supporter community; match attendance rates; media reports; international contacts; competitive successes; qualifications for the top-ranking international tournaments; players’ payroll versus the total revenue; share of the local players in the team; prospects for the national team; average age of the team etc. [10]. Each of these criteria/ factors will make its contribution to the integrated management efficiency rate. We made a regression analysis to find contributions (cumulative impacts) of every criterion/ factor into the integrated management efficiency: see Table 1 hereunder.

Table 1. Contributions of the financial and economic performance criteria to the integrated management efficiency rate

 

Model 1

Model 2

Model 3

Model 4

Constant

-0,022

-1,375

-0,024

-1,5

-0,019

-1,118

-0,018

-1,059

Fans
Fans’ loyalty

0,093

5,813

0,089

4,944

0,091

5,056

0,094

5,529

Match attendance rate

0,340

10

 

 

 

Media reports

 

0,032

10,667

 

 

International contacts

 

 

0,016

5,333

 

Competitive success rate

 

 

 

0,165

1,528

Qualifications for  international events

 

 

 

0,184

2,556

Qualifiers for the national team

 

 

 

-0,007

-0,636

Local players’ share

Average age

 

 

0,184

4,089

0,204

3,849

Payroll to revenue ratio

 

 

0,163

2,012

0,220

2,157

Control

5,187

5,187

5,187

5,187

r2

0,1847

0,1867

0,1985

0,2033

  Conclusion. The still low returns on investments (ROI) reported by the Russian Premier League clubs may be due to the national scientific and legislative support mechanisms still lagging behind the global standards for the football industry. The club financial and economic performance improvements are still not motivated enough, with the situation further aggravated by the still widespread non-market financing mechanisms. As a result, the club management is not motivated enough to improve the business management efficiency and reform the traditional models using the market sources and resources. The club financial and economic performance analyzing method with a special priority to the socio-economic performance rates (including the match attendance, shares of local players in the teams, competitive success rates, qualifications for international tournaments etc.) will secure a flow of objective performance data for the club holders and relevant interests to facilitate the decision making and, hence, progress of the national football industry on the whole. 

The study was sponsored by the RFRF under Research Project No.18-310-20008.

References

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Corresponding author: Litvishko.OV@rea.ru

Abstract

Football clubs of the Russian Premier League have reported for the first time a growth of incomes that may be indicative of the financial and economic performance improvements due to the new club licensing procedures implemented by the Russian Football Union to comply with the UEFA fair play rules. The national education system takes efforts to improve the financial and economic performance in the optional sport training programs. Thus Plekhanov Russian University of Economics has lately reported the financial and economic performance progress in the academic Crossfit and Russian billiards and gives a special priority to develop optional football training programs.

Objective of the study was to develop and offer financial and economic performance rating factors for the national football industry, including: (1) identify the key factors of influence on the club financial and economic performance; and 2) rate contribution of every factor into the integrated financial and economic performance ratio. Financial and economic performance of the football clubs, for the purposes of the study, was interpreted as the integrated system the relevant characteristics. Input data for the study was generated by statistical data analysis and analyses of the existing legal and regulatory framework for the football industry and its progress reports. The study data and analyses made it possible to offer a football club financial and economic performance rating mechanism taking into account the socio-economic role of sports and the key factors of financial success including the market situation, resource provisioning, management quality, investment activity and social/ legal provisions for the club operations. The study findings may be useful for the football club management in the decision making process.