Ways to improve efficiency of professional sports financing mechanisms

PhD, Associate Professor O.V. Litvishko1
T.P. Vysotskaya1
I.M. Bodrov1
S.M. Nosov1
T.V. Buyanova1
1Plekhanov Russian University of Economics, Moscow

Keywords: revenues, sports, football, stage, finance, efficiency, market.

Background. The national professional sports with their entertainment and commercial aspects cannot be competitive enough on the global arenas unless well supported by the governments and private interests in the current economic situation. The national sport industry strives to find efficient public-private-civil partnership formats for progress. It should be mentioned that many foreign sport clubs are doing better in the commercial domain being able to invest some of their business revenues in sports. In the context of these successful policies and practices, the traditional national sports financing mechanisms in our country appear no more efficient enough in view of the relevant public agencies facing budgetary limitations with the sport entities having to rely only on their sponsors and donors in the efforts to ensure the financial viability.

Objective of the study was to take the global football industry for a case study to analyze benefits of the efficiency improvement projects in the national professional sports.

Methods and structure of the study. We have analyzed for the purposes of the study the formal statistics of the national and foreign football industries.

Results and discussion. Given on Figure 1 hereunder is the Russian versus European Premier League football financing mechanisms that demonstrates that the Russian Football Premier League (RFPL) championships are financed mostly by sponsors.

Figure 1. National versus European football financing mechanisms in 2018

It should be emphasized that the low attendance rates of the Russian Football Premier League matches versus the European averages (see Figure 2) cannot but tell on the match revenues.

Figure 2. Match attendance rates versus match revenues in 2018

The Russian Football Premier League match-day proceeds from tickets, souvenirs and public catering businesses are much lower than, e.g., in England and Germany – that may be due to the low support rates, poor quality of the services, substandard professionalism of the football players and the still underdeveloped football support cultures of the local fan communities.

In this situation, the national clubs may be recommended prioritizing the following two fund-raising options: (1) encourage investments in the youth football to secure an inflow of new blood in the clubs and, hence, savings on the foreign contracting; and (2) better plan and manage their activities on the market of transfers to improve the financial performance and budgeting process. This model has proved successful, for example, in Portugal and the Netherlands, with the local clubs even establishing their football academies at home and abroad and their scout services recruiting young prospects the world over.

It should be noted that the national football clubs report negative balances of transfers, with the national average reported at minus Euro 223.3 million for the last 7 seasons. This means that the local market is still undersupplied by the well trained local prospects, and the local football clubs still have to recruit foreign players. The national Premier League football system reports 139 foreign players (35%) at the moment – whilst in Portugal and the Netherlands where one of 15 residents plays football (versus one of 67 in Russia), foreign players are reported at 20% of the Premier League total; with the transfer balances for the last 7 seasons reported at Euro 1197.35 and 647 million, respectively: see Figure 3. The national Premier League clubs have to pay much more to recruit strong prospects on the global markets due to the unfavorable climatic conditions, poorer services, other hardships/ disadvantages and the generally low global standing of the national Premier League. As a result, an average payroll per capita in the Russian Football Premier League is reported at Euro 1.5 million that is quite compatible with the leading European nations.

Figure 3. National transfer balances, Euro million

Despite the high payrolls compatible with the foreign clubs, the actual revenues of the national clubs are much lower (see Figure 4), with their payrolls averaging 72% of the revenues versus 61% for 55 European nations. The only way for the national clubs to improve the financial performance to near it to the European standard is to expand the inflow of the local prospects to the Premier League.

Figure 4. National Premier League payrolls to the total revenues, Euro million, 2018

The financial performance of the Russian sports on the whole and the football Premier League in particular may be also improved by proceeds from the TV broadcasting rights – since the Russian Football Premier League proceeds from the TV broadcasts vary at the level of Denmark and Greece and lag far behind those of Turkey, Portugal and the Netherlands – despite the notably higher standing – that means that this source of commercial income is still virtually untapped by the national Premier League: see Figure 5.

Figure 5. Proceeds from the TV broadcasts, Euro billion, 2018

Extra finance for the Russian football may be raised by the digital TV service with subscriptions, with a special priority to the modern Digital-to-Home service. Bids of the Digital-to-Home service providers and subscriptions for the service may notably boost the Russian Football Premier League revenues, with the latter taking full advantage of its monopoly for the exclusive product contested by the providers. The Russian Football Premier League policies, practices and decision-makings in this domain shall be geared to secure the service being beneficial for every shareholder, with a special attention to the national football socializing and popularizing mission.

Analyses of the foreign football financing systems show significant contributions from sponsorships and advertising contracts, with the total sponsor contributions to the top five European Premier League (Germany, England, Italy, Spain and France) reported at Euro 4 billion for 2018 – versus only Euro 497 million in the Russian Premier League – that makes up only 10% of the European total. Therefore, the Russian market of sponsorship is still lagging behind the European standards although the proceeds from the sponsor advertisements are reported at 30-90% of the total revenues of the Russian Premier League clubs i.e. 10-30% higher than the European average, that means that the national FC are too dependent on this source of income. The situation is further aggravated by the fact that the sponsors naturally favor the large cities and leading teams with their supporter communities and TV audiences for the understandable commercial reasons, whilst the regional football clubs are still ranked low on the list of priorities by the sponsors.

It should be also mentioned that the most successful football clubs with the stable financial performances are largely maintained by the major public and private commercial shareholders, and such financial system is still not fully compliant with the UEFA rules of financial discipline as it may not be qualified as the sponsorship-prioritizing system. One of the reasons why the national football is still not attractive enough for the potential sponsors is that the economic environments are considered unfavorable in many aspects and the potential sponsors may not always forecast with confidence the incomes and costs of their commercial operations in the sector. We would recommend in this situation a gradual transition to a reasonably diverse financing model to complement the sport-specific proceeds by revenues from the associating commercial activities.

The relevant national sports management agencies may take the following key steps to facilitate progress of the national sport industry on the whole and football in particular: (1) set goals, terms,  conditions for commercialization of the sport businesses with the relevant governmental budgeting provisions; (2) set the minimal thresholds for the business revenues of the sport entities with due cost planning and management systems including the payroll limitations and foreign contracting limitations to improve the financial performance standards; (3) set the strict licensing and financial performance requirements for the sport clubs competing in the professional sport leagues, with every mismanagement being penalized by sanctions up to disqualifications; (4) give a higher priority to the alternative sources of finance available on the local financial markets, with the sport entities offered some interests in the bookmaking businesses, private sponsors lured by tax exemptions etc.; (5) support the children and youth sports by investments, with the trainers being duly motivated by the relevant solidarity systems and interests in the transfers, to ensure a better quality of the training service and a broader inflow of young prospects to the clubs.

Conclusion. The modern sport infrastructure and beneficiary sport teams shall be controlled by the same corporate entity to secure due synergy of the commercial supporters for progress of the sports and thereby cut down the governmental budgetary allocations to the professional sports system.

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Corresponding author: Litvishko.OV@rea.ru

Abstract

The national professional sports with their entertainment and commercial aspects cannot be competitive enough on the global arenas unless well supported by the governments and private interests in the current economic situation. The national sport industry strives to find efficient public-private-civil partnership formats for progress. Objective of the article was to take the global football industry for a case study to analyze benefits of the efficiency improvement projects in the national professional sports. Financial viability of the national sports system may be improved by the focused efforts to popularize healthy lifestyles, encourage the popular support for the national sports and spur up the private business interests in the sport industry. We analyzed the leading football clubs’ financing systems in a few countries with a special attention to the match attendance statistics versus the football club profitability rates and proceeds from match broadcasting rights as visualized by a few diagrams in the study. It was concluded that the modern sport infrastructure and beneficiary sport teams shall be controlled by the same corporate entities to secure due synergy of the commercial supporters for progress of the sports.