Growth and Deficits Hand in Hand

|Professional Team Sports Clubs in Denmark – Empirical Findings, Theoretical considerations and governance perspectives| |Senior Research Fellow Rasmus Storm| Play The Game 2007 Creating coalitions for good governance in sport Reykjavík, Iceland 28th of October – 2nd Novebmer 2007 Idrættens Analyseinstitut

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Senior Research Fellow Rasmus K. Storm | e: [email protected]

Presentation index 1

Empirical findings: Danish Pro. Team Sports Clubs operate with profit margins around zero or are in the red

2

Theoretical considerations: How can we understand the business of pro. Team Sports Clubs?

3

Governance perspectives: how are we to measure financial performance in the future?

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1) Data concerning Danish Pro. Team Sports Superligaen total

(incl. transferactivities) Turn ov er

Prof it/los s

Turnov er minus FCK & BIF

Prof it/los s minus FCK & BIF

Millioner

1.500 1.400

1.377

Danish Pro. Soccer clubs, best league

1.300 1.200 1.100

1.044

1.000

907

900

DKKr.

800

703

700 600

517

500

484 343

400 300

0

199 118

143 23

27

47

10

56

29

-6

-1

-46

-65

-43

-20

96

4 06 20

05 20

04 20

03 20

02 20

01 20

00 20

99 19

98 19

97 19

96 19

95 19

94 19

93 19

-100

351

271

200 100

646

546

Year

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1) Data concerning Danish Pro. Team Sports Danish Team Handball

Average Net profit/loss

Average Turnover

14 12

Mio. kroner

10 8 6 4 2 277.129 kr.

0

-516.145 kr.

-1.181.274 kr.

-2 1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/2000

2000/01

2001/02

2002/03

2003/04

2004/05

2005/2006

Sæson

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1) Data concerning int. Pro. Team Sports Premier League

Turnov er (ex c l. Trans f er f ees )

Pre tax prof it/los s

1.400.000.000

41 out of 92 League Clubs have been in financial administration over 1992-2007 period

1.200.000.000

1.325.407.000

1.245.799.000

1.094.913.000

1.000.000.000

907.387.000 800.000.000

728.716.000 669.675.000

Pund £

600.000.000

569.170.000 463.949.000

400.000.000

339.026.000 200.000.000

13.687.000

-4.382.000

-2.595.000

0

“Taken as a whole the Premiership clubs make a pretax loss, and while revenue has been rising, losses have been increasing. (…) In practice many clubs that floated did not follow a stock market driven, profit maximisation model – rather they prioritised sporting success over pre-tax profits.” (State of the game 2005: 19-20)

-128.990.000

-117.768.000

-18.431.000

-117.532.000 6 200

5 200

4 200

-153.285.000 3 200

2 200

1 200

0 200

9 199

8 199

7 199

-65.733.000 6 199

-200.000.000

-70.870.000

-400.000.000

Year

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2) Theoretical considerations The typical approach: economical activities is about profit - and this holds for the sports economy too….? No: the money is a means to an end in professional team sports

”The fact that the sport system uses money to win and ”Commerce may be defined as ’thethe activities and procedures perform better does not change fact that they are means involved in buying and selling things’; a commercial of payment in the economic subsystem. But theactivity sport system ’involves producing goods [and services] in large quantities in order transforms the operations of the economic system by using to make a profit’; and commercialisation is ‘mainly concerned with money formoney’. enhancement of performance andtofacilities instead making When applying these definitions sport it seems of logical profit that in the sense of assport seeninvolves in the producing economicsport thetraditional commercialisation system.” products(Tangen in order to2004) make a profit” (Westerbeek & Smith 2003)

Hans Westerbeek

Although this definition holds some truth, profit seeking does not seem to be the case in professional team sports clubs.

Niklas Luhmann

Building on the system theory developed by Luhmann, sports can be seen as a social system established around the symbolic generalized media: ‘Winning’.

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2) Theoretical considerations: a model State/Public sector

Sport High participation/low observation (Sports competition; media: ’winning’)

High observation/ low participation

Pro. Team Sports Clubs

The Sports Sector as Business (Economic competition; media ’profit’)

Civil Society

Idrættens Analyseinstitut

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3) Governance Perspectives •The sports business holds a certain institutional setup with winning as the core principle. •This means that it is not fair to measure the economic performance from a purely economic scale. •On the other hand, large deficits are not acceptable – a balanced accounting book should be the minimum precondition for participating in the sports business. Solutions: Although The Danish Handball Federation and the Danish Soccer Federation are already tightening the regulations, this does not seem to be enough. More regulative initiatives must be taken. In addition, the clubs should enforce bonus salary solutions. Idrættens Analyseinstitut

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To sum up: Due to the peculiar logic of the sport system growth and deficits are closely connected. This points to the problems of purely economic measurements in the sports business. This being said, however, overspending is unfair even seen from a sports perspective. The challenge is to find regulative approaches that combine the economic challenges with an understanding of the specificity of the sports business.

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Thank you! Rasmus Storm

Senior Research Fellow E-mail: [email protected] Phone: +45 32 66 10 34 www.linkedin.com/in/rasmusstorm

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