By Mansour Albakr, PHRi, SHRM-CP
20 October 2017
20 October 2017
The government of Saudi Arabia in November 2016 approved plans to turn state-owned sports clubs into private companies. This is part of the economic reforms to reduce Saudi reliance on oil exports and ease financial burdens on the government.
The Saudi National Football Team is one of the most successful national teams in Asia. The team has won the Asian Championship three times and has qualified for the FIFA World Cup four times. The Saudi Football League has been ranked 27th in 2015 by the International Federation of Football.
During the last decade business in football has grown to an industry. The United Nations believes that sport may account for almost 3 per cent of global economic activity. The European Union, the figure is thought to be around 1 per cent of Gross Domestic Product (GDP) and in the UK sport is thought to generate around 2.5 per cent of GDP. Estimates for the USA indicate that sport is worth almost $300 billion per annual to the US economy.
Football sport is one of the most popular with over 4 billion followers in the world. Media companies that broadcast sporting events has become a very important tool to attract viewers and advertisement.
The money a football club receives on match day was traditionally a source of revenue. Match day revenue is mostly obtained from gate tickets. In modern day football, a large part of income is acquired by revenue obtained from broadcast sources, commercial sources (sponsorship/merchandising), player transfer fees and non-football activities. Professional football had changed to a consumer-oriented service where the market plays a major role.
Football Business Model
Marketing and branding is a very important theme in the development of professional football clubs. Sport clubs produce an emotional response from their supporters that is greater than in any other industry.
In 1993, Manchester United Football Club raised its operating profit and turnover significantly, largely due to merchandising and branding. The club brand was a more stable source of revenue than winning football matches on a consistent basis. Manchester United has a reputation for being Europe`s most innovative club and it is also the most profitable. One of the objectives of the club is “Treating fans as customers”.
The finances of a club are an important factor for achieving football company goals. The model in figure 1 cumulative causation by Myrdal describes the series of indicators that are connected to achieve success.
Figure 1: Cumulative Causation Model
Every football company should be headed by an effective board, which is responsible for the long-term success of the football company. The board committees should have the appropriate skills, experience, independence and knowledge to enable them to perform their duties and responsibilities effectively.
Good governance is necessary if football companies are to be managed effectively. A representation of a governance structure of a sample football company is shown in Figure 2.
Figure 2: Sample Football Company Structure
Disclaimer: The views set out in this article do not constitute legal advice and readers are urged to seek specific advice in relation to any particular issues from this article.