Long Term Financial Success for Clubs Essay

Introduction

Long-term financial success is not only beneficial for clubs but also for other business organizations. Every business entity needs to have adequate financial planning decisions that will ensure future stable profitability to meet its core functional objectives. Different organizations have different financial needs and therefore it is highly expected that the degree of financial leverage will vary. In the recent past, some clubs have been caught offside for failure to achieve good financial performance that has made them be the last choice in the eyes of potential investors. (Zero million 2005).

This has caused heavy financial losses resulting in managers being sacked and other support staff also losing their jobs. There have been insurmountable pressure on the managers and players to perform to the public expectation so that stakeholders including the soccer fanatics become comfortable. In almost all football clubs in the world competitive performance and uncertainty about outcomes have been the greatest concerns. Each club is evaluated in terms of performance in the leagues. For instance, in England, we have the English premier League consisting of twenty football clubs. The French league, Spanish league, the Italy serie A, the Bundesliga, and the Portuguese league. The current economic down surge has posed several financial challenges to many organizations including football clubs in the world. Most clubs have been sent to the mire of management crisis. (ICFI Risk Institute 2009).

The agency relationship that exists between the management and the potential stakeholders is likely to continue as clubs seek to secure the confidence of new investors. Clubs belong to the shareholders who in turn appoint managers to run the club affairs on their behalf. Clubs, therefore, need adequate long-term financial success for the following reasons. (Zero million 2005).

Future uncertainties

In normal circumstances, it is very difficult to predict what the future holds for an entity. Whether an event is likely to befall an organization thereby creating tremendous financial complications or not is a question of risk assessment. Any organization is subject to risks. In the business environment, there are quite a several risks that may affect the scale of operation of core activities. Football clubs are not exempted. The current economic world is dynamic and volatile that requires every business organization to prioritize risk evaluation and assessment in its core business activities. The uncertainties that are likely to befall football clubs include the current global economic credit crunch, possible litigation, attractive transfer for players, resignation threat by club managers, possible acquisition and liquidation, poor performance, etc.

In the event that any of the identified risks befalls a club, it is only good financial planning that will save a club. (Charles, Frederick & Peter 2007) This can be done as follows:

Litigation: where a club has been sued for professional misconduct involving a number of regular players it can be costly. If a club does not have adequate cash to solve court cases then the future can be doomed. During this time, the club is expected to continue with its performance. Suppose it does not have adequate cash and the players involved are first regular players, it means that the club can suffer adversely. This is why it is highly required that a club should have adequate financial success to cater for such unexpected events. Most clubs have fallen victims to such scenarios and have always packed and left. This may discourage investors willing to provide any support to the club. (Charles, Frederick & Peter 2007)

Underperformance: where a club’s performance begins to dwindle and eventually fails to achieve its target in the league, the club will need to buy more talented players to improve its performance. However, if the funds available are insufficient then it can be unattainable. This is why a club needs to have long-term financial success. This will ensure that the firm makes contingent decisions as they come. Underperformance can also be brought about by the clubs’ inability to employ a qualified coach. In this case, the club will be forced to dig deeper into its pocket to recruit a new and competent coach. This can only be achieved with long-term financial success. (Zero million 2005)

Unfavorable economic circumstances

During a moment of this nature, all clubs are faced with difficulties. Only clubs with sound and good financial policies would survive. Strategic financial decisions become core in leveraging organizations especially during these periods of economic hardships. If a club for instance has achieved its long-term financial success then can be able to set aside part of the gains normally referred to as reserves to deal with such situations. A financially stable club can use this opportunity to buy more facilities at less than market value. These facilities may include, training grounds, accommodation facilities, or even buy new talented players now that most economies have gone down. (Charles, Frederick & Peter 2007)

Resignation threat by Coach

A club may believe that its employees are motivated and satisfied. However the behavior of organizations has become interestingly funny. Most rival clubs would come with more attractive offers to poach coaches believed to be performing better. Under these circumstances, a club should have all the necessary types of machinery including financial materials to counter such offers. If a club does not have adequate finances then it means the coach is likely to be lured by such attractive monetary offers. In general, it is significantly important for every organization including football clubs to have sufficient and adequate financial policies that are necessary for long-term financial success to cater to the uncertainties of the outcome. (Zero million 2005)

Competitive performance

In the football industry competitive performance means that a club is able to outperform its rival clubs by beating them in the leagues in both domestic and overseas. Taking an example of Manchester United’s performance for the last three years has been wonderful. Manchester United is an English club with the largest number of followers in every state in the world. It has managed to win a back-to-back premier league title including the European champion’s league trophy. This typical club has managed to display a competitive soccer performance and there is still some hope of winning the English premier league title again. (ICFI Risk Institute 2009)

For clubs to maintain competitive performance there should be adequate finances. These finances can be used to maintain competitive advantage as follows:

Players; in a competitive soccer environment clubs will be put under intense pressure to perform to the expectations of the stakeholders, this implies winning more trophies and defending the already won ones. In their quest to win and maintain more trophies club managers would use whatever strategy possible. These strategies will include buying newly Identified talented players, establishing soccer academies for underage professional players and etc. These are activities that require adequate finances. If a club does not have enough funding then it’s likely that it will experience difficulties in securing such activities. Long-term financial success is therefore necessary. (Zero million 2005)

Again the club managers would want to secure long-term contracts for players perceived to be instrumental to the team. For example we have seen several attempts to defend and their best players. This is highly evidenced in the English premier leagues; the world watched how the Manchester United’s manager Sir Alex Ferguson defended Christiano Ronaldo’s move to Real Madrid. We have seen how Chelsea’s manager prevented Didier Drogba, Frank Lampard, and John Terry’s move to Inter-Milan and Manchester City respectively. These are players who are influential in the histories of the respective clubs. Securing long-term contracts for such players is not easy and requires a lot of money. If a club does not have a proper long-term financial plan then it might find it impossible to undertake such contracts. Financial performance should be outstanding for clubs to be able to pay salaries for star players. It is significant for a club to sign football stars and maintain them by looking into their remunerations. Paying remunerations for these stars requires adequately flowing cash. This can only be achieved through strategic financial planning systems. (ICFI Risk Institute 2009)

Training

Training is one of how clubs become competitive. Big football clubs like Chelsea FC, Manchester United, Liverpool, and Arsenal invest in young talents by building football academies from where they can be able to build their talents for the future generation. Young players are signed from across the world and trained in these academies to sharpen and build their football talents. Academies are difficult to build and maintain, if a club runs into financial trouble it will be difficult to finance such activities. In order to build academies, recruit football professionals to offer innovative training skills to the identified individuals, a club must have secured long-term financial planning. If this is not possible then achieving competitiveness in the industry would be a dream and hence a club may soon find itself phased out. (Gerard 2005)

Skilled and talented coaches

If a club has good players including all the resources required for an effective football to materialize, it will still be impossible without a coach. It therefore follows that a club should recruit professionally qualified and competent coaches. Hiring a coach of this caliber is expensive and costly. To maintain the competitiveness in the industry this should be a reality. A club should be able to have along with term strategic financial success to source funds to be able to attract and hire such coaches. Even though it has been very difficult for some coaches, signing contracts with clubs is always seen as assuring the commitment of the firm. A club should be able to retain good performing coaches in order that it carries the industry performance. It is therefore important that firms make informed judgments about their financial policies so that it is able to make such executive recruitment procedures and offers. (ICFI Risk Institute 2009)

Training facilities

The current economic world has made it very difficult for young clubs. The cost of facilities has gone high into the skies, and opportunities have become limited. Facilities like training grounds i.e. football pitches have become costly to maintain. Modern training pitches are fitted with security, fitness and telecommunications devices which offer players the best convenience that they may need. These features motivate and encourage players. However they are mostly associated with big clubs. If a club is not able to maintain such facilities then it may not provide the necessary talents to the players. A financially stable club will be able to build such facilities or even buy where they deem fit. This is likely to offer competitive skills to players and make them more competitive enough to win numerous trophies. The financial success of these clubs should not only be looked at in terms of Competitiveness and uncertainties but there are also other factors that should be considered. (Zero million 2005) These factors include; securing investors’ confidence and football fans, corporate social responsibility. These factors are discussed below.

Investors

There are many investors who have nurtured their investment preference towards football. We have seen many organizations sponsoring specific football clubs. These include Siemens, Samsung, Fly emirates, AIG, Calslarge, Vodafone, and etc. these are potential investors who are normally attracted by the club’s performance. Achieving spectacular competitive football performance requires long-term financial planning decisions. When properly made these decisions are likely to lead to good financial results. Where a club has achieved a positive financial report it can be able to invest in football stars that will transform the performance of the industry. When this happens, several investors will be attracted to the club in the name of sponsoring the club and hence contributing additional income. (Gerard 2005)

Where a club does not display interesting performance both in the domestic and external arena little or no investors may be attracted. Even the existing sponsors will be considering exit decisions. Consequently the club is likely to be plunged into serious financial implications as the market share continues to drop drastically. Adequate financial base can help restore the investors’ confidence by signing new talents, professional soccer experts and technical benches who are likely to change the position of the club. Organizations should be able to set strong and strategic financial policies. These will ensure that they achieve long-term profitability, cash flows to meet short-term objectives. The environment has become such a competitive bet in the football industry and elsewhere. It’s therefore the responsibility of the financial managers who are entrusted with these decisions to ensure that firms and organizations are financially safe enough to survive during hardships. (Charles, Frederick & Peter 2007)

Football fans

Soccer fans play a very crucial role in the football industry. If a club is able to display a good football performance, it will become the center of focus thereby attracting a large follower of soccer fanatics. Fans will influence the performance of a club in two ways; boosting sales. This is through buying tickets to watch live soccer matches inside the stadium. A financially stable club will be able to build big stadia with sizable capacities. The more capacity the stadium is the more fans and hence more tickets are sold. Countries widely known to cherish soccer in the world are associated with big stadia. Some of the largest stadia in the world include Wembley, Maracana, Stamford Bridge, Emirates and etc.Secondly, soccer fans are instrumental in boosting players’ morale. This may enhance their performance in various assignments hence boosting their standards. (Mark Fenton-O’Creevy, Nigel & Emma 2004)

Corporate social responsibility

Corporate responsibility refers to playing more than just an economic role within a community. Organizations and other corporate bodies are increasingly being pressurized to take social responsibility as part of their basic organizational objective. This has drawn mixed reactions from various scholars and experts. Other parties argue that social responsibility should be left to the government. In football a club is expected to be ethical, identify and sign young talents without discrimination, contribute towards charitable organizations and help support a community development activity. It is this part that becomes important. The responsibility of a club is that it should be able to support initiatives that are geared towards the development of people’s welfare. This will create an impression in the public and the government that there is compliance.

This can only be achieved when the club is able to generate sufficient income to substantially cater for fixed costs and all other operational expenditures. Social responsibility means extra costs to corporate organizations. A club should have a strategic long term financial policy that will ensure that it participates in other additional objectives like donations to charity homes, children orphanages, etc. (Eliyahu & Goldratt 1992)

Conclusion

A football club exists to provide entertainment and also acts as a unifying factor. In the olden days people used to describe themselves in terms of race and color. Today people are united and can speak with one voice; a democratic society without fear or favor. One of the factors that have promoted unity among us is football. Football clubs, therefore, need to be given priority in terms of support. There are so many goals that can be pursued by a specific club. However for achievement of these goals an organization needs to develop a good financial mechanism that will exist to champion both short and long-term financial requirements of a club. Proper budgeting, wise investment, and critical management accounting will provide a club with an opportunity to evaluate its performance over time and be able to make adjustments where necessary. A club should employ professionally qualified financial experts or outsource whichever is available to make strategic long-term financial objectives. This is fundamental if future growth is to be achieved. Long-term financial success will make the club sign new players, attract football stars, negotiate long-term contracts for both players and coaches, counter high transfer fees, purchase new modern training facilities, establish football academies and etc.

This is significant in maintaining a club’s competitiveness both in the fields and in the industry. Competition has become stiff in the football industry as pressure continues to pile on managers and players to perform. A lot of investors have also diverted their attention to identifying clubs with football potentials but lack any reasonable finances to continue. Clubs should also be able to record adequate cash to cater for unexpected occurrences that may adversely alter their operations. With the current economic recession, most economies have not found themselves lucky and only carefully integrated financial policy will provide leverage to such economies.

Long-term financial success should apply to every entity, no business organization will exist and continue in the long term without proper financing.

List of references

1. Alexander Hamilton Institute, 2008, Modern Business: A Series of Texts Prepared as Part of the Modern Business Course and Service of the Alexander Hamilton Institute, the Institute, Princeton University.
2. Charles Hannabarger, Frederick Buchman, and Peter Economy, 2007 “Balanced Scorecard Strategy for Dummies” Illustrated, Dummies, ISBN 047013397X, 9780470133972
3. Eliyahu M. Goldratt, Jeff Cox, 1992, The Goal: A Process of Ongoing Improvement, North River Press, University of Michigan, ISBN0-88427-061-0
4. Gerard Dowling,2005 “North Melbourne Football Club”, in Andrew Brown-May and Shurlee Swain, The Encyclopedia of Melbourne, Melbourne: Cambridge University Press, p.511.
5. ICFI Risk Institute, 2009, Adequate Capital.
6. Mark Fenton-O’Creevy, Nigel Nicholson, Emma Soane, 2004. Traders — Risks, Decisions, and Management in Financial Markets, Illustrated, Oxford University Press. ISBN 0-19-926948-3
7. William Henry Lough, 2007, Business Finance: A Practical Study of Financial Management in Private Business Concerns, Edition: 2, The Ronald press company, University of California
8. Zero million, 2005, Adequate capital.