German soccer clubs receive more funds from investors than English clubs
Investors’ funds increase the success of soccer teams but make the league less exciting
The entry of large investors in soccer clubs, such as the Qatar with Paris Saint-Germain F.C. or Roman Abramovich with FC Chelsea, is as much a subject of discussion for UEFA officials as it is for fans and the media. The influence of investors is criticized by fans especially in Germany for disadvantaging clubs with traditional sources of income such as the sale of TV rights, sponsoring contracts or ticket sales, among other reasons. Thus there were protests in the entire league over Dietmar Hopp’s involvement with TSG 1899 Hoffenheim or the Red Bull company’s with RB Leipzig.
But do investors’ funds really have an effect on sporting success? And how do German soccer clubs stand in international comparisons of investments? Prof. Christoph Kaserer, TUM Chair of Financial Management and Capital Markets and his team of researchers have now investigated these aspects systematically for the first time.
Who invests where – more than 300 clubs investigated
The team’s investigations covered 303 European soccer clubs from the first and second leagues in England and Wales, France, Germany, Italy and Spain. The scientists took a period of 10 years – between 2004 and 2014 – and assessed financial reports, press releases and articles in the press to form a picture of the flow of money and investments.
Here, investors were taken to include private or legal entities, independently of whether they owned shares in the particular club. Sponsoring funds were also considered which these shareholders directly or indirectly supplied to the club. However, neither traditional sponsors such as shirt sponsors or perimeter advertising were considered, nor income from TV or ticket sales.
Germany and France ahead in soccer investments
The scientists established that the importance of investors’ funds has increased significantly in the last 10 years. Overall they rose from about 94 million euros (2004/2005) to over 800 million euros (2013/2014); 95 % of this went to first league clubs. While the UK clubs received significantly more money until the 2010/2011 season, in recent years France, Italy, and especially Germany have caught up. In 2013/2014 France and Germany were almost neck-and-neck at the top of the list. German clubs received 304 million euros from investors, French clubs 289 million euros. In the UK it was only 63 million euros, compared with 533 million euros in the 2010/11 season.
Investor’s funds increase national and international success
The scientists were also able to show that financing by investors is profitable for clubs. Teams that received funds from investors won more points on average and had a higher probability of winning than teams without investors’ funds. On the international level as well, the teams were able to achieve greater success, as the scientists discovered on the basis of prize money paid by the UEFA for participation in an international competition like the Champions League or the Europa League. This is particularly true when the club has a major investor.
In addition, the market value of the team is raised by large investors. “If a club increases its investors’ funds by 100 million euros, that brings about 7 points more in the season. And more importantly, the effect is sustained, since an increase in the average market value per player of 1 million euros brings about 3 points per season - for small clubs that could often save them from relegation. It can hardly be imagined that they could raise such funds themselves,” according to Kaserer.
Less competition in the leagues
The investigation of competition intensity over a time frame of 10 years also revealed a clear disadvantage of the investors’ funds: The appearance of the large investors, competition in the large national leagues has significantly fallen in the countries investigated. This means less excitement for the fans and more predictable results. As a result, the share of points of the five best teams in the Bundesliga has now risen to 41%. That is the highest value among the leagues. Other measures of competition intensity also show that the balance of the national leagues is suffering under the increase of investors’ funding.
“The study indicates that there is only one way for the fans to celebrate successes of German clubs in the Champions League and still enjoy an exciting Bundesliga. The small clubs must also succeed in increasing their funding. Bringing new investors on board could be a possible solution”, according to Kaserer.
S. Birkhäuser, C. Kaserer, D. Urban, Investor Presence and Competition in Major European football Leagues, TUM Working Paper, August 2015.
Download PDF of TUM Working Paper (166 KB, English)
Prof. Dr. Christoph Kaserer
Technical University of Munich
Chair of Financial Management and Capital Markets
Tel: +49 162 2918349