Evaluation of the Relationship between Financial Performance and Sport Success in European Football

(ProQuest: . denotes formulae omitted.)IntroductionFootball is not only a sports game anymore. It is a key part of the global sports industry. Football clubs have turned the game into a billion dollar business by the commercialization of the game itself, their players and all products related to game such as names, stadiums, jerseys, and etc. Moreover, football clubs started to integrate their trademarks into various services, such as telephone services, credit cards with club advantages, using sponsorship agreements while naming their sports team or their stadiums.There is a very intense competition among football clubs in the European football arena. The meaning of success in sports and in finance is two different concepts. When the top performers of the European football clubs were reviewed, it is relatively easy to determine that success in the European football arena requires big budgets. The analysis of football clubs' financial performance could provide some insights to this matter.Generally football clubs have been established as associations due to tax benefits and other legal advantages of the status. Associations are a form of non-profit organizational structure and financial success is not generally an important goal for them. However, after the game had turned into a billion dollar business the understanding of football club management has changed. Finding funds to establish a strong football team with a top coach who is goal oriented, winning championship cups on a national and international level became a critical issue.The UEFA Executive Committee accepted the need for a new set of rules and regulations to provide "financial fair play" for the European football industry in 2009. The main aim is the long term viability of the European club football. The new rules imposed more discipline on club football finances. Football clubs are encouraged to invest in the infrastructure and the youth sector on one hand, and to compete with their revenues without external funds coming in and to settle their liabilities in a timely manner on the other hand (UEFA, 2015). The Club Financial Control Body (CFCB) was created as a new unit consisting of independent legal and financial experts who will be monitoring the implementation of new rules (Franck, 2014). These regulations imply the existence of an implicit relationship between the financial health and sporting success at least for the whole European football industry in the long run. Generally the financial performance of companies is related to success in their line of business. Therefore, it is quite normal to expect such a positive relation between the two criteria in the European football industry. There are however, other factors which could create a negative impact on the financial performance side. Sports club presidents and managers are generally ready to take financial risks to reach sports success, such as national or international championships. Football club presidents are generally chosen among wealthy businessmen as a result of increasing financing pressure on football clubs. However, this situation might cause the exploitation of football clubs and personal interests could surpass the interest of the clubs. This point and its possible effects could be analyzed with the help of the principal-agent model framework. Therefore, one might argue that there could be a negative relationship between sports success and financial results in the short run.Corporate governance is the most suitable model answering the financial needs of football clubs. Football clubs whose shares are publicly traded in Italy, Canada and England must obey the corporate governance rules. In other words, corporate governance is a prerequisite for going public (Sonmez and Toksoy, 2011). In conclusion, clubs using corporate governance successfully have a better chance in finding funds from the capital markets, reducing the cost of capital, and reaching a better liquidity position (Ozturk and Demirgunes, 2008). …