Good business decisions enable significant long-term success for football clubs. With their
ever-growing impact, we decided to reflect on the best business decisions taken by football clubs.
It’s not a definitive list or ranking and doesn’t pretend to be. Instead, it’s a chance
to highlight some of the most-forward thinking moves clubs have taken during the modern era.
Let’s begin by highlighting the major kinds of business decision that football clubs
take – player transfer and contract-related decisions, stadium and training ground-related
decisions, sponsorship / media / commercial decisions, debt and financing-related
decisions and finally, leadership team and football structure-related decisions.
We’ll look at each in turn, but start with stadium and training ground-related decisions
and one of the standouts in that category is West Ham’s ‘deal of the century’ on the London Stadium.
The London Stadium was originally built for the 2012 Olympic Games
and needed significant renovation to be usable for football (ultimately,
this cost 323 million pounds) after multiple unsuccessful attempts to find a sponsor.
West Ham eventually agreed a 99-year rental lease on the stadium. Per this lease,
West Ham would pay a fraction of the renovation costs (roughly 15 million
pounds) and an annual rent of 2.5 million pounds to use it as their home stadium.
They would not bear any operating costs (which far exceeded the rent) – these
would be borne by the London Legacy Development Corporation (LLDC) which manages the stadium.
Former sports minister Richard Caborn was quoted in the Guardian as saying – “This
stadium is the biggest mistake of the Olympics. West Ham are basically getting a stadium costing
more than 600 million pounds for a one-time fee of 15 million pounds and a small annual rent.”
To make matters worse, Europa League matches were not explicitly covered
in the lease contract. According to the BBC, their run to the semi-finals of the 2021-22
competition earned the club in the region of £12m, but at an extra rental cost of just
£185,000. To their credit, West Ham say they offered to buy the stadium and also offered
‘considerable cash’ to purchase commercial rights but claim these have been rejected or ignored.
As a strictly business decision, this was undoubtedly one of the best.
The next category is media, sponsorship and commercial decisions. Manchester United
warrant a mention here – the club has been at the forefront of commercial innovation,
piloting the idea of different sponsors in different geographies,
creating a portfolio of diverse partners and building a truly global brand.
The standout here though remains Real Madrid – the first club to truly appreciate the importance
of a global brand and fully monetize player image rights. Image rights, which today are the subject
of heavy debate as players agree ‘personal terms’ on transfers, were largely left untapped
two decades ago. Florentino Perez recognized very early the economic strength of player
image rights and that would be the off-field power behind the famous ‘Galacticos’ era.
He instituted a system whereby player image rights would be shared equally between the
club and the player – and this benefited Madrid considerably. To add perspective,
David Beckham’s image rights at LA Galaxy were split 80-20 (80% to Beckham himself, and 20%
to the club). This was 50-50 at Madrid and it’s one of the reasons why Beckham – whose commercial
value had been significantly undervalued by Manchester United – was such a transfer coup.
Under Perez’s leadership, Real’s global brand grew significantly and that period was also the dawn
of hugely lucrative global tours, including to Asia, and Perez actually doubled Real’s
operating revenue to nearly 300 million euros by 2006, from just over 150 million euros in 2002.
The third category is financing – and here, we’ll focus on restructuring debt.
In the wake of the pandemic in July 2020, Arsenal’s owners KSE restructured the debt
incurred by financing the construction of the Emirates stadium. The restructuring
involved one-time exceptional costs of 32.2 million pounds but came at
a significantly lower interest rate and freed up a 36-million-pound cash reserve.
Specifically, Arsenal’s annual cost of financing was halved,
from 20 million pounds (11 million interest + 9 million loan repayment) to 10 million pounds (5
million each of interest and loan repayment) and the 36-million-pound cash reserve led to
a one-time uptick in cash flow (Arsenal couldn’t use this reserve under the previous debt structure
because it was mandated to be held only for debt repayments). This significantly
improved Arsenal’s position despite matchday revenue disappearing during the pandemic.
Finally, the most meaningful and significant business decisions by football clubs involve
reshaping the leadership team and football structure. And we’d like
to highlight Brentford – specifically, the decision to shut down their youth academy,
a move heavily criticized at the time, and pursue a B-team model.
At a cost of roughly 2 million pounds per year, running the academy was a loss-making venture
for Brentford who found themselves spending years coaching young players only to see them poached by
bigger clubs, receiving paltry fees in exchange. Instead, Brentford decided to focus on recruiting
players aged 17-20 that had been released by youth academies across the country or
talent from “undervalued” overseas markets and house them in a B-team.
The B-team wasn’t entered into any league, but played multiple friendlies through the year,
and it proved significantly more cost effective, running at roughly half the cost of the academy.
Within its first season, four B-team players went on to play for the first team. A total
of 10 B-team players have been officially promoted to the first team – most notably,
Chris Mepham who rose through the B-team and first team ranks and was
ultimately sold to Bournemouth for 12 million pounds, and Marcus Forss who
scored the goal that sent Brentford to Wembley for the play-off final in 2021.
It’s worth pointing out that Brentford acquired an academy
license and announced plans to re-open their youth academy in 2022. The main
reason is a change in Premier League rules which stipulate that all teams competing
in the top-flight in 2024/25 must have a Category Three level academy or higher.
However, the B-team model has been a resounding success and Brentford maintain it will continue
to be the primary gateway into the first team. “The Academy will complement and
enhance the B-team program”, in the words of Brentford’s Director of Football Phil Giles,
as a continued endorsement of the latter’s success.