Abstract
Sports companies (equivalent to professional sport teams) are increasingly confronted with difficulties in raising capital. On the one hand, they have to fulfill league- and association-linked infrastructure requirements. On the other hand, they must ensure to be competitive in an increasingly demanding sportive and financial environment. However, future athletic success is highly uncertain (for example, because of players’ injuries) and hence, associated cash flows are difficult to predict which makes it difficult to attract investors. An alternative financing option that has become more popular in recent years – especially in football - is Third Party Ownership (TPO). TPO is a way of investing in the player squad of a sports company and therefore reducing investment risks for sport companies. However, due to the wide usage in football and legal concerns about the usage of TPOs, the FIFA has forbidden the implementation of TPOs since 2015. But, the question rises, whether TPOs are still economic useful for sports companies in other sports? What are the reasons why TPO arrangements in football are so popular? What is their economic benefit for involved stakeholders? To answer these questions and to judge the appropriateness of TPOs for sports companies and the ban in football, a financing-theory-oriented view on the design and functional possibilities of TPOs is needed, but still missing. Our paper tries to fill this gap and, moreover, sets the economic basics for a profound legal and economic discussion on the use of TPOs in sports
Highlights
Professional sports divisions of sport clubs are similar in many aspects to professionally managed business enterprises, and are focused on achieving both sportive and economic goals (Herberger, Oehler, & Wedlich, 2017; Fox & Weimar, 2014; Bühler, Gros, & Wallek, 2013; Küting & Strauß, 2010; Kupfer, 2006; Schewe, Gaede, & Küchlin, 2005)
Third Party Ownership (TPO) arrangements are considered to be problematic if an investor is directly involved in a sports company and owns a stake in a player’s transfer rights whose player is under contract for another sports company that is in direct competition with the sports company in which the investor is financially engaged
Due to the legal developments in professional football sport, it will be difficult for football companies and interested investors to initialize TPOs in the near future, but it is possible to implement a TPO arrangement e.g., if TPOs investors would commit with the football companies based on an equity engagement
Summary
Professional sports divisions of sport clubs are similar in many aspects to professionally managed business enterprises (for example, separation of ownership and control), and are focused on achieving both sportive and economic goals (Herberger, Oehler, & Wedlich, 2017; Fox & Weimar, 2014; Bühler, Gros, & Wallek, 2013; Küting & Strauß, 2010; Kupfer, 2006; Schewe, Gaede, & Küchlin, 2005). While the concept of a football company has established itself in the context of professional football it can be transferred to other sports or it can be generalized (independently of a specific sport) called sports companies1 This view supports the understanding in sports companies that they are – similar to other companies and business enterprises – mainly affected by the same issues (e.g. fulfilling its capital needs; profit orientation) and all corporate actions aim to maximize the companies’ shareholder value. In their daily economic life, sports companies are confronted with the task of financing their investment needs, e.g. the transfer of new players, the expansion of the stadium or the construction of a youth training center (Bühler et al, 2013). Capital demands and investors must consider possible sports regulations as well as the capital market legal framework applicable to the respective financing instruments used (Haas, 2012; Schmeh, 2005)
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