Abstract
Football companies (equivalent to professional sport teams) are increasingly challenged with raising capital. However, future athletic success is highly uncertain and associated cash flows are difficult to predict which makes it difficult to attract investors. An alternative financing instrument that has become more popular in recent years is Third Party Ownership arrangements (TPOs). TPO is a way for financiers to invest in the player squad of a football company and therefore reducing investment risks. Due to the wide usage in football and legal concerns about TPOs, FIFA has forbidden the implementation of TPOs since 2015. But, the question arises, whether a ban of TPOs is really appropriate avoiding a potential conflict of interests as well as problems in ethics and compliance. To address these aspects and finally to judge the appropriateness of TPOs for football companies and the ban itself, a financing-theory-oriented view on the design and functional possibilities of TPOs is needed, but still missing in the literature. Our paper tries to fill this gap and sets the economic basics for a profound legal and economic discussion on the use of TPOs in football as well as sports in general.
Highlights
Professional divisions of football 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)
The aim of the paper was to reveal practical designs and characteristics of Third Party Ownership arrangements (TPOs) in professional football as well as their financial background. This issue is relevant to various stakeholders in football, such as board members in football companies, investors of football companies, and regulatory institutions in football federations (e.g., FIFA) to determine the meaningfulness and economic consequences of TPOs
Due to the legal developments in a 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 divisions of football 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 companies.1 This view supports the understanding in football 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. Football 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) In this context, they are faced with the challenge that cash flows depend directly to a considerable extent on the sportive success (e.g., TV donations or sponsorship agreements depend on the league ranking at the end of a season) and are difficult to predict. Managers and investors must consider possible sports regulations as well as the respective capital market legal framework (Haas, 2012; Schmeh, 2005).
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