1. Why football clubs want to become a company?
Football is a large industry as it one of the world’s most famous sport. It is a rare phenomenon to see a sport clubs like football clubs to go for public listed company. According to Szymanski and Hall (2003), football clubs usually organize as not-for-profit sporting organizations. However, the route from private to public ownership is a common and standard path for firms as they grow in size. Due to the football clubs faced with the increase of their resources and their charges, they are looking new sources of funding to make sure that they remain competitive in the championship. Based on the case study of European listed football clubs, the first football club that went to public was Tottenham Hotspur and it is one of the biggest clubs in England. Besides, in the case study they also stated that the decision to go public could be related to the number of fans and also the ownership structure of a football clubs. A sport business that is publically traded have its own risks and challenges. But, when the football clubs are success it can drive the price up and make a team a valuable asset. That is why a football club want to become a public listed company.
Football clubs actually can give a positive impact on a town or city. There will be a large number of fans attend a game. This will bring more business to local communities and indirectly they can generate unlimited money through the usual activities if the football club is successful. Michel, Wladimir et al. (2010) said that the revenues of the football clubs mainly from three sources which is TV broadcasting rights, gate receipts and a commercial source (sponsorship and merchandising). Initial public offerings (IPO) is a effective way to raise capital and also make their team to expand that is why IPO is being initialized by the football club. Looking into the past, Fredrik and Gareth (2015), they believe that the preferences and the background thinking of investors have a different due to the specifics of the industry they are investing in. For examples when a sport clubs like football clubs going public, usually the investing activities will be the fans and that love or support the clubs.
According to Cheffins (1999), he believes that the main reasons of the sport clubs going public is because they belief that raising new capital to build large arenas will attract more interest from the supporters of the club that lead to increased in revenues. In the recent research conducted by Saliha et. al. (2012), the reasons why football club want to become a company is because they can improve their image of the club. When they transformed into public listed company, they can get the benefits of best practices of privileged communications.
2. What is IPO? What are the advantages and disadvantages of IPO to the football clubs?
IPO is stands for Initial Public Offering. It represents the process of changing the ownership of a firm from private to public. It involves private companies offering their shares for sale to new investors and for those shares to be freely tradable on a stock exchange. However, the stock market listing of a sport clubs is no a simple operation.
Advantages of IPO
IPO is an effective way to quickly generate a large amount of capital. In the context of football club, the benefit for them going public is to allows their supporters to invest in the club. Besides, the proceeds from an IPO is a way for the team to reduce the large amount of debt.
Disadvantages of IPO
According to Hall et al. (2003), he notices that a listed club’s wage bill is significantly higher in European football although the IPO actually should improve clubs’ transparency and governance by transferring control to the shareholders. In research conducted by Wilkesmann and Blutner (2002) that investigated for German football clubs which going to public. They found out that three possible patterns in their decision making. There are several organizational changes have to be made, such as, a board of directors has to be installed. The role of the board of directors is they will supervise and monitor the operations management. This indirectly can lead the corporation to lose its autonomy. When a football clubs decide to go to public, they have to deal with many complex requirements compare to non-listed football club. They have to provide a detailed information about their financial decisions for each year. This might be a disadvantage because before this the information was confidential and not available to everyone. But now, this information is available to everyone who is interested in it. According to Ritter (1987), going public required a high expenditure as the football clubs have to hire a professional accountants and lawyers to make sure all the annual reports are in good quality. In the research made by Ritter (1991), he found that there is an evidence that companies who have going to public tend to underperform in terms of their adjusted returns. According to Szymanski and Hall (2003), there is a little improvement of performance after the football clubs is going for public. According to Cheffins (1998), to ensure profits to shareholders was not efficient enough only by the management of the football clubs. This is confirmed by the findings by Frank (2016), that many clubs’ share price dropped after undergoes IPO. The reason for the decrease is the football clubs are overpriced at IPO time. But, not all football clubs share prices are decreased. For an example, the share price of Tottenham Hotspur’s is increased after the IPO.