Investment Prospects of Professional Football Clubs in Indonesia
Thesis Proposal
Lecturer: Prof. Dr. Basu Swastha Dharmmesta, MBA
Written by:
M. Raul Giffari Adam
18/42XXXX/EK/21XXX
Business Research & Methodology
Final Examination Paper
2020
FACULTY OF ECONOMICS AND BUSINESS
UNIVERSITAS GADJAH MADA
Table of Contents
Abstract 3
Background 3
Problem statement 5
Research objective 6
Hypothesis 6
Methods of finding solutions 7
Literature reviews (summary) 7
Data collection methods 10
Procedure of analysis 10
Contribution of the research 11
Academic research 11
Practitioner research 12
Writing framework 12
References 13
Abstract
Professional football in Indonesia under PSSI (Persatuan Sepak Bola Seluruh Indonesia),
Indonesia's football association, has gone through some radical changes in combating all sorts of
impediments towards the sport's growth in the nation. This often involves financial provisions
from various investors in aiding the calamitous period that professional football clubs across the
archipelago have been facing for a decade. The study examines the business opportunity through
an array of lenses for investors in Indonesian football.
Keywords: club owners, investment, market, profits
Background
Within the realms of football, Indonesia is well-known for its people's overwhelming
passion towards the so-called beautiful game. However, erratic bureaucracy within the ranks of
the PSSI has hindered the potential of this nation of 250 million people to compete at the highest
level. The sport has been long politicised by the runners of the nation, mainly for them to
advance their career; it is an excellent tool to mobilise the masses. As a result, many clubs had to
opt for liquidation due to the fact that private individuals who own the clubs, mostly came from
government backgrounds, are not competent enough in managing these football clubs.
Indonesia's barren period of silverwares does not seem to end; the nation has been almost 20
years in without a single trophy. On the club level, Indonesia has virtually won nothing in
continental football, with the biggest achievement being a semi-finalist of Asia's second-tier
football championship, courtesy of Persipura Jayapura in 2010.
Football is no different than any other industries, where specialist firms compete with
each other and have their own market, and are especially large in Indonesia. According to
Szymanski (2010), a football league is an established industrial cartel that sells a highly popular
product with only imperfect substitutes. The sheer enthusiasm towards football displayed by
Indonesians, which are seldom found in any other sports apart from badminton, insinuate a high
price-inelastic demand for the professional football teams to deliver. However, what is on the
surface does not exactly translate to the real condition that Indonesian football clubs were and
still are facing: more football clubs recorded losses than the counterparts of which attained profit
instead. In other words, Indonesian professional football clubs are unlikely to generate money. In
order to mitigate that, these football clubs are often involved in a collusive scheme so that
competition would be far less damaging to those on the receiving end.
Indonesian football has gone through some rough patches over the course of five years.
According to Saputra and Ini (2017), Indonesia was late on regulating professional football clubs
to not be funded through the local government budget. This resulted in FIFA's official ban to
PSSI in 2015 from taking a part in international football, as well as holding FIFA-licenced top
local competitions of professional football. This was certainly an indication that each and every
football club were once influenced by the forerunners of their respective regions. As it is evident
that the nature of the practice is unethical, which have raised motives to bypass legal constraints,
Indonesian football has been trying to go from darkness to light in recent times, as it is evident
that football club ownership showcases transparency. The formation of dummy leagues in place
of the official FIFA licenced competition like the Indonesian Super League (ISL) has soared
tumultuous reactions from the public over the future that lies for football in this country. These
dummy leagues are much less competitive than the official competitions and more often than not
were only made as a means of marketing from the companies and firms that backed up the said
competitions.
Following that, an economic model of team performance and its correlation with income
and expenditure of football clubs in an attempt to show an interaction between the supply and
demand for football in aspects; football players are treated as a labour market in matching the
demand for the sport. Composed of reviews on the impact of managerial decisions related to club
ownership and Indonesia's governance systems on the financial and sporting performance of
football clubs, the scrutinisation of existing literatures serve as a further backing of this study as
to why Indonesian football can be a lucrative investment opportunity if the right measures are
taken into account.
Problem statement
The commercialisation of football in Indonesia is on a rigorous increase, evident by the
first ever professional football club to 'go public', Bali United, an IDX member since 2017.
However, other Indonesian football clubs have not followed its steps as of 2020. In uncovering
the various ways on how football clubs are being financed, a thorough qualitative analysis on
football literatures, as well as exploring the effects of this recent investment revolution, in which
clubs are gradually freeing themselves from government interventions.
Here are the research questions that cover the study as a whole:
● How do clubs turn that tide in their favour?
● Does the FIFA-granted impediment present a business opportunity that is up for the grabs?
● Is it worth pursuing investment in a seemingly uncertain business environment?
● Will the footballing business be a major industry in the long run?
Research objective
This research aims to interpret and assess the impacts of rigorous investments that have
been made to different football clubs across the nation, through literature reviews and empirical
evidence on the changing dynamics of investing in the sport, followed by its impacts. There are
several implications however, such as the risks of inaccurate financial reports, which might have
been manipulated, pose a significant threat in jeopardising the validity of this research.
Nonetheless, the study will remain to be objective as to uncover the increasingly growing
importance of professional football club ownership as investment in Indonesia, through
investigation of the benefits and drawbacks of investing in football in this current situation where
football is on its course to bounce back from its forgettable past. How football is similar from
any other industries in Indonesia, by taking similar measures in gauging the market for the sport,
will be an integral part in this study, through the lense of finance, economics, as well as
marketing. In addition to that, the writer holds hopes on how investment can bring significant
improvements towards Indonesian football.
Hypothesis
In the process of recuperating from the problematic and forgettable period in history
where FIFA's decision to ban Indonesia from being active in football had caused altercations not
only between one club towards another, but also within its own club, professional football clubs
are now being instigated to a more proper football system to adhere the value of professionalism
in the sport. In that sense, professional football clubs are now being guaranteed of getting back in
the business again without having to worry about any form of intervention from external parties.
Therefore, this could be a good momentum for any team competing in the five divisions of
professional football to rebuild. However, this requires financial provisions in order to make
changes and improve the club as a whole. This is where the opportunity for investors to try in
footballing business comes at last. With the high, relatively inelastic price demand, investors
should see how injections of money towards football clubs might yield a substantial amount of
payoff in the future. Just like any other industries, football has its own market and consumers; it
is up to the entrepreneurs whether the risk is worth taking or not, but certainly, it is an
unmissable chance to compete in one of Indonesia's highest grossing sports.
Methods of finding solutions
I. Literature reviews (summary)
As it was mentioned in the beginning that the politicisation of football has plagued the
entire nation of Indonesia in having a clear path towards reaching top flight competitions,
Colombijn (2000) managed to trace the high involvement of corrupt government officials and
oligarchs in the game as far back as the 1980s. However, the focal point of this study will not
focus on that matter, but it is undeniable that the economics of the sport, and especially in
Indonesia, is influenced by its national politics. As one of the pillars of the analysis, Colombijn’s
findings aided this study in providing a bigger picture of footballing business’ external
stakeholders. Politics and economics are influential to one another in this nation, and football is
not an exception.
The focal point of this study is the implications and assessments of the prospects in the
investments to Indonesian football clubs. In explaining that, several models are going to be
utilised in demonstrating the benefits and drawbacks, as well as the effects in which the
investments bring. The profit maximisation model in football by Garcia-del-Barrio & Szymanski
(2009) where expenditure estimates of football clubs in Spain and England are used to identify
profit-maximising responses, in which it is argued that firms with well-planned profit
maximising decisions are more likely to survive in a competitive environment. This particular
study also uncovers the choice of financing being carried out by the clubs of the said countries.
As the writer’s primary objective is to uncover the prospects of investing in Indonesian football
clubs, this model fits the study really well, as to find the variables which may or may not
contribute to profit maximisation for football club owners.
Rohde & Breuer (2017) believe that there has been an increase in importance of club
ownerships worldwide that owe to changing economic incentives, the prevalence and financial
leverage of private investors, and the role of private investors from a sporting perspective. It is
found that private investors of the English Premier League clubs tend to play a dominant role in
long-term investments, such as the major development of training and youth centre facilities, as
well as the integration of youth players into the first-team squad. Rohde & Breuer further argued
that there are three core trends in football: professionalisation, commercialisation, and
internationalisation. The three components deal with a common theme of unbundling of football
clubs to accommodate the conversion of member associations as a means of club ownership into
a corporation.
The supply and demand model of Szymanski (2010) further backs this study. In that
particular model, budget constraints functions are used which involve player wages as the main
variables together with revenues from ticket sales and other income sources such as TV and
sponsorships. Szymanski's study also compares football players' market to a competitive labour
market, in which it is similar in ways on how skillful football players should be in order to attain
a place in football teams. Specialisations also occur, with footballers playing different positions
means that their set of skills might be bounded by what the market (football teams) needs. The
teams' performances and the wage bill are also found to be highly correlated, hence it is evident
that the market for football is highly competitive. The better a particular team performs, the
higher the wages will be demanded from the players as a justification of their efforts on the pitch.
The rise of sports franchising worldwide is also worth noting, considering that many
Indonesian football clubs have followed the franchising of football clubs in recent years. Clubs
like Madura United and Bali United are prime examples of how football club owners are now
opting to transition towards sport commercialisation by eliminating the outdated identities by
applying franchising-esque rebranding. Flynn & Gilbert (2001) suggested that the American joint
venture business model in professional sports teams is the main reason as why American sports
are commercially attractive to fans and media sponsors through the establishment of a structure
that is comprised of decision-making protocols which govern aspects in the professional sports
league joint venture, such as: membership, marketing, production of a product related to the
league joint venture, players of the member teams, and other inputs such as stadium
constructions, financing and leases. This is certainly applicable to the main objective of the study
in which there are multiple considerations for football club owners before making the decision to
invest.
The matters of investment are not strictly bound to merely club ownership. In South
America, the purchase of players' rights through third-party ownerships, in which agencies hold
off the most of the economic rights instead of the club when a player switches clubs, is a
common practice, but not so much in Europe simply because European football clubs are much
truer to their respective budgets (aside from clubs who are financially backed by foreign
investors), unlike in South America where football clubs that are being run on shoe-string
budgets have to match the ambitions of stronger teams from elsewhere around the continent;
South American football is very competitive, according to Duff & Panja (2017). This presents an
opportunity for Indonesian entrepreneurs who might think that running a football club would be
much of a responsibility, purchasing players' economic rights is an innovative business model.
Indonesian professional football clubs are infamous for their financial instability which led to
players' wages being deferred, or worse, not being paid at all. The presence of third-party
ownership of football players might be a solution for cash-strapped football clubs of Indonesia
who seek for foreign talents with a much lesser financial risk; essentially instead of being
purchased, the players are leased. However, this loophole might be on FIFA's watch considering
the conspicuous nature of the deals between parties, instead from one club to the other, as the
organisation strongly discouraged this type of deal for numerous reasons which has something to
do with football players as protected labour forces.
II. Data collection methods
The basis of this study is thorough critical literature analysis, in which from there the
secondary data will be derived from. Empirical evidence is collected from multiple reliable
sources from the web such as JSTOR and ResearchGate. Scholarly writings about football
economics, and accounting data are taken into account as well, with the provisions of statistical
data from governing bodies such as BPS (Badan Pusat Statistik) and for more footballing
matters, the official Liga I website is comprehensive in providing team performances' figures to
be analysed further. The writer puts reliability and validity of the findings on an uttermost regard
as a goodness of measure. This means that the sources have zero bias and are free from the
influences of the researchers' values. As for the models used in this study, the writer ensures that
the models will represent the football economic market as accurately as possible.
III. Procedure of analysis
The researchers recommend the above procedures in study :
● Design the case study protocol
● Develop and review the protocol
● Conduct the case study
● Prepare for data collection
● Analyze case study evidence
● Develop conclusions, recommendations, and implications based on the evidence.
Each section begins with the procedures recommended in the literature, followed by the
application of the recommended procedure in the study. Denzin (2006) identified four types of
triangulation: Data source triangulation, when the researcher looks for the data to remain the
same in different contexts; Investigator triangulation, when several investigators examine the
same phenomenon; Theory triangulation, when investigators with different viewpoints interpret
the same results; and Methodological triangulation, when one approach is followed by another,
to increase confidence in the interpretation.
Contribution of the research
I. Academic research
This study aims to be beneficial mainly for sports economists, especially in Indonesia
where there is a general lack of literature on economics of professional team sports. Researchers
who find it fascinating in uncommon industries to be analysed, might use this study as a means
of discussion subject. The ingrained science of management as one of the main proponents of
this research can also be utilised by management scholars, as the effects of sports management,
from its financial aspects to motivations, are more complex and intriguing than generally
perceived. Football business is a vast sea of knowledge that is yet to be explored in Indonesia,
and there will certainly be more questions that lead to more research being carried out. The
author sincerely hopes that, for the love of the game and the nation, this study will be a useful
resource.
II. Practitioner research
As the main objective of this study is to assess the opportunity presented by the
footballing business in Indonesia towards investors, it is without question that investors who are
willing to to plunge in the footballing scene will be presented with rigorous data analysis,
projections, and complete literature critiques of well-known scholars of the game in economics
and financial context. Decision-makers within the ranks of football clubs may require the best
resources in order to avoid losses and gaining financial advantage instead, and this study serves
as a guideline as to how to weigh the benefits and drawbacks, as well as the opportunities and
threats being posed by investment in Indonesian football.
Writing framework
This research paper will be composed of five chapters. The first chapter (Chapter 1) will
introduce Indonesian football and its brief history, followed by the background of the research.
The problem statement, the objectives of the research, the methodology, and lastly, its relevance
to broader context. The following chapter (Chapter 2) will comprise hypothesis, theoretical
framework based on the literature analysis on football economics, finance in football, and
football as a business model. In the third chapter (Chapter 3), the problem statement is presented,
and the research questions will be answered in the writer's perspective, however, in lieu with the
initial objective. There will be an extensive use of economic models, such as supply and demand
curves and budget constraint, as well as financial analysis based on accounting data. The findings
of previous researchers that are experts on the matter will be thoroughly assessed in this chapter.
The last chapter (Chapter 4) will serve as the concluding chapter in which the results being found
in this paper are evaluated, along with suggestions on the how-to's for the investors of
Indonesian football. The limitations of the study will also be presented. At the very end, there
will be a list of references used in conducting this study.
References
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Marc Rohde & Christoph Breuer (2017) The market for football club investors: a review of theory and
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Szymanski, S. (2016). Football Economics And Policy. PALGRAVE MACMILLAN.
Flynn, M., & Gilbert, R. (2001). The Analysis of Professional Sports Leagues as Joint Ventures. The
Economic Journal, 111(469), F27-F46. Retrieved May 11, 2020, from www.jstor.org/stable/2667956
Duff, A., & Panja, T. (2017). Football's secret trade: how the player transfer market was hijacked.
Hoboken, NJ: John Wiley & Sons, Inc.
Garcia-del-Barrio, P., & Szymanski, S. (2009). Goal! Profit Maximization Versus Win Maximization in
Soccer. Review of Industrial Organization, 34(1), 45-68. Retrieved May 11, 2020, from
www.jstor.org/stable/41799408
LAPORAN KEUANGAN KONSOLIDASIAN INTERIM PT BALI BINTANG SEJAHTERA TBK
DAN ENTITAS ANAK Untuk Periode Enam Bulan Yang Berakhir 30 Juni 2019 dan 2018 (tidak diaudit)
dan Laporan Posisi Keuangan Per 30 Juni 2019 (Tidak Diaudit) dan 31 Desember 2018 (Diaudit)
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