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Governance
The relationship between structure and
governance structure and football club
performance
football club performance in
Italy and England 17

Dino Ruta and Luca Lorenzon Received 14 October 2018

Revised 2 June 2019
Sport Knowledge Center, SDA Bocconi School of Management, 14 August 2019
Accepted 21 August 2019
Universitá Bocconi, Milano, Italy, and
Emiliano Sironi
Universitá Cattolica del Sacro Cuore, Milano, Italy and
Universitá Bocconi, Milano, Italy

Abstract
Purpose – The purpose of this paper is to verify the theoretical assumption about a weaker role of internal
governance structures (namely, board and CEO) in determining sporting and financial performances in highly
concentrated club ownership environment.
Design/methodology/approach – Using data from the Italian and English football clubs playing in their
national top divisions, over the period 2006–2015, the authors apply agency theory, property rights theory and
win maximization logic to test the absence of a significant impact of internal governance structures on financial
performances and clubs’ sporting performance. Ownership structure’s variables are used as control variable.
Findings – Empirical findings document an overall poor impact of board structure and CEO features on
financial performances, in comparison with the influence of ownership structure; the consolidation of win
maximization logic of clubs’ owners has been demonstrated in this specific context. However, the authors
found that some internal governance elements have also an impact on performance even if their contribute is
limited: board size results negatively associated to club profitability, board independence and CEO tenure are
positively related to sporting performance; in addition, CEO tenure also increases profitability.
Originality/value – The originality of the paper lies on the contribution arising from this empirical research,
since a scarcity of empirical studies analyzing the correlation between internal governance and performance
in European football sector is noticed.
Keywords Corporate governance, Performance, Football clubs
Paper type Research paper

1. Introduction and context

A growing debate about financial implications of European football has been recently
registered in scientific literature (Rohde and Breuer, 2017): although the main priority of
football clubs are sports performances, the need of debating on economic and financial
matters concerning clubs’ performances is an emerging issue and shows some degree of
peculiarity, due to the environmental uniqueness of this industry (Franck, 2010). In fact, the
specific process of economic development of European football (growing attraction of social
media attention, commercialization of the “product,” regulation and format of national and
international competitions – Franck, 2010) had and still has an influence on the development
of club ownership and club governance structures.
For more than a decade, the literature has unanimously demonstrated how the
extraordinary increasing trend of club revenues (deriving from the selling of TV rights) has Sport, Business and Management:
been combined with decreasing profitability and increasing level of financial debt (Franck, An International Journal
Vol. 10 No. 1, 2020
2010; Wilson et al., 2013; Rossi et al., 2013; Acero et al., 2017). Since increases in revenues pp. 17-37
streams are usually translated into increased profitability, this paradox is emblematic of the © Emerald Publishing Limited
2042-678X
uniqueness of football considered as business sector (Michie and Oughton, 2005). DOI 10.1108/SBM-10-2018-0081
SBM Furthermore, in any other industries, such a consolidated stressed financial situation
10,1 would have led to the bankruptcy of the majority of European clubs; however, the history of
European football is characterized by extreme stability (Storm and Nielsen, 2012): 85 out of 88
teams that participated in 1923 to the four first Divisions of English Football League were still
alive in season 2007/2008. Following Storm and Nielsen’s considerations, an explanation could
be that European clubs act in a “Soft Budget Constraints” environment, that is “a situation in
18 which loss-making firms or enterprises are bailed out by public authorities or creditors”
(Kornai, 1979); put simply, the clubs have (correct) “ex ante expectations” regarding an “ex post
support” (coming from actors of the system, such as Leagues, Federations, Public
Administration and fans) that they will receive in case of facing financial trouble. This is due
to the cultural and social relevance that each football team has in its own community; this
mechanism allows clubs to underperform, financially speaking.
The concept of “Soft Budget Constraint” is only one of the factors that led to the creation of
the overinvestment environment, a very effective term used in literature to describe the
European football competitive landscape and to explain the paradox of increasing revenues
and decreasing profitability (Franck, 2010; Rohde and Breuer, 2016). Other competitive factors
that oriented clubs’ strategic direction toward overinvestment choices (and, consequently,
unsustainable debt policies) were: “win maximization” logics (Sloane, 1971), according to
which the main objective of a sporting entity is to achieve good sporting results year after
year (and it is opposed to “profit maximization” logics of “normal” companies – Scully, 1995);
the connection between sporting success and the wage costs of players, that creates a trade-off
between the financial and the sporting dimension, at least on the short term (Szymanski and
Kuypers, 1999); the increasing value of revenues ensured by governing bodies to clubs that
participate to international competitions, such as UEFA Champions League.
Under these circumstances, sporting competitive advantage of a club is strictly connected
to its capability to bear expenses more than the one to generate profit (Franck, 2010).
Consequently, from a strategic point of view, if a club aspires to get access as soon as
possible into the élite of European football, it has the only possibility to try a real gamble (Hamil
et al., 2004): many clubs invest many monetary resources in order to attract the best players,
but only few clubs will achieve the expected sporting success; in fact, football is one of typical
markets defined “winner takes almost all.” Therefore, this “arms race” is considered a perfectly
natural and logical result of the combination of all these factors characterizing the unique
competitive scenario of European football (Rohde and Breuer, 2016). The recent worldwide
commercialization of the “product” has emphasized all these features (Franck, 2010).
In the absence of regulatory interventions (Financial Fair Play (FFP), discussed later,
was introduced only in 2011), the ownership of a club engaging in more and more risky
“arms race” becomes an attraction only for private investors whose resource availability is
such that they could consider sustainable any level of loss generated by clubs’ activities.
Regarding this point, it has been noted that only two financing models have recently
emerged in the European football system: the first works for only those top European élite
clubs which have such a big global brand that they can generate money to pay great
players; the second and rising model is the “sugar daddy” model, according to which a club
is bought by a rich tycoon (often an Arab sheikh) that uses it as a toy (Lang et al., 2011).
“Sugar daddy” is the term used in literature to indicate the extremely wealthy private
investor who buys a club, by obtaining usually at least the majority of the share capital, and
ensure frequent money injections in order to achieve good sporting results as soon as possible.
If this is true, a rising ownership concentration is expected in clubs’ structures, since the “sugar
daddy model” is recognized for the figure of a “father master” who owns at least the majority of
the club (this is consistent with property rights theory, discussed later – Franck, 2010).
The data reported in the European Club Footballing Landscape FY2015, realized by
UEFA, confirm this thesis: since 59 percent of the 232 European clubs considered are owned
by a “controlling party” a unique investor, holding more than 50 percent of club’s share Governance
capital. Strictly connected to this, the number of clubs owned by a foreign private investor is structure and
exponentially raising: until 2008, there were only four foreign ownerships (all in England), football club
while from 2009 to 2016 other 39 clubs have been acquired by non-domestic investors.
Furthermore, England and Italy are the countries where these trends are most performance
remarkable, since the totality of clubs participating to English Premier League and Italian
Serie A in 2015 presents a “controlling party” (and 75 percent of English clubs are under 19
foreign ownership).
On the contrary, in Spain, France and Germany clubs’ ownership, on average, is more
shared among different shareholders and this is mainly due to legal aspects (UEFA, 2016).
From national and international Federations’ point of view, extremely wealthy club
owners ensure relevant money injections in the system; moreover, legally speaking, the
overinvestment environment is not a problematic phenomenon: a club’s owner can lose how
much money he prefers investing in football.
However, in literature critical observations are present regarding some negative
consequences arising from the creation of this overinvestment environment and the
connected spread of this “highly concentrated” club ownership model. First, Franck (2010)
reported a study of Financial Action Task Force (an independent inter-governmental body
operating for the protection of global financial system against money laundering and
terrorist financing), which indicates football as highly vulnerable to criminal activities; more
precisely, there is the risk that this actual financial composition of European football could
be considered a new channel to launder the proceeds of illegal activities. This threat is
serious especially when these sugar daddies control clubs via trust companies registered in
tax heavens (Franck, 2010).
Second, the presence of a unique club owner that injects money year after year to write
off losses originated by operating activities threatens club financial stability; the absence of
sustainability of this model is due to the fact that the club could suddenly risk failing if the
owner loses the possibility (or the will) to “invest” money in this business (in this case,
institutions or fans would act to avoid bankrupt, with huge costs for all the system,
confirming Storm and Nielsen’s SBC concept). Put simply, the survival of a club is strictly
connected to the individual financial condition and choices of the owner.
In relation to this, in 2011 UEFA introduced the FFP. Put simply, this regulation is
mainly based on key financial parameters that clubs are asked to respect. Limiting the
economic losses and the level of debt, FFP aims to “encourage clubs to operate on the basis
of their own revenues” and “to protect the long-term viability and sustainability of
European club football” (UEFA, 2012, p. 2). However, several critiques and limitations of the
regulation have been raised in the literature: agency problems may occur between UEFA
and clubs (Schubert, 2014) and a study revealed that UEFA FFP introduction had a negative
impact on clubs’ accounting quality (Dimitropoulos et al., 2016). Moreover, FFP prevents the
industry from benefits deviving from substantial injections of external financing (Franck,
2014) and this could compromise the competitive balance inside the industry.
Under these circumstances, this paper contributes to the existing literature regarding
the impacts of the highly concentrated club ownership structures on club performances and,
at the same time, it investigates on the potential role played by the introduction of FFP in
this scenario.
More precisely, the aim of this paper is to analyze the relationship between club
governance structures and club (sporting and financial) performance in a contest of high
club ownership concentration; for this very reason, the sample of the research includes
English and Italian football teams. Using an empirical approach, the research will
investigate the validity of the hypothesis about another negative consequence arising
from high-concentrated ownership structures: the scarcity of internal governance effects
SBM on club financial performance, due to an excessive power and control in charge of clubs’
10,1 (unique) owners.
Consequently, theoretical framework will be divided into two sections: the first one will
consider theories regarding the link between ownership and internal governance
structures, on which the evolution of the basic form of an organization depends; moreover,
the role played by the competitive environment in this process will be stressed. In the
20 second section, the hypothesis development will be presented, based on applications of
these theories in the European football context and, in particular, in clubs with a highly
concentrated ownership structure.
After this introduction, the rest of the paper is organized as follows: in the next section,
this theoretical framework will be presented and hypotheses to be tested will be proposed;
then, empirical work will be explained and the main results will be described. Finally, the
paper ends with the main conclusions of the study and the implications for future further
research works.

2. Theoretical framework: literature review and hypothesis development

Since the seminal works of Berle and Means (1932) and Jensen and Meckling (1976),
corporate governance studies were always strictly connected to agency theory. Fama and
Jensen (1983a, b) explained how internal corporate governance mechanisms play a relevant
role in solving agency conflicts between owners and managers; in this framework, the board
and the figure of CEO could be considered as tools in owners’ hands to control the
management team. In fact, the role of corporate governance is to ensure the absence of
opportunistic behavior, limiting information asymmetries and creating special skills in
strategic decision making (Dimitropoulos, 2014).
However, following Fama and Jensen’s theory about the separation of ownership and
control, the relevance of these mechanisms in solving agency problems depends on the
ownership structure of the organization. If the level of ownership dispersion is high (an
example is given by open corporations like big public companies), it is convenient for the
owners to adopt sophisticated mechanisms in order to separate decision management
activities from decision control; the constitution of a functioning board of directors is one of
these tools. On the contrary, when ownership is highly concentrated, it is more convenient to
keep together ownership and control: since owners have a stronger economic interest on
organization activities, they have a natural higher level of commitment which leads them to
self-recognize the activities of both decision management and decision control[1].
Therefore, governance could be considered the resulting combination between
ownership structure, on one side, and internal decision-making process, on the other side,
matching with the objective to solve as efficiently as possible the agency conflict between
owners and managers.
Under these circumstances, ownership structure is considered as a corporate
governance mechanism (Biswas and Bhuiyan, 2008); in more detail, literature considers
that high level of ownership concentration ensures a better control performed by owners
on management actions: this is the so called “monitoring effect” arising from ownership
concentration (Shleifer and Vishny, 1986). The validity of this concept was empirically
demonstrated by Gedajlovic and Shapiro (2002), who identified a positive correlation
between the level of ownership concentration and the quality of financial performances in
a sample of Japanese companies.
However, this is not the only effect that governance literature recognizes to high levels of
ownership concentration. In fact, many authors point out a “more negative” effect connected
to the presence of blockholders (investors who own relevant stock of company share capital);
although it solves the agency problem between owners and managers, concentration of
ownership can generate another type of agency conflict, called “principal-principal conflict” or
“second type agency problem” (Young et al., 2008). This is established between blockholders Governance
(or “controlling shareholders”) and minority shareholders and it results in the transfer of value structure and
from the latter to the former (named “expropriation effect”)[2]. One of the possible explanation football club
is the fact that when ownership is highly concentrated, boards are usually more composed by
inside or non-independent directors, which represent blockholders’ interests; so, it is probable performance
that they are more aligned with management than with minority shareholders (Kim et al.,
2007). It is worth noting the coherency between this last consideration and the before 21
mentioned “monitoring effect”: when ownership concentration is high, the function of control
and monitoring on decision-making process is centralized in charge of the owner and the
monitoring role of the board is more limited; in practical terms, this results in a reduction of the
percentage of independent non-executive directors (Kim et al., 2007). Setia-Atmaja (2009) also
confirmed this result.
Empirical findings demonstrated the validity of both expropriation and monitoring
effect; for example, Hu and Izumida (2008) identified an “inverted U-shaped” relationship
between ownership concentration and financial performance in Japanese market; this means
that an “optimal level” of ownership concentration exists, besides which a higher level of
ownership concentration leads to worse financial performances because of the prevalence of
the expropriation effect.
Specifically considering European football studies, Acero et al. (2017) have reached the
same conclusion, demonstrating the same “inverted U-shaped” relationship in a sample of
94 football clubs participating in the five main European national competitions. They have
considered the sum of the three major shareholders as indicator of ownership concentration
degree and ROA as indicator of financial performance.
The distinctive element of our study is the high level of clubs’ ownership concentration;
in fact, in the sample only Italian and English clubs are included. As above mentioned, Italy
and England are the two countries where club ownership is most concentrated, according to
data presented by UEFA in the report European Club Footballing Landscape FY2015.
For this reason, we expect a specific influence of this club ownership structure in the
relation between internal corporate governance structure and club performance. In this
framework, we expect a weaker role of the board and low impacts of board structure on club
financial results; in fact, we assume that the owner has complete control of club strategies,
pursuing its own objective function, oriented to win maximization.
Indeed, we base this argument on studies regarding the impact of the ownership
structure on club financial and sporting performances (Rohde and Breuer, 2017). First,
Franck (2010) applies the property rights theory to highlight the fact that in highly
concentrated ownership structures the residual right of control and the residual claim
are in the hands of the same person, the majority owner. In this case, this means that the
owner has such a high level of decision autonomy that he can manage the club as
he prefers; for example, an entrepreneur controlling a club can exploit it to enhance the
visibility of its core business or to obtain public admiration and acknowledgment. In this
sense, Italian football’s history is full of emblematic cases (Rossi et al., 2013). Moreover,
Franck (2010) specifies that public admiration is ensured by positive sporting results; this
is the main reason of the above discussed win-maximization logic usually pursued by
clubs’ owners (Sloane, 1971; Garcia del Barro and Szymanski, 2009). Regarding the impact
on financial performances, Dimitropoulos (2014) observes an increasing level of ownership
concentration and of leverage, considering a sample composed of 67 clubs from ten
different European countries. In addition, worse financial losses are registered for the
clubs where a single investor owns at least 50 percent of share capital, considering only
English teams (Rohde and Breuer, 2016).
Based on these evidences, we will consider the degree of ownership concentration of each
observation as control variable, expecting that a more concentrated ownership structure is
SBM correlated to lower financial but better sporting results, following the owner’s objective
10,1 function. Moreover, we will state our hypotheses assuming the absence of correlation
between governance structure variables and club financial performance, because of this
peculiar and strong control on club performance ensured by club’s owner.
Previous studies regarding the correlation between governance and firm performance, a
test of this hypothesis of “no impact” has also been conducted by Kiel and Nicholson (2003),
22 as well as by Cheng (2008). In light of the previous literature and of the purpose of the paper
a set of research hypotheses regarding the impact of board structure and CEO on firm
performance are presented in the following lines.

Hypotheses development
As mentioned above, this paper belongs to the literature of studies regarding correlations
between governance structures and firm performances; the topic is widely discussed across
different geographic areas and specific business sectors.
Specifically, regarding European football contexts, recent descriptive research works
reveal the poor quality of corporate governance in professional football clubs (Hamil et al.,
1999, 2000, 2001; Horrie, 2002; Michie and Oughton, 2005; Football Governance Research
Centre, 2005). For instance, it has been demonstrated that less than a quarter of English
clubs participating in top 4 national divisions at that time had an internal audit committee,
revealing a poor mechanism of internal control (Michie and Oughton, 2005).
However, a scarcity of empirical studies analyzing the correlation between internal
governance and performance in European football sector is noticed. To our best knowledge,
only two empirical papers investigate on this relationship (Dimitropoulos and Tsagkanos,
2012; Dimitropoulos, 2014).

Board structure and club performances

Relationships between board structure and firm performance are widely studied in
literature, with several analyses focusing on specific countries or industries; a certain degree
of controversy regarding how board structure influences firm performance is registered.
One reason lies in the plurality of theories adopted to address this topic: the most used one,
agency theory, is usually combined with other different theories, since several authors agree
on the need of a multiple theoretical approach in explaining the relationships between board
composition and firm performance (Kiel and Nicholson, 2003; Nicholson and Kiel, 2007;
Jackling and Johl, 2009)[3].
Starting from the analysis of board size, Jensen (1993) and Yermack (1996) affirm that
smaller boards lead to higher quality of firm financial performance, because of better
decision making and more fruitful internal debate, compared to larger boards; these
arguments have been verified by De Andres et al. (2005). On the other side, resource
dependence theory considers the board as a provider of resources in the form of human and
relational capital (Rouyer, 2013); for this reason, despite of a slower decision-making
process, larger boards lead to higher levels of financial stability, thanks to a more intense
activity of negotiation and compromise before reaching decisions (Cheng, 2008; Nakano and
Nguyen, 2012). This translates into better financial performance, as several works have
demonstrated (Dalton et al., 1999; Kiel and Nicholson, 2003; Jackling and Johl, 2009; Mande
et al., 2012). Specifically, regarding the European football sector, a positive correlation has
been obtained in the aforementioned studies (Dimitropoulos and Tsagkanos, 2012;
Dimitropoulos, 2014).
However, Coles et al. (2008) and Boone et al. (2007) underlined the relevant role played by
exogenous factors (e.g., the specific nature of firm’s competitive environment) in affecting
this correlation. Furthermore, as above mentioned, we need to keep into consideration the
peculiar ownership structure of clubs included in our sample, distinguishing for their high
level of concentration; Renders and Gaeremynck (2012), Setia-Atmaja (2009) and Sur et al. Governance
(2013) adopted a multiple theoretical approach, demonstrating that ownership structure structure and
affects the composition and the role of the board, as we stated above. football club
For all these reasons, considering the contradictory results above presented, the
relevance of exogenous factors (in this case, the objective-function of clubs’ owners, performance
predominantly oriented to win maximization) and the highly concentrated club ownership
structures in our sample, the first group of research hypotheses is stated as follows: 23
H1a. Board size is not associated with club financial performance.
H1b. Board size is associated with club sporting performance.
Board independence is another widely discussed variable in papers analyzing the impact of
board structure on firm performance with contradictory evidences. On one side, consistently
with agency theory, it has been demonstrated that larger proportions of independent board
members increase the effectiveness of control role of the board; this reflects in a better
financial performance ( Jackling and Johl, 2009; Dimitropoulos and Tsagkanos, 2012), in an
improved capital structure (Mande et al., 2012; Dimitropoulos, 2014), in a more frequent
strategic choices of internationalization (Chen, 2011) and in an increase in corporate
transparency (Armstrong et al., 2013).
On the other side, Kiel and Nicholson (2003) obtained a negative correlation between board
independence and a market-based measure of performance, Tobin’s Q (while no correlation
was found with accounting-based measure); this result is consistent with the stewardship
theory, contending that a greater firm performance is linked to a majority of inside directors as
they work to maximize profit for shareholders (Donaldson and Davis, 1991).
However, also Coles et al. (2008) recognized the role played by exogenous factors in
affecting this correlation.
For all these reasons, considering the same factors mentioned for board size the second
group of research hypotheses is stated as follows:
H2a. Board independence is not associated with club financial performance.
H2b. Board independence is associated with club sporting performance.

Leadership structure and club performance

In literature, studies about the “leadership structure” consider the figure and the role of
CEO, especially focusing on the condition of CEO Duality (namely, the situation in which a
firm’s CEO is also the chairperson of its board, Finkelstein and D’Aveni, 1994). Previous
studies, although organization theory supports CEO Duality (Finkelstein and D’Aveni,
1994), several works demonstrated a negative relationship between CEO Duality and firm
performance (Bhagat and Bolton, 2008; Kula, 2005; Dimitropoulos and Tsagkanos, 2012;
Dimitropoulos, 2014). However, non-significant effects have been obtained by Jackling and
Johl (2009), while Kiel and Nicholson (2003) and Elsayed (2007) agreed on the fact that this
correlation varies across different sectors.
Under these circumstances and considering the peculiarities of our sample in terms of
highly concentrated ownership structure, that could limit even the role of the CEO, the third
group of research hypotheses is stated as follows:
H3a. CEO Duality is not associated with club financial performance.
H3b. CEO Duality is associated with club sporting performance.
Finally, a relevant component of innovation of our work lies in the consideration of another
variable regarding the figure of the CEO, that is CEO Tenure, namely, the number of years
SBM since CEO plays its role in the firm. According to the best knowledge of the authors, only
10,1 theoretical studies have been conducted trying to understand if a “perfect” length of CEO
Tenure exists and how it could be calculated (Hambrick and Fukutomi, 1991; Shen, 2003).
However, consistently with the previous hypothesis, the fourth and last group of
research hypotheses is stated as follows:
H4a. CEO Tenure is not associated with club financial performance.
24
H4b. CEO Tenure is associated with club sporting performance.

3. Data collection and research design

Data selection procedure
As this work addresses the effects of ownership concentration, the sample includes data
from Italian and English football clubs. We consider a ten-years period from the seasons
2005–2006 to 2014–2015: the time period has been selected in accordance to previous related
studies (Rohde and Breuer, 2016; Dimitropoulos et al., 2016). We selected the clubs which
participated in the elite division of each country’s official championship for at least five out
of ten years; in order to catch even the impact of relegation and promotion mechanisms,
clubs participating in Serie B or Championship (respectively, Italian and English
second-tier) as relegated in the previous season are included in the sample. A club is
excluded at the second consecutive participation in the second division, but it is included
again when it reaches the promotion.
In this way, 20 Italian and 17 English clubs were considered, summing up to 350
firm-year observations. Then, two Italian clubs (Siena and Parma) were removed, as they
went bankrupt during the period considered in the research.
All financial data were hand-collected from each club’s annual reports, while further
governance information has been found in some available documents, such as board
minutes or directors’ new appointment, resignation or details changed. English clubs’ data
have been converted to Euro-based on the medium monthly change rate for each season
closing at 30th of June (this is the same rate used by Deloitte in its influential report
Deloitte Football Money League). So, a new data set has been created, including
information about club ownership, governance and leadership structures and club
financial and sporting performances.

Variables definition: dependent, independent and control variables

To examine the validity of the aforementioned hypothesis, three indicators (two financial
and one sporting) for club performance have been selected; financially speaking, we
employed two accounting measures, namely, Net Margin (Net Income/Net Revenues[4])
and Equity Ratio (Net Equity/Total Assets). The reason of our choice is that profitability
and degree of capitalization are the two most problematic financial aspects that literature
and UEFA itself (in the annual report European Club Footballing Landscape)
unanimously recognize to European football clubs. Moreover, Equity Ratio is implicitly
considered also in Dimitropoulos (2014), since Gearing Ratio (Total Debt/Net Equity) was
used. The reason for considering two financial measures instead of one (e.g., ROA or ROE)
is because we want to lead separate analyses of the impacts of governance variables on
profitability (and so, on the result of daily “operational” management) and, on the other
side, on capitalization (and so, on club financial structure). Furthermore, in this way we
could even reach some conclusions about an overall impact of governance on clubs’
financial sustainability.
From a sporting point of view, the indicator preferred is “Average Points” (Total points
in national championship/Number of games played on national championship); the
percentage of games won on games played is used in robustness check tests. It is worth Governance
emphasizing a structural component in our model: the use of the “Average Points” variable structure and
refers to a zero-sum game, since there are only a given number of points available for each football club
season (so the more one club has the less another will have) and everything starts from
scratch again at the beginning of each season. We anticipate that the participation in performance
European competitions is taken into account through the control variable EUROPE,
presented below[5]. 25
The independent variables used are coherent with the aforementioned hypotheses and with
the regarding literature where these variables are commonly used (except for CEO Tenure):

(1) Board Size: the number of components of the board. The variable is extensively used
in literature, as above discussed.
(2) Board Independence: it is a dummy variable which assumes value equal to 1 if
independent members of the board are at least 30 percent of the total number of
components and equal to 0 otherwise. A member is considered independent if these
four requirements are all respected at the same time: first, the absence of economic or
working relationship with the club or other companies owned by club’s owner;
second, the absence of passed working relationship with the club (for instance, a
club’s former player cannot be considered independent); third, the execution of this
role for not more than 9 years out of last 12; fourth, the absence of familiar links with
club’s owners. These requirements are inspired by the “application criterion 3.C.1” of
“Codice di Autodisciplina 2015” (Italian Corporate Governance Code); furthermore,
they are aligned to the criterion used by Dimitropoulos (2014). The consideration of
the threshold of 30 percent is inspired by the “application criterion 3.C.3,” where
public companies listed in “FTSE-Mib Index” are required to maintain one third of
independent directors; we retain this threshold appropriate to distinguish the
different levels of board independence. In the robustness check tests, we have also
considered 25 percent as threshold.
(3) CEO Duality: it is a dummy variable which assumes value equal to 1 when the same
person plays the double role of President of the Board of Directors and club’s CEO; it
is equal to 0 if the roles are separated.
(4) CEO Tenure: it is the number of years since CEO plays his role; in case of two or more
CEOs, the medium of the different CEO tenure is considered. The inclusion of this
variable represents an “innovation” for empirical studies regarding club governance.
Some control variables are used in order to consider time-effect, country-effect and
clubs’ dimension. More precisely, in the models where dependent variables are
financial indicators, the control variables used are.
(5) Majority Ownership Share: the percentage of share capital owned by club’s majority
owner. It is an indicator of the concentration degree of ownership structure; Rohde and
Breuer (2016) have also considered the same measure, while Acero et al. (2017) have
considered the sum of the three major shareholders. Since in Italian and English clubs
a controlling party is commonly present (as demonstrated in UEFA’s report European
Club Footballing Landscape), we consider the share of the single “controlling party.”
As above discussed, property rights theory (Franck, 2010) is the theoretical base for
the empirical evidences obtained by Rohde and Breuer (2016) and Dimitropoulos
(2014): the “win maximization” logic of club’s owner is more effectively implemented in
more concentrated ownership structures.
(6) Country: it is a dummy variable which assumes value equal to 1 for English clubs; it
is equal to 0 for Italian clubs.
SBM (7) FFP: it is a dummy variable which assumes value equal to 1 if the observation is in
10,1 “FFP-period” ( from 2012 to 2015); it is equal to 0 otherwise. The inclusion of this
variable allows to gather information about the effectiveness of FFP in its four first
years of implementation. Since the main objective of this regulation is the reduction
of clubs’ economic losses and clubs’ level of indebtedness (Schubert, 2014), a positive
coefficient is expected on this variable with respect both profitability and level of
26 capitalization. This control variable is not included in regression model with
sporting performance indicator as dependent variable.
(8) European Competitions: a dummy variable which assumes value equal to 1 if the club
participates in European competitions; it is equal to 0 otherwise. It is used as control
variable regarding club’s sporting dimension, since it is widely known that clubs
participating in European competitions are the clubs with the best performance in
their respective countries.
(9) Log Revenues: the natural logarithm of club’s revenues. It is a variable measuring
club’s financial dimension, which is commonly used in literature.
In the model with sporting performance indicators as dependent variables, the
control variables used are (5), (6), (8) and (9). In addition, the model includes other two
explanatory variables (10), (11), defined as follows.
(10) Promotion: a dummy variable which assumes value equal to 1 if the club participates
as newly promoted in the national élite division; it is equal to 0 otherwise.
(11) Relegation: a dummy variable which assumes value equal to 1 if the club
participates in the second division differently from the previous year when it played
in the élite division; it is equal to 0 otherwise.

Estimation strategy and research limitations

Since we deal with panel data, we follow the methodological approach from Park (2011)
regarding regression models for panel data and from Dimitropoulos and
Tsagkanos (2012).
According to Park (2011), we compared pooled ordinary least squares regression, with
Fixed Effects (FE), and Random Effects (RE) models, using Breusch-Pagan
Langrage multiplier (LM) and Hausman test (Hausman, 1978). In our models a FE
model is preferred when Net Margin and Average Points are used as dependent
variable, while a RE model has been used when the model considers the level of club
capitalization (Table I).
This procedure has been conducted for all the structured models; three overall
principal regression models have been constructed and analyzed; in fact, each of the
three dependent variables (Net Margin, Equity Ratio, Average Points) has been
separately considered.

Table I.
Value and level of Model FE vs OLS RE vs OLS FE vs RE Selected methodology
significance of
statistical test NetMargin 6.70*** 36.10*** 56.71*** FE
conducted to select EquityRatio 1.20 796.26*** 3.35 RE
the optimal statistical AveragePoints 6.74*** 2.41* 52.64*** FE
methodology for each Test F (Stat in FE model) Breusch-Pagan LM test Hausman test
regression model Notes: *po 0.10; ***po 0.01
Finally, a sensitivity analysis has been conducted in order to test the robustness of the Governance
obtained evidences, replacing the sporting performance indicator, the threshold of board structure and
independence and dimensional control variables[6]. football club
performance
4. Empirical findings
Descriptive statistics and correlations
Tables II and III present the descriptive statistics of the sample variables. 27
First of all, it must be noted that the mean values of Net Margin and Equity Ratio are
empirical evidences of the above discussed financial implications of the creation of European
football overinvestment environment: an average Net Margin equal to −13.67 percent and an
average Equity Ratio equal to −12.6 percent suggest a widespread condition of financial
troubles. Separately considering the two countries, while club profitability presents similar
data, capital structure significantly differs between Italian and English clubs: the former
group has an average Equity Ratio equal to 11.98 percent, while the latter registers a deeply
negative mean value for the same indicator (−39.44 percent).
Consistently with the expectations, club ownership structure is highly concentrated,
since the mean share capital percentage owned by club’s majority shareholder is
83.17 percent (84.24 percent in Italy, 81.99 percent in England). Referring to the internal
governance variables, the board includes, on average, 6.2 members (7.1 in Italy, 5.2 in
England): only 8.37 percent of them are independent (8.49 percent in Italy, 8.24 percent in
England); only 12 percent of the observations register Board Independence equal or higher
than 30 percent (10 percent in Italy, 14 percent in England). Regarding the leadership
structure, the board chairman also plays the role of CEO in the 30 percent of the
observations; CEO Duality is more common in Italy (43 percent) than in England
(15.6 percent); finally, the mean tenure of CEO is slightly higher than six years (seven in Italy
and five in England).

Variable Obs Mean SD Min. Max. Table II.

Sample description:
Net Margin 327 −0.137 −0.284 −1.778 0.496 descriptive statistics
Equity Ratio 327 −0.126 −0.965 −7.185 0.772 of financial
Majority Ownership Share 328 0.832 0.241 0.241 1 performance
Board Size 325 6.2 2.938 2 16 indicators, internal
Board Independ 332 0.084 0.145 0 0.571 governance structure
Board Ind. 30% 325 0.120 0.326 0 1 variables and
CEO Duality 332 0.298 0.458 0 1 ownership structure
CEO Tenure 332 6.193 5.670 0.5 28.5 variables

Variable Average Italy Average England Average total

Net Margin −12.80% −14.61% −13.66%

Equity Ratio 11.98% −39.44% −12.62%
Majority Owner Share 84.24% 81.99% 83.17% Table III.
Board Size 7.1 5.2 6.2 Sample description:
Board Independence (W ¼ 30%) 10% 14% 12% average values and
CEO Duality 43% 15.6% 30% comparison between
CEO Tenure 7 years 5 years 6 years Italy and England
SBM Regression results on impact of internal governance structures on club performance
10,1 The results from the regression models are presented in Table IV.
First, it must be noted the absence of any significant evidence in the models with Equity
Ratio as dependent variable; consistently with the assumptions, club governance structure
does not affect the level of capitalization.

28
Variable Net Margin Equity Ratio Average Points

Majority Ownership Share −0.294*** 0.211 0.505***

Board Size −0.033*** −0.024 0.003
Board independence 30%
Yes 0.097 0.042 0.264**
No Ref Ref Ref
CEO Duality
Yes 0.029 0.104 0.101
No Ref Ref Ref
CEO Tenure 0.011** 0.011 0.015***
FFP
Yes −0.119 −0.168
No Ref Ref
Country
England (omitted) −0.586* (omitted)
Italy Ref Ref Ref
European competitions
Yes −0.075** 0.049 −0.001
No Ref Ref Ref
Log Revenues 0.451*** 0.186* 0.183**
Seasons
2005-06 0.137 −0.287 0.424***
2006-07 0.125 −0.224 0.309***
2007-08 0.110 −0.168 0.233***
2008-09 0.050 −0.182 0.199***
2009-10 −0.037 −0.283 0.196***
2010-11 −0.002 −0.316 0.176**
2011-12 0.081 −0.216* 0.147**
2012-13 0.077 −0.196* 0.143**
2013-14 0.063 −0.059 0.102
2014-15 Ref Ref Ref
Promotion
Yes −0.153**
No Ref
Table IV. Relegation
Regression results of Yes 0.641***
governance on No Ref
profitability (Fixed Constant −4.865*** −1.833 −1.420*
Effect Model), level of
Club fixed effects Yes No Yes
capitalization
(Random Effects Time fixed effects Yes Yes Yes
Model) and Average R2 0.512 0.680
points per game No. of obs. 325 324 325
(Fixed Effects Model) Notes: *po 0.10; **p o0.05; ***p o0.01
On the contrary, considering models with Net Margin and Average Points as dependent Governance
variables, the obtained evidences need to be more deeply analyzed. structure and
Before testing the research hypotheses, the control variable Majority Ownership Share football club
has to be considered; it has the expected signs and it is statistically significant, suggesting
that an increasing level of ownership concentration leads to lower profitability and better performance
sporting performance. These empirical findings verify the application of property rights
theory in European football sector (Franck, 2010): a raise in the control and power in charge 29
of club’s owner results in a higher level of alignment between club performance and club
owner’s objective-function, which is consistent with win maximization logic (Sloane, 1971).
This evidence confirms theories about the relevance of owner in orienting club strategies
and club performance in highly concentrated club ownership structures; for this reason, our
reasonings concerning the weaker role of club internal governance mechanism in
influencing club performance are furtherly legitimated.
Starting from the correlation between the internal governance mechanisms and the level
of club profitability results are controversial: on the one hand, the hypothesis of absence of
correlation between Board Independence and CEO Duality is satisfied; on the other hand, a
negative and significant relationship between Board Size and Net Margin is obtained, such
as a positive correlation between CEO Tenure and Net Margin. These empirical findings are
confirmed in sensitivity analyses.
First, the evidence of decreasing profitability connected to larger boards corroborates previous
studies by Jensen (1993) and Jackling, according to which smaller boards perform better thanks to
a smarter and more fruitful internal debate. In addition, this empirical finding should be analyzed
taking into account the low level of board independence in the sample (typical element of an
environment with highly concentrated ownership structures, according with Kim et al., 2007;
Setia-Atmaja, 2009); hence, adding a new director often corresponds to an introduction of another
board member strictly connected to the with the effect of consolidating the predominant clubs
strategies, more oriented toward the sporting dimension than the financial one.
Second, CEO Tenure has a positive and significant impact on club profitability,
suggesting that an increase in the CEO experience in his role leads to better club financial
performance; in this framework, we are aware of the risk of reciprocity of this correlation,
since even the achievement of satisfying results could bring to long working relationships
between a club and its CEO. Although endogeneity is a research limitation we invite to not
underestimate the relevance of this result. Indeed, this evidence should be combined with
the impact of the same variable (CEO Tenure) on club sporting performance.
In fact, moving on to models with Average Points as dependent variable, the same
statistically significant and positive correlation is registered between CEO Tenure and the
sporting performance indicator; this means that the “learning by doing” concept is a matter of
fact for a club CEO, where “learning” is specifically adapted in this sector as “learning how
trade-off between financial and sporting performance can be reduced.” Doing experience in its
role, a CEO can lead the club to good results both on economic and on sporting level.
While Board Size and CEO Duality do not have any significance impact on club sporting
performance, Board Independence is registered to be significantly and positively correlated
to Average Points; therefore, the presence of a share of independent directors equal at least
to 30 percent leads the club to better sporting performance. Since Board Independence is not
negatively correlated with club profitability, we can conclude that a good level of board
independence seems to bring overall benefits to the club, consistently with agency theory. In
the robustness check tests, it is interesting to remark that, when considering the threshold of
25 percent instead of 30 percent of independent directors, the positive correlation between
board independence and sporting results loses its statistical significance.
These evidences are confirmed even in robustness check tests where logarithm of clubs’
total assets replaces logarithm of net revenues; moreover, further sensitivity analyses have
SBM been performed, replacing the average points obtained in a match with the percentage of
10,1 won matches in championships. In this case, not any relevant changes were registered.
Finally, analyzing the control variables, some interesting evidences have been obtained.
The variable “Country” is negatively associated to Equity Ratio, confirming that English
clubs have more troubles in terms of level of capitalization, compared to Italian ones.
Moreover, FFP is not correlated neither with Net Margin nor with Equity Ratio: this
30 indicates the poor efficacy of UEFA FFP, at least with reference to the first four years of
implementation in Italy and England. In fact, the original main objectives of FFP, below
discussed, were the reduction of clubs’ Net Losses and clubs’ level of indebtedness[7]. In
order to enhance the value of this conclusion, we also tested the models considering
separately both the data coming from seasons before FFP introduction and the data
regarding seasons after FFP introduction. We did not obtain any different results: according
to our models, FFP did not have a significant impact neither on clubs’ economic
performance nor on the relationship between governance variables and clubs’ performance.
Finally, the sporting-dimensional control variable and the participation to the European
competitions are negatively associated to Net Margin. This means that clubs participating
in European competitions are less profitable than others, consistently with the idea of trade-
off between sporting and financial performance, discussed in literature.

5. Conclusions
We present our conclusion remarks for any hypothesis formulated in the previous sections
as displayed below.

Contributions to the existing literature regarding consequences of ownership concentration

in European Football sector and beyond
The aim of this study was to examine the impact of clubs’ corporate governance structures
on Italian and English clubs’ performance; Italy and England are the two countries where
the level of club ownership concentration reaches its peak. As application of governance
theories about high ownership concentration combined with the literature regarding
the specific objective function of a club’s owner (oriented to win maximization), we assumed
that in this context the internal governance structure has no significant impact on club
financial performance. By analyzing a sample of 37 clubs from Italy and England over the
period 2006–2015, we show evidence that corporate governance structure has no impact on
level of club capitalization; however, a discrete influence of board structure and CEO Tenure
on club profitability and club sporting results is found.
In this framework, the paper contributes to the existing literature regarding the
consequences of club ownership concentration on European football sector (Sloane, 1971;
Franck, 2010; Lang et al., 2011; Rohde and Breuer, 2016; Rohde and Breuer, 2017). First, we
have verified the poor impact of internal governance structures on club performance in a
contest of highly concentrated ownership structure: the excessive control of the owner limits
the role of board and so the possibility that qualified governance mechanisms can be
effectively introduced and can bring benefits to club organization.
Second, we found a contribution supporting the model of club owners’ “win maximization
logic” (Sloane, 1971) and the property rights theory applied to European football (Franck,
2010): higher levels of ownership concentration (and so stronger control and power of the
club’s unique owner) are connected to lower profitability but better sporting results; this
demonstrates the strong influence of owners’ objective function on results achieved by clubs.
In addition, this work provides contributions that go beyond the specific industry of
European football, since it can be considered an empirical test for general governance
theories. Following Fama and Jensen’s (1983a, b) theories of separation of ownership and
control, we experienced the weaker role played by boards in a contest of highly concentrated Governance
ownership structure; moreover, we show evidence of the existence of “expropriation effect” structure and
arising from ownership concentration, since the more the ownership structure is football club
concentrated, the more club results are aligned with majority owner’s personal objective
function. In the specific case of European football sector, it is important to remember that performance
literature is unanimous in defining that a club’s majority owner pursues win maximization
objectives in order to achieve personal benefits such as enhancing the visibility of his core 31
business or obtaining public admiration and acknowledgment (Franck, 2010). This clearly
results in the “expropriation effect” against minority shareholders. Contextualizing this in
the sample used in this study, 11 out of 18 Italian clubs and 6 out of 17 English clubs had
minority shareholders in the analyzed period.
However, to confirm these findings, further studies are needed repeating this model also
to other countries and other sports.

Contributions to existing literature regarding the impact of board structure and CEO on
club performance
Despite of the aforementioned peculiarities of European football sector, some club internal
governance variables are found to be significantly correlated to the level of profitability or to
the quality of sporting results. We read these empirical findings as “signals” of a certain
“potential” role of governance structures, even in this peculiar context: for example, the
positive correlation between the 30 percent threshold of board independence and club
sporting results can be considered as a “glimmer” of the benefits that a proper level of board
independence could bring to the club. Similarly, the described evidence about CEO Tenure
suggests that the CEO’s experience could be a relevant tool to reach positive results in terms
of both profitability and sporting success at the same time.
Based on these “evidences-glimmers,” we can conclude that this highly concentrated club
ownership context certainly limits, but not totally exclude the role and the impact of internal
governance structures; higher-qualified governance mechanism (such as board
independence) and widespread managerial capabilities would bring benefits to the overall
club organization, both on financial and sporting dimensions.
However, it appears evident that if nothing changes in club ownership structures and
owners’ objective functions, these “glimmers” are destined to survive; “empowering” clubs’
governance and managerial structures would have a positive but limited impact on clubs’
capability to balance needs of the business and success on the pitch.

Regulatory implications of the work and implications for further studies

The evidence from this study could result useful not only to managers but also to regulators.
Dimitropoulos (2014) invited UEFA to consider the issue of club governance seriously,
recommending to include in a clubs’ governance reform the issues of board independence
and ownership dispersion; we are clearly aligned with that suggestion, since regulatory
implications of our work can be developed on the same two levels.
On the one hand, introducing a set of “governance oriented” rules as integration of FFP
could enhance the efficacy of this regulation itself; for example, the provision for a minimum
required threshold of board independence, ensuring better activities of monitoring and
control performed by board (enhancing transparency and accountability), could lead the
club to make more economically sustainable strategic choices. This is even more relevant if
we consider that it has been demonstrated that the introduction of UEFA FFP has produced
a decrease in the quality of clubs’ financial statements (Dimitropoulos et al., 2016); the
objective of increasing transparency and accountability should be an essential element of
UEFA’s reform programs.
SBM On the other hand, as showed in our work, regulatory intervention regarding only club
10,1 internal governance mechanisms would have limited influence on clubs’ management
policies (and then on clubs’ performances), because of the demonstrated extreme control and
power in the hands of the owner. This is the reason why we agree with Dimitropoulos (2014),
defining as a priority a regulatory intervention to boost dispersed ownership models: an
(extreme) example of this could be the “50 percent + 1 vote rule” of the German Federation,
32 according to which German clubs participating in the two top national divisions have to
maintain the majority of voting rights held by the supporters’ association. Such a reform
would mitigate all the aforementioned negative effects arising from club ownership
concentration; particularly, a central role would recognize to board and CEO in their
respective function of monitoring and implementing strategic decisions. Moreover, the
absence of a “sugar daddy” or a “master father” would naturally “force” a club to assume a
more complex internal managerial structure, since the organization should naturally pay
more attention to financial issues. The objective of “more sustainable strategic choices” of
clubs would be at least more reachable.
Then UEFA’s challenge would be the search for innovative methods to attract investors,
since sugar daddies’ money injections would shrink because of the limitation to ownership
concentration. German case could be again considered as an example: rules provide
incentives to sponsor to be involved in club’s management, establishing a deeper
relationship than basic sponsorships; for instance, German clubs’ minority interests are
usually held by the sponsors[8]. In this case, UEFA has to canalize the money invested in
clubs’ majority shareholdings into alternative forms of investment, both on single club and
on the overall national and international football system.
Changing the “destination” of generous sugar daddies’ injections, at the same time UEFA
would make clubs’ management policies more sustainability-oriented and huge amounts of
money would be directed to more profitable investment, both for the investors and for the
clubs and the overall European football system.
Further studies are needed to investigate the best methodologies to put in place these
theoretical suggestions; in fact, our empirical work refers to a specific geographical area and
to a specific sport industry. Since both theoretical and empirical literature about governance
recognize the relevance of environmental (legal and competitive) factors on the process of
development of governance structures, other studies are needed to investigate the impact of
club governance structure on club performance even in different geographical contexts and
where ownership structures are not so highly concentrated; more precisely, for UEFA’s
purposes, research works on German and Spanish contexts are definitely recommended.
From a methodological perspective, in order to enhance the value of these further studies
that will consider a wider range of countries, clubs’ sporting performance should be
re-calculated across national and international competitions, following the two-stage data
envelopment analysis elaborated by Kern et al. (2012).

Notes
1. Fama and Jensen (1983a) refer to the degree of freedom of the “residual claims,” which are the
rights recognized to the “residual claimants”; these are those who bear the residual risk, that is
the risk to receive only the (eventual) net cash flows remaining after that the organization satisfied
the agreed expectations of all the agents. Presenting the two opposite situations, the least restricted
residual claims are the ones of small shareholders of a big public company; no other roles inside the
organization are requested to them and they can easily sell their right (that is freely alienable).
On the contrary, the residual claimants of closed corporations have the most restricted residual
claims; since they own large stocks of share capital, their right is not freely alienable.
2. M.N. Young et al. (2008), p. 201: “Expropriation can take many forms […]. Expropriation may be
accomplished by: (1) putting less-than-qualified family members, friends, and cronies in key
 positions […]; (2) purchasing supplies and materials at above-market prices or selling products and Governance
services at below-market prices to organizations owned by, or associated with, controlling structure and
shareholders […]; (3) engaging in strategies with advance personal, family or political agendas at
the expense of firm performance such as excessive diversification.” In the football industry, this football club
issue could be experienced when the majority shareholder usually put family members, friends or performance
managers operating in family’s other businesses in key positions in the Board of Directors.
3. Agency theory is compared to stewardship theory and stakeholder theory (Dulewicz and Herbert,
2004), to stewardship theory and resource dependency theory (Nicholson and Kiel, 2007), to
33
stewardship theory only (Davis et al., 1997; Elsayed, 2007) and to resource dependency theory only
(Hillman and Dalziel, 2003; Van den Heuvel et al., 2006; Jackling and Johl, 2009; Sur et al., 2013).
4. Capital Gains from players’ sales operations are not included in the calculation of “Net Revenues,”
following the methodology used by Deloitte in the influential annual report “Deloitte Football
Money League.”
5. Domestic cup competitions have been excluded from the measure for sporting performance.
This choice is due to the fact that in England there are two national competitions in addition to the
Championship (FA Cup and League Cup), while in Italy there are only one domestic cup (Coppa
Italia). This would have resulted in relevant heterogeneity in the numbers of matches played by
each team. Moreover, in domestic cup competitions first division’s clubs usually face clubs
participating in lower divisions (that are not included in this sample) and this would have affected
the data distribution related to the clubs’ sporting performance.
6. Some research limitations have to be mentioned. First, in our data set seven firm-year observations
present accounting missing values; also considering two firm-year observations presenting
missing information about board structure, nine firm-year observations (2.69 percent of total
useful observations) are not included in the models. Second, our sample is a not balanced panel
data, because of the described sample selection procedure; however, since the average number of
observations for each club is 9.3 (very close to the maximum value, equal to 10), we can conclude
that this imbalance does not significantly affect the statistical value of the findings obtained with
this procedure. Another limitation is related to the fact that English and Italian clubs are included
in the same sample, while sporting performance are calculated only based on domestic
championships, in which these clubs are not facing each other.
7. According to data published by UEFA, if all the professional European clubs ( from all the
55 member national associations) are considered on an aggregate level, both clubs’ net losses and
clubs’ level of debt have been decreasing since the introduction of Financial Fair Play (UEFA,
2016). Considering only Italy and England, we lose the significance of this evidence, according to
our provisional results. Further investigation is needed to address this point.
8. For instance, FC Bayern Munich, the most well-known German club in the world, has Audi AG,
Allianz SE and Adidas AG as both minority shareholders and sponsors. According to the
corporate information published in the official website, these three “commercial partners” have a
total equity share of 25 percent.

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Further reading
37
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Corresponding author
Luca Lorenzon can be contacted at: luca.lorenzon@unibocconi.it

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