German soccer is limping along. Games yes, but ghost games, meaning no spectators, which results in significantly less money. Even the ratings are falling, and with them the income from TV . "BVB half-year figures: 26 million Euro loss," headlines kicker.de , among others, on February 9. Soccer clubs are facing immense challenges. Turnarounds in an branch that is only used to growth: How does that work? What kind of rethinking needs to take place and what opportunities need to be seized? Read more in the expert interview with Michael Klatt, former CFO and managing director of well-known soccer clubs, and Philipp Piscol, Managing Partner of enomyc.
German soccer is limping along. Games yes, but ghost games, meaning no spectators, which results in significantly less money. Even the ratings are falling, and with them the income from TV . "BVB half-year figures: 26 million Euro loss," headlines kicker.de , among others, on February 9. Soccer clubs are facing immense challenges. Turnarounds in an branch that is only used to growth: How does that work? What kind of rethinking needs to take place and what opportunities need to be seized? Read more in the expert interview with Michael Klatt, former CFO and managing director of well-known soccer clubs, and Philipp Piscol, Managing Partner of enomyc.
Mr. Klatt, you are the former CFO of 1. FC Kaiserslautern and were managing director of MSV Duisburg. Which specific challenges are soccer clubs currently struggling with?
Michael Klatt: Uncertainty for one. They cannot estimate what's in store for them. This has resulted in economic challenges. "How long does the fuel in the tank actually have to last?" you ask yourself. "Is this now more of a mid-distance, a marathon or a triathlon?" This uncertainty makes it extremely difficult to take the right measures now. You do not want to run aground. But saving too rigorously? In terms of competitiveness, that can also become a problem later on.
So uncertainty is the first challenge. What are others?
MK: Football is generally a very short-term business and most clubs are indeed oriented toward the short term, as well. Usually, the financial planning cycle is 12 months long or exactly one season, but the pandemic will last much longer. Now there is a cross-seasonal case: The first lockdown started in March 2020, after all. Working out or planning medium- and long-term strategies now - that is what's causing the difficulties. Soccer is currently losing all four revenue levers, especially ticketing and merchandising, but also sponsorship and TV royalties. With many clubs struggling to survive, transfer periods, most recently this past winter, have also been affected. Lucrative transfers have become much more difficult to fulfil on tight budgets.
If you look at some of the figures, the soccer clubs did quite well in the first lockdown. kicker.de, for example, reports on BVB and its personnel savings of 9.2 million euros in the first half of the year.
MK: Yes, that’s true. There was a lot of solidarity in the 1st lockdown: Fans bought "ghost tickets" and emptied the merchandise stores, and even waived their season ticket refunds. There were voluntary salary waivers among the pros. It must be said, though: 9.2 million savings for a group like BVB - that's just about 8 percent of the 111.5 million euros in expenses. In a normal restructuring case that would not be that much.
What is it like in the second lockdown?
MK: The second lockdown hit the industry harder. In the first lockdown, "only" the second half of the season was affected, which means that 60 percent of the games were already attended by spectators and season tickets were sold for the entire season: This meant that a major source of income, ticketing, was still going strong. However, this has now completely disappeared. In the second lockdown, only a few spectators were allowed at the beginning. Now we are experiencing ghost games. The entire season was affected from the beginning. The extent of the foregone income is much higher now. Calling on the fan base for support again now - that cannot work every season: After all, some of the fans themselves are also now furloughed or unemployed.
You mentioned the TV revenue. How do the clubs generate this revenue?
MK: That's the long-term problem: viewership for games and broadcasts have fallen and TV money has been re-tendered over the last year. Now, for the first time, they are down year-on-year: 20 percent compared to the previous year. In addition, the amount of TV revenue depends on the respective league. In the first and second leagues, they are significantly higher and therefore dependency on ticket sales is less pronounced. In the third league, the TV revenue is significantly less and thus the dependency on ticket sales is significantly higher.
What measures are the clubs pursuing at the moment in order to obtain fresh money?
MK: Some are looking for ways to raise equity. They are looking for investors. However, finding investors in Germany is anything but trivial: While investors in England, for example, are allowed to buy, control and sell entire clubs, the 50+1 rule applies in Germany. So it's not at all clear here how investors can ever "silver-plate" their involvement. They are always the minority shareholders. Equity capital and - especially in the third league - serious investors are extremely hard to find. Let us look at two recent cases, KFC Uerdingen and Türkgücü München, where investors announced their exit during the season: This kind of thing poses immense challenges for clubs and associations.
Finding investors who will stick with companies through all ups and downs is your business, Mr. Piscol. Do you receive inquiries from sports clubs?
Philippe Piscol: Yes, there is a demand for financing and ideas on how associations can come together with Sparkassen and Volksbanken. We provide support for financing discussions.
What are the prospects?
PP: The criteria for banks to grant loans are complex, because on the one hand the planning horizon is usually only one season long and not three years, as is the case in other industries. Secondly, if you look at the balance sheet of a soccer club, there are many that have negative equity. Bank financing is therefore not easy for a soccer club, but it is possible: currently, for example, the case of Werder Bremen has been covered in the press. They recently obtained a loan for working capital through local banks.
What role do sponsors and patrons play?
MK: A very important one! One example: TSV 1860 Munich was relegated from the second to the fourth league a few years ago. The investor had not given any additional money. The question was: What does the main sponsor do now? That was and still is an insurance company: Die Bayerische. They used their role and communicated: "Because we are an insurance company, it is in our DNA not to run away when a loss has occurred. Quite the opposite". Die Bayerische has remained loyal to the club as a sponsor. 1860 Munich moved up again. Of course, it is helpful to have a sponsor and the club have a wonderful fit. But that is also partially down to being very lucky.
PP: As far as the patrons are concerned: Football continues to be strongly influenced by them. Even if the relationship is often difficult and they are increasingly withdrawn - think of Hopp and Hoffenheim or Tönnies and Schalke. Hostility from the fan base obviously spoils the joy of exclusive hobbies. Patrons then turn their attention to other sectors or sports. Or they focus only on their core business. Without patrons, however, clubs become weak. They have a hard time getting their budgets together and only bustle about in the last third of the Bundesliga.
What do you recommend in this case, Mr. Piscol?
PP: A communication strategy for the crisis with a focus on fan communication. Topics or cases like the ones mentioned must be publicly discussed outside of the stadiums and the fans must also be made aware of the consequences their behaviour has for their beloved club.
You are a turnaround manager. In your opinion, are there levers from your repertoire that are now proving their worth in soccer? After all, one is only used to growth.
PP: That's right: Restructuring and turnaround - soccer doesn't necessarily know that. Historically, traditional clubs have tended to live beyond their means. As far as restructuring measures are concerned, they are only partially applicable, partly because of the 50+1 rule and at least as far as equity is concerned. An equity restructuring strategy, i.e., a restructuring of the balance sheet is not possible. What is possible, however, are operational restructuring measures.
What do these operational turnaround measures look like in specific terms?
PP: Restructurers and reorganizers have to focus on the P&L. Restructuring measures mean, among other things, revising salary structures, restructuring personnel in administration or in the performance center.
MK: The most valuable thing - but also the most expensive thing - in soccer clubs are the players themselves. Around 75 percent of a clubs' personnel expenses consist of player salaries. If clubs part with personnel in the business office, for example in marketing or in PR, the effect on the income statement is not that big.
PP: And in soccer, the operational levers can't be applied as sharply as they could in a normal restructuring. There is no works council, no labour agreements. The clubs are dependent on the players. After all, they must go out on the pitch highly motivated next weekend and score goals!
MK: That's right. If, for example, an ambitious club were to take a tougher approach and make more rigorous savings, it could risk perhaps no longer qualifying for the Champions League. In that case, the collateral damage would be much greater. Depending on the club's performance, the difference between the Euro League and the Champions League could easily be 40 million euros or more for the season. An absolute balancing act.
What impact do all these facts actually have on the role of CFOs in clubs? After all, they are not usually in the conversation.
MK: Yes, visible is mostly the sports director. He embodies the core business. The CFOs play a more background role in the soccer club. But that is changing: CFOs are now largely responsible for the survival of clubs. The guiding questions are: How well can CFOs now implement operational measures? Are their financing strategies good? What can be done on the finance side to renegotiate maturities and liabilities?
Mr. Piscol, what approach would you advise CFOs in clubs to take now?
PP: I would give them the tools that we also advise CFOs in common industries to use: management by key figures and, if not already in place: Establish key performance indicator systems. As far as planning is concerned, we advise companies to plan for longer time cycles than just one season. In turnaround reports, for example, we plan for the current year plus two more years. Applied to soccer, to me this means generating a medium-term perspective so that we can think beyond the individual seasons. Above all, to be able to avert the issue of liquidity and the risk of insolvency in the medium term, even for a soccer club. Things aren't only looking up at the moment. And I have the impression that the issue of liquidity management was treated as a secondary issue in soccer before the crisis.
Is that so, Mr. Klatt?
MK: For licensing, you have to present a lot of financial figures, but they always only measured at the end of the season. There are often only two financial statements per year: in June and in December. However, the management of a club could be adapted to industry standards by means of a liquidity trend and financial statements during the year. For example, a weekly liquidity analysis, which becomes fuzzier towards the end of the year, provides a liquidity forecast for the entire season and also for the following seasons. This has two major advantages: First, knowing that active management is required and what specifically needs to be managed. On the other hand, the issue of liability is covered: If processes are documented, and board members and management are better informed and prepared, they are also protected better.
Are the clubs rethinking? What impression have you gained since the first lockdown, Mr. Klatt?
MK: I think so. Soccer is basically learning now that it ticks like a normal company. It's no longer just about entertainment, the show and what the fans want to see: It's about the survival of the clubs. And the club today must be secured by everyone involved. A change is taking place at various levels. For example, many players are willing to forgo full payment of their salaries. They are well aware that if they don't, there may be fewer potential new employers. In the worst case, the existence of some clubs is threatened.
With all the dampers: In conclusion, would you say the current situation is also doing soccer a bit of good?
MK: Well, no club can survive on its own. And the joy of the game exists because there are opponents. Games can only take place if other clubs exist. And if they are doing well. The German associations are well structured in that respect. Soccer will and must survive. But new issues are coming up. The salaries of players and also of player advisors are being scrutinized more closely. The situation is good for soccer because it is becoming more down-to-earth. It is also becoming closer to the fans. And that is definitely an opportunity.
Thank you very much for the interview.
