14.03.

2016
Research seminar, spring 2016
Home assignment 2
Kirill Volkov, MCF
My research topic is English Premier League Football Teams Financial Performance
Valuation. In order to get successful results different academic papers and articles should be
read and analyzed deeply. In this assignment that assignment two academic papers related to the
research would be observed.
First paper is called European club football: why enormous revenues are not enough by
Harry Arne Solberg. This paper is rather modern one, it was written in 2010, and I downloaded
from the FT 45 list of journals.
In this paper the author discussed the factors and reasons why European football clubs
have shown poor financial results despite earning high revenues. In this paper clubs from
different countries are analyzed. Moreover, different financial strategies are discussed which
helped clubs to show better financial performance. Different examples of clubs from various
countries have shown that eventhehighestrevenuegeneratorsinEuropeanclubfootball

canrunintofinancialdifficulties.Therearefewotherindustriesifanywherefirmsof
sofewemployeescangeneratesuchenormousrevenuesasthefootballindustry.
In my paper I am going to valuate the English clubs. However, it is quite difficult to
understand what effectiveness is for sport clubs. The objective of a football club will influence
its policy of recruiting players and hence also the revenues and costs. Literature in Sports
Economics has distinguished between two alternative objectives: profit maximizing and win
maximizing. In my paper I should analyze the effectiveness of sport clubs from both sides. That
is why this paper can help me to understand financial results and poor financial performances of
many European football clubs. It is also shown that in many cases European clubs have losses
while others do not have. This shows that the problems are not (necessarily) due to too low
revenues or too high costs, but due to lack of correlation between the revenues and the costs.
What is missing is mechanisms that tie the costs to the revenues. That is why this paper has a
high correlation with my potential master thesis and can be useful, because this paper shows the
factors which impacts on financial position of football clubs. What is more, this paper is rather
unique, because before that no one compared financial strategies of football clubs from different
countries, and it was not discussed why football clubs are not effective in financial performance.

This paper illustrates the mechanisms that lead European clubs to spend more resources
than they can afford. Additionally, this part offers a new and hopefully interesting explanation,
besides objective function differences, when it comes to understanding micro differences
between US and European sports.
The goal of the paper is to discuss why many European football clubs have experienced
financial problems, despite earning high revenues. Sports clubs with enormous revenues operate
at the brink of bankruptcy, has been a European phenomenon. Although teams in other continents
also have been affected by financial problems, these have neither occurred as often nor been of
the same extent as in Europe. The main purpose of this essay is to provide more insight into the
reasons for this and, of course, whether it is possible to solve the problems.
Speaking about the results of this paper, it was concluded that financial problems have
not only been due to low revenues or high costs but also to lack of correlation between the
revenues and the costs. The fact that European football clubs are win maximizers make them
more aggressive when competing for talented players, than professional teams on other
continents. This can explain why professional leagues outside Europe to a greater extent have
avoided such financial problems.
The author uses exploratory research design, because in the very beginning he asks
question and tries to assess phenomena in a new light (what is happening and how). Firstly, the
author described the different cases of financial performances of different football clubs, later he
presented theoretical approaches. After that he compared theoretical approaches with different
cases around the world and compared situations in different countries. In the next step he tried to
explain the differences by a game-theoretic approach. From that he concluded that The gametheoretic approach illustrates the dilemma many European football clubs are facing. If all of
them adopt an aggressive (going for the expensive and good players) strategy, the result will be
too high wages. If all of them adopt a moderate strategy, for example because the clubs agree to
collude, costs can be held under control. If one (or some few) adopt a moderate strategy, while
the others follow the aggressive strategy, the former one(s) will have lower costs. Such a
strategy, however, may have a long-term negative effect. Firstly, they will risk being overtaken
by the clubs that adopt aggressive strategies. This in turn, can reduce their revenues on a medium
and long-term basis, both from gate receipts, sponsors and sale from TV rights.
Finally, the author suggested some strategies that can tie cost with revenues and improve
financial results of European football clubs.

I thing that the author decided to use this type of research design due to different reasons.
First of all, descriptive design will not answer on why question, and the goal of the paper was to
explain why it happened. Moreover, explanatory research design is not suitable, because every
case is unique and we can not determine the exact factors for different clubs from different
countries.
The second paper is called Measurement of the Efficiency of Football Teams in the
Champions League by Manuel Espitia-Escuer. This study takes one of the club competitions
(the Champions League) and analyses its results from the point of view of efficiency, defined as
the absence of the wasteful use of resources. As in any organisation, the ultimate criterion for
assessing performance is the achievement of its objectives, namely, efficiency.
This paper has a high correlation with my potential master thesis, because it analyses
efficiency of football clubs and discusses what efficiency is for sport clubs, which will be very
useful fop my paper.
Speaking about academic impact, this paper has a practical issue, because it differs from
the previous studies in two main ways. Firstly, the chosen sample is football teams who played in
the Champions League from 2003 to 2007. The fact of analysing the efficiency in a European
competition increases the uniformity of the sample, as it considers teams that play in the
Champions League as well as in their own national competition. If a national league were
analysed, among those involved in it would be teams that are not in the European competitions.
Secondly, the method of calculating the efficiency will be both the traditional version of the DEA
as well as the amended version proposed by Andersen and Petersen, which allows discrimination
among efficient units. Moreover, the evaluation of the efficiency of football teams now has an
academic tradition reflected in articles published on the subject in specialist journals, such as the
work of Dawson et al. (2000a, b), Haas (2003a, b), Haas et al. (2004), Espitia-Escuer and Garc
a-Cebria n (2004, 2006), Bosca` et al. (2009) and Guzma n (2006).
Analysis of the efficiency of an organisation is based on the study of the representative
variables of the inputs used and the outputs obtained in the activity. The output of the second
stage of the production process for football teams are the results and, given the structure of the
Champions League, there is only one winner: the team that reaches the final and wins. So the
stage in which each team is eliminated from the competition could be a representative variable of
the output. The proxy variable for the stage where the team is eliminated from the competition is
the number of matches played.

Speaking about the results of the paper, it was concluded that at first, one could consider
that an efficient use of resources is needed to achieve good results in the Champions League, as
the two finalists in each season analysed had an overall technical efficiency ratio equal to on.
Second, efficiency can be used to more accurately qualify and interpret the results of teams in
terms of the resources they have, including as an evaluation variable. This is at least what could
be concluded from the result that teams that have been eliminated in the early stages have
efficiency ratios equal to one. Third, the inefficiencies identified in the teams that played in the
Champions League between 2003 and 2007 could be attributed mostly to a wasteful use of
resources and not to using different tactics.
The research design in this paper is descriptive, because the author provides the criteria of
efficiency, and after that evaluate different football clubs without making any conclusions why it
happened and what factors are crucial. That is why this type of research design is the most
effective for this papet and research goal.
The structure of the study is as follows: the production process of the football teams will
be introduced in section two, to justify the variables representing the inputs and the outputs to be
used in the calculations. Then, a section will be devoted to the theoretical explanation of DEA
both in their traditional version as well as in the Andersen and Petersen version. The fourth
section will show the results obtained, and the conclusions will complete the study.
The third paper is called A non-parametric analysis of the e ciency of the top European
football clubs by George Halkos. This paper analyses how European football clubs current
value and debt levels influence their performance. The results reveal that football clubs current
value levels have a negative influence on their performances, indicating that football clubs high
value doesnt ensure higher performance. At the same time, the empirical evidence suggests that
there is no influence associated of football clubs debt to their efficiency levels.
The research design in this paper is also descriptive, because efficiency is
analyzed and the factors of impact are not discussed.