10.

1177/1527002505282863
Baroncelli, Lago / ITALIAN FOOTBALL
JOURNAL OF SPORTS ECONOMICS / February 2006

Articles

Italian Football

ALESSANDRO BARONCELLI
UMBERTO LAGO
Università Degli Studi di Bologna

The Italian football industry has recently grown at a pace that was never experienced
before, boosted by the entrance of pay TV into the business. Nevertheless, Italian football
has recently sunk into a deep financial crisis, which has caused bankruptcy for some clubs
and strong downsizing for others. At the end of the 2002-2003 football season, the
aggregate net loss for Serie A was larger than €400 million, more than one third of total
turnover. In the present article, the authors analyze some data from Italian football, dis-
cuss the reasons for the financial crisis, and propose some remedies.

Keywords: football industry; revenues; costs; sport success; financial crisis

Football is the dominant sport in Italy, with more than 44 million Italians inter-
ested in the game, 31 million who support particular teams, 8 million who regularly
watch matches at stadiums, 20 million who read about football in newspapers, and
25 million who follow football on television or radio. Of the 25 television programs
with the largest audiences in Italy, all are dedicated to football events.1
The financial crisis of Italian football has been simmering for some time. The
top teams have spent too much (to buy good players and pay their salaries) and have
made too little (from gate revenue, merchandising, and television rights). Until
now, appalling finances have been the norm. In 2004, however, the fiscal authorities
began investigating the accounts of football clubs, and the Union of European Foot-
ball Associations (UEFA) football authorities have asked clubs to balance their
books as a requisite for joining European tournaments.
This article reviews the evolution of the financial crisis in Italian football. We
sketch the background of the business, discuss a series of implications for the man-
agement of football clubs, and suggest possible ways of recovering from the cur-
rent financial turmoil.

JOURNAL OF SPORTS ECONOMICS, Vol. 7 No. 1, February 2006 13–28

DOI: 10.1177/1527002505282863
© 2006 Sage Publications

13
14 JOURNAL OF SPORTS ECONOMICS / February 2006

THE FINANCIAL TROUBLES

OF ITALIAN FOOTBALL
The 2002-2003 and 2003-2004 seasons were certainly not very good for Italian
football. The kickoff of the Serie A league championship was postponed in 2002
for the first time since football activities were interrupted by World War II. In 2003,
a dispute arose that almost paralyzed the first- and second-division championships.
Traditional summer transfer markets for players have also been weak. After the
bankruptcy of Fiorentina, other teams, such as Parma and the Roman team Lazio,
had to sell their best players. The market has been reduced to bartering. Players
have been exchanged, but with little money changing hands, and some of the top
players have agreed to salary cuts. Over the past decade, there has been a relentless
rise in the amount of money flowing into the game from television, larger numbers
of spectators, sponsorship, and a much more professional approach to merchandis-
ing. Milan AC, one of the richest club in Italy, saw its turnover rise from €29.3 mil-
lion in 1990 to €177.1 million in 2002. The average turnover of Italian Serie A
clubs has risen by 216% over the past decade according to figures based on official
Co.Vi.Soc. data. The snag is that salaries, the major cost for all football clubs, have
risen by 453%. Big-name clubs such as Lazio and Roma have announced large
losses (€121.8 million and €115.4 million, respectively, for the financial year
2002-2003), while Empoli (a small club based close to Florence) and Juventus2
may in fact be the only Serie A clubs that made profits in the same financial year.
The rest of the Serie A clubs are in similar dire straits and have been constantly
struggling to pay their players’ salaries.
Unsurprisingly, the shares of both Lazio and Roma, the only Italian football
clubs (along with Juventus) to be quoted on the stock exchange,3 have plummeted.
Even Juventus, the most profitable of Italian football clubs, has seen its market cap-
italization fall from €430 million in December 2001 to the present approximate
figure of €183.2 million.
On February 26, 2004, more than 300 Italian taxation officials walked into the
headquarters of 51 clubs that had taken part in either A- or B-division champion-
ships over the past 4 years. The clubs were asked to exhibit their balance sheets,
contracts for the transfer of players, records of salary payments (especially for non–
European Union [EU] players), and other documents. In February 2003, the Italian
government issued an ad hoc decree, decreto salva calcio, to allow clubs to distrib-
ute financial losses caused by the devaluation of players over a 10-year period.4
Without the decree, losses for Serie A for 2003-2004 would have amounted to
€1,318 million (more than total revenue) rather than the €400 million actually
reported. In 2004, the European Commission declared the decree contrary to EU
accounting standards and threatened legal proceedings.
Yet at the end of the 1990s, Italian football was enjoying a golden era. Clubs
were performing in European cups, top players were begging to play in Italy,
pay-TV companies were fighting to acquire television rights from top teams, clubs
Baroncelli, Lago / ITALIAN FOOTBALL 15

TABLE 1: Breakdown of Revenue in the Main European Football Leagues

League Tickets TV Sponsorship Miscellaneous

England 31 39 30 —
Italy 16 54 13 17
Spain 25 51 4 15
Germany 18 45 22 14
France 16 51 18 15

SOURCE: La Repubblica, August 22, 2002.

NOTE: Items are expressed as percentages of total revenue.

were courted by the financial markets, and foreign companies were considering
buying Italian clubs. The increased willingness of TV companies to pay for broad-
cast rights caused income to grow at an unprecedented rate. What brought about
such a dramatic change in such a short time? What dynamic caused the business to
enter such a severe state of crisis unlike any other experienced in the past?

INCOME SOURCES OF
ITALIAN FOOTBALL CLUBS
In the period 2000-2001, the largest proportion of revenues in main European
leagues came from television rights, whereas income generated by the sale of tick-
ets and by sponsorship varied in different European countries (see Table 1). This
represents a radically different situation from only a decade earlier, when most
income still derived from takings at the gate. Here, we discuss the evolution of these
different income sources.

Gate Revenue
As it became clear that the most important source of revenue was money paid by
broadcasters for the right to televise football matches, no further attempts were
made to use the price of tickets as a sophisticated marketing lever. In any case, tradi-
tionally, fans were considered a captive market, and little attention was paid to the
way ticket pricing policies were determined.
The numbers of spectators decreased over time, with most clubs recording on
average an actual attendance of 40% to 60% of stadium capacity. It has only been
quite recently that some clubs have begun to reconsider differential pricing poli-
cies, with adjustments of ticket prices on the basis of the age of the purchaser, the
importance of the matches, and the team performance over the season. Between
1999 and 2002, total revenue from tickets (including the Italian championship, the
Italian cup, and the European cups) decreased by 19%, from €226.8 million to
€183.5 million. However, the most interesting problem is the decreasing impor-
tance of gate revenue with respect to total revenue: from 60% in the 1990-1991 sea-
16 JOURNAL OF SPORTS ECONOMICS / February 2006

son to 16% in the 2001-2002 season, a decrease of roughly 44%. The average num-
ber of spectators per match fell from 12,116 in the 1990-1991 season to 7,962 in
2001-2002. Accordingly, average gate revenue decreased from €8.66 million to
€8.16 million.

Management of Stadiums
In Italy, sports facilities are owned by the municipalities, and the clubs have
almost no power to decide how the sports facilities should be used. In many
instances, they are even used in ways that can jeopardize the interests of the football
clubs and endanger the quality of the grounds, as in the case of public concerts. A
few years ago, major Italian football clubs and also some of the minor ones realized
that owning or renting a stadium for a long period is one of the main ways of
increasing revenue. Nevertheless,

for various reasons, the construction of new facilities by football clubs and the privat-
ization of existing facilities seem to be difficult goals to achieve, especially in the
short and medium terms. Facilities cost too much, and there are too many town-plan-
ning obligations, and in many towns, it would be difficult to gain public approval of
such deals. (Tanzi, 1999, p. 365)

In times of economic crisis, as in the present period, the ownership or long-term

(30 to 90 years) management of a stadium is among the most highly debated topics
in the business. Various football clubs (e.g., Bologna, Juventus, Torino, Perugia)
have leased their stadiums from local municipalities and are now busy starting
restructuring projects. The ownership or long-term leasing of a stadium is not only
an important opportunity to diversify sources of revenue but also an important asset
capable of facilitating the quotation of football clubs on the stock exchange. In
appraising clubs, financial institutions seem to appreciate relatively stable revenue
and valuable assets implied by the ownership or leasing of stadiums.

Merchandising
If we compare the Italian experience with that of other countries, in particular
with the business model of British football, we find that a very limited contribution
of merchandising to total revenue is a factor peculiar to the Italian scenario. One
reason for this can be found in the different behavior of Italian fans compared with
that of those in other countries. Although large numbers of British fans go to stadi-
ums wearing their teams’ shirts, this is much less common in Italy. On the other
hand, in Italy, widespread black-market activities make it difficult for clubs to pro-
tect the goods sold under their trademarks, and suing counterfeiters does not appear
to be an effective deterrent.
Baroncelli, Lago / ITALIAN FOOTBALL 17

From the point of view of marketing, merchandising should become a much

more important source of revenue in Italian football. It is indeed worth noting that
few other industries have such strong trademarks as football clubs. Moreover, cus-
tomers and fans, who tend to support their teams to a degree beyond what one might
consider warranted by the results they may achieve, tend also to remain loyal to
their clubs’brands. Leveraging on the strength of such brands should thus be one of
the main objectives of the clubs and a goal to be achieved through various individ-
ual and mass-marketing activities. Moreover, when merchandising is successful, it
contributes toward generating a “sense of belonging” among customers and fans,
thereby strengthening the brand name and making it more “desirable” for sponsors
and TV stations, while contributing toward an increase in total revenue.

Sponsorship
In Italian football, revenue from sponsorships is increasing strongly and
steadily, with a remarkable 30% average increase over the past 4 years. Today,
sponsorships represent a source of income comparable with revenue from match
attendance. In 2001, sponsorships represented 13.4% and match revenue 16.2% of
total revenue (Lega Calcio & Deloitte and Touche, 2002). Wide television coverage
of football events ensures far greater visibility for the sponsors’ brands. Most of the
official sponsors of Serie A and Serie B clubs are companies operating in the food
and beverage sectors. However, more recently, there has been a dramatic increase in
the number of sponsors from the telecommunications and electronics sectors.
Since 1998-1999, Serie A and Serie B championships have been sponsored by
Telecom Italia Mobile (TIM), which accounts for their having been labeled as
“Serie A TIM” and “Serie B TIM.”

TV Rights
Until the beginning of the 1990s, revenue from the sale of television rights (once
obtained exclusively from state-owned television companies) increased slowly
but constantly and constituted a secondary source of income for the football clubs.
The introduction of pay TV in 1993 and, subsequently, the introduction of the
pay-per-view system in 1996 led to a major increase in revenue from TV compa-
nies, and since then, television rights have become the most important source of
revenue for football clubs.
Starting with the 1993-1994 championship and up until the 1998-1999 champi-
onship, Lega Calcio negotiated television rights for public and pay TV on behalf of
the clubs. During this period, the television companies paid out large sums of
money for the rights to televise matches. In this period, sums earned by the clubs
rose from about €93 million at the beginning to €231 million in the 1998-1999
18 JOURNAL OF SPORTS ECONOMICS / February 2006

season. During the following championship, various events brought about a sub-
stantial change in the relationship between football and the TV companies and cre-
ated a rift between an elite group of clubs at the top of the Serie A and the weaker
clubs in both the A and B divisions. This change was in fact the reason for the late
starts of the 2002-2003 and 2003-2004 football seasons.
Decree Law No. 15, passed on January 30, 1999, allowed football clubs to
directly negotiate TV rights with broadcasters. A measure introduced by the Italian
Antitrust Authority5 thus obliged Lega Calcio to modify its regulations. This meant
that starting with the 1999-2000 football season, pay-TV and foreign television
rights for the division A and B championships had to be negotiated directly and
individually by the football clubs and no longer through Lega Calcio. Lega Calcio,
however, continued to be entrusted with the task of negotiating rights for public
television for football clubs in divisions A and B, a situation that has continued to
exist until the present day.
These changes, combined with competition between the incumbent Tele+ chan-
nel and the newly introduced second digital TV channel Stream led to an increase in
the flow of income for clubs during the 1999-2000 and 2000-2001 seasons. In the
1999-2000 season, net income from the sale of TV and radio rights for the Serie A
and Serie B championships and the Italian cup more than doubled with respect to
the previous period (from approximately €231 million to approximately €511
million). The positive trend continued also in the following season, during which
pay-TV channels paid out more than €550 million to obtain TV rights. TV rights
thus became by far the most important source of revenue for Italian football, reach-
ing almost 54% of total revenue, whereas only a mere 16.2% of the total came from
actual match attendance.
When TV companies realized that they could not meet the clubs’ expectations
for continuous growth with respect to the sums of money they were paying out to
them for broadcasting rights, they negotiated a reduced total amount for contracts
for the 2002-2003 championship. This mainly hit small football clubs, which had
fewer spectators (e.g., Chievo), or clubs that had just entered Serie A (e.g., Como
and Modena). Because pay-TV companies started applying a strictly market-based
system, the price paid to clubs became a function of subscriptions and other indi-
cators. As a result, bigger clubs such as Juventus and Milan were paid about 10
times the amount paid to the smaller clubs. Smaller clubs complained to Lega
Calcio that the new dispensation would contribute further to revenue imbalances in
Italian football, force them to dramatically reduce salary costs to avoid bankruptcy,
weaken their teams, and so make the championship less interesting. The problem
was temporarily solved when the major clubs agreed to pay out a modest cross-
subsidy of money offered by the pay-TV companies to the smaller clubs. 6
Baroncelli, Lago / ITALIAN FOOTBALL 19

COST CONTROL

Wages and Salaries of Players

The greatest item among costs is that represented by the salaries and wages of
players and coaches. The increase of salaries and wages is more accentuated in the
case of the six major clubs,7 with an increase of 719.7% since 1996-1997 in com-
parison with a 452.9% increment for the entire Serie A. These figures indicate a
gradual divergence of revenues and resources available to pay for the best players.
In the 2002-2003 championship, the share of expenses for wages and the amortiza-
tion of intangible assets in total costs was 70.28% for the six major clubs, compared
with 54.55% for the other Serie A clubs. The average share for Serie A was 68%.
In 1995, players receiving salaries of more than €1 million per year constituted
a mere 7.4%, a number that has now grown to 29.6% (Lo Giudice, 2002). In the
2002-2003 championship, the Serie A football clubs paid out as much as €752 mil-
lion for the players’ salaries alone. This sum accounts for 88% of total turnover. In
2000-2001, the labor costs/turnover ratio of Italian clubs was already the highest
among the major European leagues, even though it was still 12% lower than what it
is today.

Other Costs
The most important cost component after salaries and wages is the amortization
of intangible assets.8 The increase of the latter during the period examined here is
even higher than for wages and salaries. Amortization shows a rise of 698.7% and
salaries and wages a rise of 452.9%. The third cost item is financial charges. This
can be taken as an indicator of the football clubs’ position as far as debt is con-
cerned. A fourth cost item is extraordinary cost. It is suspected that these figures
may be fraudulent. A magistrate’s inquiry has been initiated to investigate the reli-
ability of the figures announced by football clubs when transferring players. Many
valuations seem to be unreal, because the overvaluation of surpluses is a practical
way of avoiding expensive recapitalization, a necessary condition for the avoidance
of bankruptcy for many football clubs.
The average total costs of Serie A clubs increased by approximately 487%
between the 1990-1991 and 2001-2002 seasons. In the 2001-2002 football season,
the total cost of an average Serie A club was €136.5 million, although the variance
is large. The total cost of Inter averaged €329 million, whereas Chievo averaged
only € 32.9 million. The total costs of the six major clubs represented 62% of the
accumulated costs of all clubs in Serie A. The gap between the major clubs and the
other Serie A clubs has become very wide in the past decade. In the past football
season, the total cost of the six major clubs averaged €278.9 million, compared
with €58.8 million for the remaining “minor” Serie A clubs. Between 1990-1991
20 JOURNAL OF SPORTS ECONOMICS / February 2006

TABLE 2: Operational Results for Serie A (millions of euros)

1996-1997 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002

Operational result –144.3 –222.2 –335.2 –406.5 –710 –982.2

SOURCE: Co.Vi.Soc. data.

and 2001-2002, the increase of total costs for major clubs was 766.7%. In the same
period, the minor clubs showed an increase in costs of a “mere” 213%.

EVOLUTION OF PROFIT AND

LOSS RESULTS OF FOOTBALL CLUBS
In the period examined, average profits were –€ 8.8 million for the six major
clubs and –€0.4 million for the minor Serie A clubs. Above all, no Serie A football
club was capable of generating profits consistently. Thus, accumulated losses in
Serie A amount to €241.5 million, of which 84% was lost by the six major clubs. In
the 2002-2003 results, the six major clubs showed an average loss of €40.2 million,
compared with €4.2 million for the minor clubs. The losses of the major clubs have
increased at a dramatic rate. Excluding the 1990-1991 season, in which results
were more or less balanced, the only season in which the clubs had a positive aver-
age profit was 1999-2000. The minor clubs show a mix of positive and negative
results.
If we consider operational results (i.e., the results of all activities of clubs) with-
out taking into consideration finance and extraordinary items from the “sales” of
players, the final picture is that of a business close to bankruptcy (see Table 2).
In 2002-2003 financial year, operating losses of the Serie A and Serie B clubs
were estimated at €1.5 billion, compared with a turnover level of €3 billion. In the
meantime, debts for the clubs in Serie A alone were estimated in the region of €1.5
billion. In fact, many clubs are not paying their debts to the state, and many are not
even paying salaries to their players (including Roma, Parma, and Lazio). In Serie
B, only Fiorentina pays its players regularly; all other clubs are late in paying sala-
ries. Some of the clubs are also strongly suspected of paying salaries “under the
table” to avoid paying taxes on them.

THE REASONS FOR FINANCIAL TROUBLES

There is no doubt that in recent years, leading Italian clubs have tried to raise
profit thanks to the expansion of pay-per-view television and have invested heavily
in strengthening their teams in an attempt to trigger a virtuous circle between sport-
ing results and economic gain (see Figure 1). As the experience of most of the lead-
ing Italian clubs shows, this is almost impossible to achieve. In fact, the virtuous
circle is likely to be a valid proposition for only a few clubs.
Baroncelli, Lago / ITALIAN FOOTBALL 21

Financial
resources

Players’
salaries

Increase in Creation of
revenue competitive teams

Sporting results
(victories)

Figure 1: The Virtuous Circle Between Sporting Results and Economic Gain (Leading Clubs)
SOURCE: Lago, Baroncelli, and Szymanski (2004). Reprinted with permission of Egea.

First of all, to trigger the virtuous circle, great financial resources are required.
Strong profit growth caused by the transformation of football into a television phe-
nomenon and the resulting euphoria have driven many clubs to anticipate future
profits, obtaining funds in advance against contracts with the pay-TV companies,
investing heavily in strengthening their teams. However, because of the effect of the
Bosman ruling of 1995, most of the invested resources are required to pay the sala-
ries of the players and technical staff members. The Bosman ruling, by transform-
ing the player labor markets from monopsonistic to competitive, gave players
greater contractual power. It is evident that players are able to extract all the possi-
ble rents from clubs. At the same time, clubs not only pay large salaries to players
but also suffer the risk involved in maintaining their physical integrity.
Sporting results are transformed into profit insofar as a club may depend on a
vast potential group of spectators and is capable of exploiting all available commer-
cial opportunities. As shown above, Italian clubs are still quite “backward” with
respect to British clubs as far as the exploitation of stadiums and the exploitation of
their brands through merchandising are concerned. This involves less potential
22 JOURNAL OF SPORTS ECONOMICS / February 2006

profit from sports performance. This implies a competitive disadvantage with re-
spect to clubs (such as those in England) that are fully capable of further investment
in their sporting success. For the reasons we have put forward, the “arms race”
behavior of many clubs, which anticipate all their future income in an attempt to put
together and develop winning teams, can only lead to a situation such as the present
one, in which only the leading and most solid clubs are capable of holding out,
whereas those that are financially less solid would risk creating an indebtedness
from which it would be subsequently difficult to recover.
This mode of analysis allows us to comprehend the financial difficulties of cer-
tain Italian clubs. In recent years, clubs such as Roma, Lazio, Fiorentina, and Parma
have invested in their teams almost as much as Milan, Juve, and Inter and have also
won the championship (Roma and Lazio) or other prestigious tournaments. A few
years ago people, spoke of the “seven sisters” of Italian football.9 Now, only three
of these sisters have retained their leading positions: Fiorentina became bankrupt
and was relegated to Serie C2, Lazio came close to bankruptcy and saved itself by
selling all of its best players, Parma effected a substantial overhaul of its structure
and started off again with a group of young players, and Roma made no important
purchases for almost 2 years.
Clubs that form part of large industrial groups or are linked to leading politicians
can afford to make financial investments that cannot be justified within the sphere
of the football business but would be perfectly understandable from a wider per-
spective. Even when the virtuous circle described above is not triggered, these
clubs can afford to continue investing financial resources, the performance of
which must be measured considering the positive externalities in terms of image,
communication, and public relations.
The activity of provincial teams differs considerably from that of the leading
teams, and their aims are also quite different. Above all, the definition of success for
a provincial team is profoundly different from a very high ranking team. If for the
leading clubs, sporting results can be expressed in terms of victories (in the champi-
onship, European Champions League, UEFA Cup, etc.), for the provincial teams,
they can be expressed in terms of their having managed to remain in Serie A and
their promotion from Serie B.
The virtuous circle of a small football club begins with the selection of talented
young players, who can be “bought” from minor divisions all over the world and
paid very little. Putting together a team with a skilled trainer capable of bringing out
and developing the talent of these players is the second stage. When this occurs, the
club obtains the sporting results it had been aiming for, the guarantee of remaining
in Serie A if this was its position, or promotion to Serie A if it is in the Serie B cham-
pionship. From these results, the club is then capable of generating greater profit
(mainly from sponsors, television, and gate tickets) and, through the sale of the
most talented players on the transfer market, obtaining substantial capital gains.
These financial resources can be used in part to restart the cycle with the acquisition
of new players and in part to pay off shareholders (see Figure 2).
Baroncelli, Lago / ITALIAN FOOTBALL 23

Possible
profitability Selection
of young
players

Sporting results
Financial (stable position/
resources promotion)

“Sale” of players
(capital gains)

Revenues

Figure 2: The Virtuous Circle Between Sporting and Economic Results (Small Clubs)
SOURCE: Lago, Baroncelli, and Szymanski (2004). Reprinted with permission of Egea.

The cycle described above implies that the provincial teams are forced to replace
a large number of their players every year. Teams that easily retain their position in
Serie A let two, three, or even more talented players go each year, whom they
replace with young players whose performance at the start of a season is uncertain.
It appears that the big Italian football teams and the small provincial teams were
playing in two different championships and had quite different objectives, in both
economic and sporting terms. Although paradoxical, it is the small teams that have
more clearly defined economic objectives. These are clubs that are often linked to
entrepreneurs who have no desire or cannot afford to run a business at a loss, and
they must thus make a profit from invested capital. Sporting results are a necessary
but not sufficient condition for attainment of financial objectives. The clubs invest
what they can, and if it is not enough, they are demoted to Serie B, hoping that they
will not have to stay there very long. The provincial teams, just like enterprises in
other sectors of business, aim at gaining a profit from their investments, and to
obtain profit, they are conditioned by sporting results. These teams act as nurseries
or feeder clubs, rather like minor league baseball teams in North America. When
this activity is carried out well, it leads to economic and sporting (the maintenance
of division position or promotion) results. When it does not produce talented play-
ers, it leads to modest sporting results, which is followed by a fall in profit.
24 JOURNAL OF SPORTS ECONOMICS / February 2006

On the contrary, the leading teams do not have a main objective in terms of prof-
itability, despite stock-market quotations, but rather objectives connected with
sporting results (on which the value of shares also depends). In other words, the rea-
soning presented for the provincial teams is exactly reversed: The leading clubs
have mainly sporting aims and economic and financial constraints. Accounting for
the synergies mentioned above, constraints bind some teams but are virtually non-
existent in the case of others. As already seen in the economic and financial analy-
ses conducted by Deloitte and Touche and by Lega Calcio, the Italian Serie A can be
subdivided into three groups: the leading teams (of which only three remain: Milan,
Juventus, and Inter), which aim at obtaining sporting results with almost unlimited
economic resources; those teams that aim at obtaining sporting results with limited
resources; and the small clubs, which aim at obtaining economic results linked to
their sporting results.
The recent introduction on the part of Lega Calcio of a number of company bal-
ance limitations, which fix a maximum limit for expenses for salaries in proportion
to profit, should have the effect of improving competitiveness. However, the differ-
ence between the top teams and the provincial teams is still enormous. For example,
in the 2000-2001 season, Milan spent 69.7% of its turnover on salaries, Roma spent
69.6%, Verona spent 68.9%, and Atalanta spent 66.6%. Expressed as absolute val-
ues, the figures look quite different. The value of 69.7% in the case of Milan corre-
sponds to approximately €104 million, whereas the 66.6% presented by Atalanta is
only €19 million. The differences between leading clubs and provincial clubs are
not just economic differences. Important differences in terms of revenue translate
into important differences in terms of potential for spending on players’ salaries
and therefore for building more competitive teams. Data relating to the Italian
championship show that the three leading teams have never scored as many goals
and the last four have never scored as few as in recent years. If this trend continues,
it is clear that there are at least three “virtual championships” within Serie A. Is it
then sensible to maintain the status quo, or would it be more convenient to split up
the championship and create, as advocated by many club managers, a European
superleague? In the next section, we discuss the economic implications of such a
difficult decision.

HOW TO REFORM THE

CURRENT ITALIAN FOOTBALL SYSTEM

The Need to Reduce the Cost of Wages and Salaries

If Italian clubs are not able to strike a deal to control the soaring cost of players’
wages, they are in serious danger of bankruptcy. Possible and practical ways of
reducing the wage bill are to
Baroncelli, Lago / ITALIAN FOOTBALL 25

• reduce the periods during which the “players’ market” operates,

• reduce the number of players,
• refuse to pay players’ agents and intermediaries,
• invest in young players and players from emerging countries, and
• link players’ wages to competitive and financial results.

Redesigning the Organizational Pattern

Italian football clubs are medium-sized or even large-sized companies, but in
most cases, their organizational structures and management resources seem inade-
quate to face the increasing complexity of the business. The selection of new play-
ers and their training are certainly critical activities for the clubs’ sporting and eco-
nomic performance. One way to redesign the organizational pattern of the largest
clubs, starting from such activities, is leveraging on interfirm relationships with
smaller clubs. Evidence from the experience of certain clubs, which over the past
15 years have developed such an organizational pattern and acting as “focal firms,”
shows overperformance in terms of improvement in the selection of new play-
ers, lower costs, and increased visibility. Focal firms are those that play a critical
role among network members and become the network leaders (Jarrillo, 1988;
Lorenzoni, 1987; Quinn, 1992) that coordinates other members’ contributions to
the network (Snow, Miles, & Coleman, 1992) to create value (Lorenzoni & Baden
Fuller, 1995).

Internationalization
Manchester United and Real Madrid, the two richest clubs in the world, both
earn about 95% of their revenues at home. Nevertheless, both Manchester United
and Real Madrid have became two of the most popular brands worldwide, includ-
ing in countries where football does not have a great tradition. This shows that one
of the management objectives of the future may be to retain a more diversified
stream of income at international level from sponsorship and merchandising. For
example, Milan and Juventus decided to play the last Italian Super Cup Final in the
United States, while other clubs are planning preseason tours in Asia to strengthen
their brands.

Building or “Stretching” a Brand Name

The organization of sports in the United States is seen as a possible model.
Accordingly, football clubs are looking to exploit a wider market by capitalizing on
their brand names and customer loyalty. For those clubs that pursue such a strategy
successfully, their financial results will become less reliant on their results on the
field, at least in the short term. In the medium term, football success is still essential.
26 JOURNAL OF SPORTS ECONOMICS / February 2006

A club’s supporter base remains a major revenue driver, which, apart from the live
events, may generate revenue from new means of communication, creating dedi-
cated retail channels and further protecting their clubs’ brands.

Entering New Businesses

Most of the big Italian teams have invested heavily in their Internet sites, and a
few have started their own television stations, in the hope of merging the two opera-
tions in due course. Interactive services provided through new media such as 3G
mobile phones, the Internet, e-mail, and video mail will be new sources of revenue
for football clubs. Almost all Italian clubs have sold the rights to broadcast their
matches to technological partners that allow technologically adept fans to watch
goals and even whole recorded games on the Internet. Teams such as Juventus,
Inter, and Milan have millions of fans all over the world and view the Internet as the
ideal way of satisfying their desires.

The Creation of a European Superleague

Every Tuesday and Wednesday, a large proportion of Europe’s male population
tunes in to watch the Champions League, the pan-European football championship
embracing the best teams from all over Europe. Over the past decade, European
football teams have turned into a living, breathing embodiment of European inte-
gration. A possible, though provocative, solution would certainly be the creation of
a European superleague: “Talk to anyone closely involved with the financing of
the big clubs and they will tell you that a European Super League is inevitable”
(Szymanki & Kuypers, 2000, p. 301).
Why is there such confidence in an event that would represent such a dramatic
change in the present situation and would certainly create a harsh debate among
fans? The fans located in big cities tend to support largest and most successful
teams. Fans of Milan, Juventus, and Inter would prefer to see their teams playing
Real Madrid, Bayern, and Manchester United rather than Empoli, Perugia, and
Ancona. The interest of supporters translates into larger revenue in the form of
higher income from gate receipts and especially from pay TV and sponsors.
In our opinion, for leading clubs, the creation of a superleague is a natural out-
come in the sense that it would represent the final act of the transformation of foot-
ball from a game into a business and a television format, along with its superstars
and supersponsors. This is inevitable as long as football is considered a business
more than a game. In recent years, many things have changed. Football clubs have
become limited companies that have shares floating on the stock exchange, and
they seek profit exactly like any other company. The process is not reversible at the
moment, and so it is very likely that a European superleague will occur, provided
that the clubs interested are also able to agree on a structure for competition, which
in itself is not a trivial task.
Baroncelli, Lago / ITALIAN FOOTBALL 27

The question at this point is, What will the situation be for those small or
medium-sized clubs that are not admitted? Second, what will remain of the national
leagues? The current leagues would probably undergo severe downsizing, with
strong reductions in revenue owing to the loss of the most popular clubs, but there
would also be a strong reduction in wage bills due to less harsh competition. People
would presumably continue to support a local side and also a team in the European
superleague.

NOTES
1. Some argue that this great popularity has become an excuse to tolerate lax attitudes on the part of
the authorities toward football hooliganism. Equally, the popularity of the game may even lie behind pos-
sible slippage between the authorities’tolerance of financial misconduct on the part of football clubs and
“ordinary” firms operating in other fields and businesses.
2. In this year, Juventus benefited from a sale of real estate that produced a capital gain of €39.8
million.
3. Since 1998 and 2000, respectively.
4. It has also been suspected that some of these extraordinary items have been faked.
5. Autorità Garante per la Concorrenza ed il Mercato: Decrees No. 6869 (February 10, 1999) and
7340 (July 1, 1999), Proc. No. 1362: sale of TV rights.
6. A year later, Sky acquired Tele+ and Stream, thereby gaining a monopoly of live league football
TV rights. A group of small clubs (Brescia, Perugia, Ancona, etc.) launched an alternative television
platform called Gioco Calcio, in which Lega Calcio purchased a capital share, but the company collapsed
in March 2004, and all the rights reverted to Sky.
7. The six major clubs at that date were Juventus, Milan, Inter, Roma, Lazio, and Parma. Today, only
Juventus, Milan, and Inter can be considered major clubs.
8. The amortization of intangible assets represents the depreciation of the value of contracts with ath-
letes and trainers.
9. The seven sisters, Juventus, Milan, Inter, Roma, Lazio, Fiorentina, and Parma, were the seven
leading teams of the Italian championship, the championship that receives the widest television coverage
in the world. These teams dominated the football division classifications, dictated the terms of the foot-
ball market, and influenced the highly lucrative business deals with sponsors (Malaguti, 2002).

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Alessandro Baroncelli is full professor at the Catholic University of Milan where he teaches
Business Management and International Management. He has written both academic and
practitioner-oriented literature on such topics as interfirm relationships in industrial districts,
network organization, and international management. He is a coauthor of a recently published
book on the football industry.

Umberto Lago is an associate professor of management at the University of Bologna. He has

recently published a book (with A. Baroncelli and S. Szymanski) on the Italian business of foot-
ball. He teaches marketing and the marketing of sports at both the graduate and undergraduate
levels.