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What is the point of football?

October 17, 2010

This week has seen remarkable goings on at Liverpool football club. The previous American owners of the club, Tom Hicks and George Gillett have been forced to sell to new (American) owners New England Sports Ventures. The deal was forced through by Chairman Martin Broughton who Hicks and Gillett appointed to find a buyer. In the event the price was not to their liking, but despite increasingly unlikely legal challenges (a restraining order from a court in Texas?) they proved unable to prevent the transaction.

Not many in the red half of Liverpool will shed a tear for Hicks and Gillett, despite their multi-million dollar losses through their involvement with the club. The pair took over in 2007 promising a great future but, despite assurances to the contrary, they secured significant debt against the club. By 2010, not only were the interest payments eating up the club’s revenues, but the imminent maturity of a loan of £237m from Royal Bank of Scotland threatened the club with bankruptcy, a fact which was instrumental in the final outcome.

Lots more can, and has, been said about the details of the case. However, in all the noise and acrimony a broader point has been pushed into the background – a point that goes to the heart of the problem. Hicks and Gillett were in it for the money and that much was clear from the beginning. Liverpool’s fans, on the other hand, want the club to win football matches. This divergence of aims might not seem too significant, since it seems reasonable to suppose that a football club will be financially successful when it is winning matches. However, in practice the tensions are clear – loading the club with debt, not to mention the maximisation of revenue from merchandising and ticket sales are not obviously in line with the interests of fans, although they may maximise the expected profits of Mssrs. Hicks and Gillett.

These tensions could be seen as an example of the more general case of tensions that arise between different stakeholders in any business. It is clear that what is best for the shareholders of any business is not always best for the employees or the customers or the suppliers. Unfortunately stakeholder theory (as a moral theory, as opposed to a theory of strategic management) has not so far given us any particularly good explanation of how these competing interests should be balanced. One thought is that since the shareholders are the owners their interests should be actively promoted with the existence of other stakeholders putting constraints on how this promotion can legitimately be achieved.

Coming back to the example in hand, this suggestion would lead us to the following conclusion: the point of football is to make profit for the owners of football clubs, as long as this is done in a way which is not overly detrimental to the fans. Putting aside the question of what ‘overly detrimental’ may mean, this still sounds like a pretty strange interpretation of the point of football and football clubs. But if football is a business, then are we not forced to draw a conclusion of this kind?

Another example from the world of football puts a different perspective on this tension. At around the same time that Hicks and Gillett were taking control of Liverpool, another club with a long and proud history was already in serious trouble. Heavily indebted, to the tune of £35m, and struggling at the foot of the Championship (the second tier of English football), Leeds United were forced into administration. This move, however, allowed them to shed their debt and emerge relatively unscathed (although they were relegated and started the following season with a 10 point penalty). While the debt holders and creditors of the club suffered these huge losses, the football club was given a new lease of life.

Such stories have become more and more common over recent years – Southampton in 2009, Portsmouth in 2010 – but as yet not one club has been liquidated to pay off its debt. The largely unspoken reason in these cases is that it is unthinkable for clubs with such strong local histories and support to cease to exist. In these cases significant business interests appear to be sacrificed in order to promote the interests of the club as identified with its supporters. So we might ask again, what is the point of football and the existence of football clubs?

It is at least clear that there is a real tension between the different ‘stakeholder groups’ (for want of a better term) that are the owners and the supporters of football clubs. Moreover, the controversy of recent events seems to suggest that there are no obvious or generally accepted principles at hand by which to resolve this tension. And while the case of football is clearly an extreme example it might be instructive to bear it in mind in attempts to make progress with the more general challenges that stakeholder theory has posed for our understanding of business in general, and how it should be conducted.

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