One Step Forward in the Financial Crisis of Spanish Professional Football

ONE STEP FORWARD IN THE FINANCIAL CRISIS OF THE SPANISH PROFESSIONAL FOOTBALL Ángel Barajas ( [email_address] ) Plácido Rodríguez ( [email_address] )

INTRODUCTION
There is a global financial crisis.
USA and the EU countries have been obliged to save banks and financial institution.
To the date, 9 clubs have gone into administration.
In this context, our aim is to check how the Football industry in Spain has been affected.
We also check if there are any significant difference between the financial figures of clubs under administration and the rest.

INTRODUCTION
Lago et al. (2006) pointed out two features of a systemic crisis in European football:
a common set of problems afflicting all clubs and
the damage for financial stability of the whole when a club or a group of clubs are under financial distress.
Ascari & Gagnepain (2006) conclude that Spanish football industry suffers a structural weakness but, in their opinion, the situation seems to be less severe than in other European leagues.
Boscá et al. (2008) refutes the conclusion of the former author and they assert in line with García & Rodríguez (2003) that ‘the economic situation of Spanish football clubs presents an important fragility’.

INTRODUCTION
Regarding financial distress and financial crisis, the works by Beaver (1966), Altman (1968), Altman et al. (1977), Dimitras et al. (1999) have been useful in order to choose some of the ratios employed in this paper.
The work of Morrow (1999) provides some specific ratios for football industry.

METHODOLOGY
The database consists in the financial data that appears in the Financial Statements of 35 clubs at the end of the season 2007/08:
18 belong to 1st Division and
17 to 2nd Division A.
For comparative reasons, data at the end of season 2006/07 have been used.
A multiratio financial analysis has been carried out. This is a common methodology for studying financial distresses.
Parameters have been set in order to classify the clubs.
The financial situation of each club can be categorized as good, warning, worrying or critical according to those parameters for each ratio.
Finally, we have obtained a general map of the financial situation of professional football clubs.

Some analyzed aspects:
Short term funding (CL/CA)
Indebtedness (TD/TA)
Capacity of giving back debt (TD/TR)
Weight of player’s cost on results (Exp. Player/Operating Revenue)
Interest cover (EBIT/Interest)
ROA, ROE
Net worth status
METHODOLOGY

METHODOLOGY
A t-Test for Independent Samples has been carried out in order to check if there are significant differences on average between the clubs under administration (6 in the sample) and the rest (29 clubs).
A logistic regression has been performed in order to try to find an explanation of administration in football.

FINANCIAL SITUATION 2008

Clubs under administration and the rest of the clubs don’t shown statistically significant differences in the average of their main financial ratios.
There are not significant financial variables that explain the fact that a club is under administration. (Being under administration is not explained by any financial ratio or account).
FINDINGS

Spanish football industry is deepening into the financial crisis.
Financial crisis is general even although Real Madrid and FC Barcelona can keep in a positive financial situation due to their high ability to generate revenues.
Indebtedness is growing but financial institutions have cut the credit to football clubs.
Clubs have had to increase all the other ways of getting credit through what can be called “forced credit”.
DISCUSSION AND CONCLUSION

Great difference between divisions.
Indebtedness in 2nd Division is much higher than in 1st one.
The effort for promoting join to individual bargaining of tv rights without the existence of any ‘golden parachute’ may explain that situation.
Financial reasons do not explain why clubs are under administration.
Clubs with bad financial ratios avoid administration.
DISCUSSION AND CONCLUSION

THANK YOU ANY QUESTIONS? Ángel Barajas ( [email_address] ) Plácido Rodríguez ( [email_address] )

30/06/2008

FINANCIAL SITUATION 2008

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One Step Forward in the Financial Crisis of Spanish Professional Football

by Angel Barajas on Sep 22, 2009

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One Step Forward in the Financial Crisis of Spanish Professional Football — Presentation Transcript