Strategy and ﬁnancial management in the football industry
Cranﬁeld School of Management, UK
The literatures on strategy and ﬁnance have developed very separately, notwithstanding the fact that they have a common economic underpinning.Whilst a number of strategic theorists have looked at how strategic management facilitates the most effective leverage of economic resource, studies of the linkages between strategy and ﬁnance literatures are relatively few. This appears odd because ﬁnance is pivotal in making the resource allocation decision in management, especially in major business investment and divestment decisions and in the ﬁnancing strategies needed to accomplish this. Both ﬁnancial management as a discipline and ﬁnancing strategies also play a role in inﬂuencing stakeholder behaviour, which is critical in strategy. Rarer still are studies of how strategy, ﬁnancial management, ﬁnancial strategies and stakeholders interact.With continuing examples of devastating corporates such as Enron and more recently Parmalat, it would seem surprising that theorists have been relatively disinterested in this important border between these disciplines. This paper seeks to make a contribution to our understanding of the topic by focusing on the interesting case of the football industry. Whilst an earlier paper in this journal (Grundy, 2004) dealt with techniques for appraising strategic options to exploit product/market opportunities, ﬁnancing strategy options warrant separate exploration. Copyright © 2004 John Wiley & Sons, Ltd.
Overview: structure and context
The football industry has been chosen as a particularly interesting, empirical case study to focus on as it highlights the various links between strategy, ﬁnance and ﬁnancial strategies (see Figure 1). It also builds from work in previous papers published in Strategic Change (Grundy, 1998, 1999; Cross and Henderson, 2003), and elsewhere (Grundy, 1992, 1997; Grundy and Johnson, 1993; Ward, 1993). * Correspondence to: Tony Grundy, Cranﬁeld School of Management, Cranﬁeld University, Cranﬁeld, Bedford MK4 3OAL, UK. E-mail: a.grundy@cranﬁeld.ac.uk
Figure 1 highlights that: competitive strategy inﬂuences ﬁnancial results and generates funding needs; ﬁnancial management helps identify new value-creating options and projects future ﬁnancing requirements; ﬁnancing strategy can proactively facilitate new competitive strategies. The research process is based on a comparative study drawn from data from the annual reports and accounts of four prominent football clubs, together with other commentators (Bose, 1999; Fynn and Whitcher, 2003). Strategic Change, December 2004
Copyright © 2004 John Wiley & Sons, Ltd.
New valuecreating options
Figure 1. Links between competitive strategy, ﬁnancial strategy and ﬁnancial management.
Over the past 15 years the football industry has gone through a phenomenal period of change. This has been achieved in part because of the innovative ﬁnancing strategies adopted by the leading clubs, which has facilitated expansion — not merely in terms of physical growth (bigger grounds, etc.), but also in terms of development into media, merchandising, sponsorship and other activities. As will be examined below (and echoing Cross and Henderson, 2003), with the exception of Manchester United, major league clubs such as Arsenal, Chelsea and Leeds struggle to cover their cost of capital principally because of competitive market structures, and because of their owners being emotionally overcommitted to funding the game.These football clubs have adopted very different approaches to ﬁnancing strategy, with varying...