Strategy and Financial Management in the Football Industry

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Strat. Change 13: 405–422 (2004) Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/jsc.696

Strategic Change

Strategy and financial management in the football industry
Tony Grundy*
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.

406

Tony Grundy

COMPETITIVE STRATEGY

New valuecreating options

Financial results

Funding needs

Proactive facilitation

FINANCIAL MANAGEMENT

FINANCIAL STRATEGY

Projected requirements
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...
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