Human capital and financial performance in professional football: the role of governance mechanisms

AuthorVincenzo Scafarto, Panagiotis Dimitropoulos
Publication Date03 Apr 2018
Human capital and nancial performance
in professional football: the role of
governance mechanisms
Vincenzo Scafarto and Panagiotis Dimitropoulos
Purpose The main purpose of this paper is to examine the relationship between human capital
investments and financial performance in the professional football industry. The authors examine this
association by controllingfor internal (club-level) mechanisms of governance. Specifically,as they deal
with a context of highly concentrated ownership and familial controlof football clubs, they posit that the
degree of family board representation and a dual leadership structure exert a moderating effect on the
decisionto spend on playing talent.
Design/methodology/approach The empirical analysisemploys a fixed-effect econometric modelon
a panel data set of 16 Italian football clubs that spans a nine-year time period ending up with 144 firm-
year observations.
Findings The main novelfinding of this investigation is that clubs withCEO duality and a high degree of
family board representationmanage to profit from investments in player contracts as opposedto clubs
which lackthese governance mechanisms.
Research limitations/implications A clear implication is thatthe presence of corporate governance
mechanisms at club level may be value-enhancing. In terms of policy direction, the finding makes the
case that regulatorybodies should consider the imposition of governance mechanismsat club level as a
means to promote actualfinancial discipline and a further ally to current regulationsthat are restricted to
monitoringprocesses tied to accounting data.
Originality/value This study attempts to explain the financial outcomes of player investments by
combining insights from the mainstream governance and family business literature. Prior works in the
field are restricted to testing the directrelation between player investments and performance, but fail to
considerthe potential moderators of this association.
Keywords Financial performance, Human capital, CEO duality, Family board representation,
Football industry
Paper type Research paper
This paper primarily intends to investigate the financial impact of human capital
investments in the professional football industry. The authors elaborate on this issue by
exploring whether internal governance mechanisms affect the relation between player
investments and financial performance, which has been rarely if ever addressed in prior
In the field of football economics and accounting, a general consensus exists that the core
asset in a football club is the human asset and more exactly the exclusive ownership of
football player registration rights (Morrow, 1996;Rowbottom, 2002;Lozano and Carrasco
Gallego, 2011), let alone the ownership of stadium when present. In fact, one can arguethat
the bulk of revenues that accrue to a football club ultimately depends at least to some
Vincenzo Scafarto is
Assistant Professor at
Department of Human,
Social and Health
Sciences, University of
Cassino and Southern
Lazio, Cassino, Italy.
Panagiotis Dimitropoulos is
a Teaching and Research
Associate at Department of
Sport Management,
University of Peloponnese,
Sparta, Greece.
Received 17 May 2017
Revised 10 July 2017
Accepted 20 October 2017
DOI 10.1108/CG-05-2017-0096 VOL. 18 NO. 2, 2018, pp. 289-316, © Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 289
extent on the endowment and “quality” of the human asset. The causal mechanisms that
underlie this contention have been described as follows (Szymanski and Smith, 1997;
Leach and Szymanski, 2015): sporting performance is determined by the quality of players
hired in a competitive market such that in general higher player expenditures lead to higher
league performance, which in turn will generate increased revenues (in terms of
championship participating rights, season and match ticket sales, sales from broadcasting
rights) as a result of increased on-field success. In an attempt to trigger this “virtuous
cycle”, leading clubs in Europe have been paying huge sums for acquiring the services
(rights) of talented players in the transfer market. In this regard, the business advisory firm
Deloitte (2016) in the most recent annual review of football finance reports that on average
85 per cent of additional revenue generated by the “big five” European leagues in 2014/
2015 was spent on wage costs.
While prior research has consistently documented the positive impact of investments in
playing talent on sporting performance and through this on revenue growth (Szymanski
and Smith, 1997;Gerrard, 2005;Leach and Szymanski, 2015), the existing empirical
studies that have analyzed the impact of player spending on profitability (Amir and
Livne, 2005;Dimitropoulos and Limperopoulos, 2014;Mnzava, 2013;Dimitropoulos
and Koumanakos, 2015;Nicoliello and Zampatti, 2016) have produced somewhat
mixed results, such that further research is warranted. Indeed, this is the primary
motivation for this article.
As far as the role of corporate governance is concerned,several recent investigations have
documented the relevance of corporate governance quality in the context of professional
football clubs. For instance, Dimitropoulos (2011) has documented that corporate
governance quality in terms of increasedboard independence, managerial and institutional
ownership and small board size contributes to high-quality financial reporting through
mitigating earnings management behavior by football managers. Dimitropoulos and
Tsagkanos (2012) have found that corporate governance quality leads to greater level of
profitability and viability. Corporate governance quality has also been shown to reduce the
level of debt that clubs decide to issue, thus lowering the risk of financial instability
(Dimitropoulos, 2014). In general, the need for reliable corporate governance at club level
has long been recognized by several researchers (Michie, 2000;Michie and Oughton,
2005;Dimitropoulos, 2010). However, the existing empirical research has not considered
the potential influence exerted by corporate governance mechanisms on the relation
between investments in playing talent and financial performance. This paper alsointends to
address this issue by using a sample of professional football clubs from the first division
(Serie A) of Italian football covering a nine-year time period from the sporting season 2006-
2007 up to 2014-2015.
Italian football provides an interestingresearch setting in terms of ownership structures and
the resulting governance mechanisms, since professional football clubs are characterized
by a high degree of ownership concentration and more specifically, they are fully or
majority-owned by wealthy individuals or families either directly or via corporate holdings.
This type of ownership structure results in the functions of ownership, control and residual
claimant being internalized (Hamil et al.,2010). As a result, business decisions and in
particular those pertaining the level of investments in playing talent can be made with an
aim to maximizing a dominant owner’s or family’s utility function, as club owners essentially
monitor themselves and bear the full financial impact of their decisions. Consequently, they
can either prioritize success on the field of play or profitability, but in the former case,
business models tend to become unsustainable and rational financial management is de-
Considering all the above, we posit that the degree of owners’ involvement in management
(i.e. through a family CEO) and governance (i.e. through family representation on the board
of directors and/or CEO-Chairman dual role) exerts a moderating effect on club financial

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