Introduction
The stiff competition in the modern contemporary business has enabled companies and organizations to adopt different types of governance to suit their unique business targets. Each organization has a set of goals which must be achieved at the end of the trading period. For instance, some companies and organizations have market share objective, maintaining customer loyalty while others target solemnly at maximizing their profits. Due to these factors, proper leadership strategies will be of utmost influence to companies. This paper will extensively analyze the arguments for and against the mutual ownership of football clubs in England.
Arguments for mutual ownership of football clubs
Management of organization dictates that companies should have an organizational balance to determine what roles the shareholders will play and the type of ownership the company is adopting which determines how dividends will be shared. Companies with limited shareholding dictate that in case the company liquidates, the shareholders liability is limited to only the shares owned in the company and therefore no private assets may be acquired to pay its liability.
On the other hand, unlimited shareholders have unlimited liabilities to the company. This implies that during liquidation of the company, these shareholders will be last to be compensated and their private properties can be used to settle the company liabilities. Football clubs in England mainly adopt two major types of governance, that’s the mutual governance and private ownership (Morrow, 1999). Mutual ownership is a type of ownership where the organization is owned by the internal shareholders which eliminate the possibility of external shareholding. In most cases, the directors of the organizations are the majority shareholders.
In English football it is argued that many football clubs are owned by the club supporters. This means that the club members have an upper hand during the election of new directors and it’s assumed that, by allowing club supporters to have ownership status the club enhances fans loyalty to the club (Nash, 2000). In mutual ownership the club is democratically managed in that each member is allowed to vote during key decision making of the organization where the decisions are reached through consensus. Democracy increases the sense of belonging to that certain club hence improving performance efficiency by the members.
Another advantage of mutual ownership is that, the organization is open to new membership without any complications in the process. This is usually encouraged as the larger the shareholders, the greater the amount contributed during the registration process. Many football clubs in England are owned by the club supporters and they have a limited company formation hence the financial status of the members and supporters are highly protected.
For example, during the current financial crisis at Portsmouth football club, the club is said to be experiencing some financial difficulties mainly due to high demand for an increase in player wages, the members’ assets cannot be used to repay these debts (Senaux, 2008). Although football clubs in England originated as a non- profit organizations with the main objective of performing social responsibility to the society, these clubs have modified their organization into business ventures, while still maintaining their initial objective of educating and promoting good morals to the local community.
Another argument for mutual ownership is that in most cases, the English fans who are also owners of football clubs have a very important role to play. The fans invest their private capital to be entertained and any losses incurred in the organization affects them directly. In this case the players have to perform to the expected standards to make the investors recognize the value of their money. Mutual ownership promotes and increases the level of motivation. Having a collective responsibility and a common interest encourages motivation through the formation of effective and winning teams.
Research indicates that the level of employee participation varies directly with the efforts directed at achieving the set objectives though these findings have to be empirically tested. Motivation which is key element in evaluating the success of a company is influenced by the benefits expected (Wilkesmann and Blutner, 2000). Highly paid employees direct all their efforts at meeting the company goals. Football players are paid about the on-field performances and excellent performances warrant greater pay and vice-versa. During mutual ownership dealings, earnings are ploughed back to the organization in form of reinvested profits.
This allows mutual organizations to expand their operations rapidly as members are not issued with dividends at the end a financial year as its common with other forms of business organizations (Katwala, 2000). After the end the English Premier league soccer season which is usually on May, these clubs focus on acquiring new international players to strengthen their squads for the following season as the more trophies a club wins, the larger the fans base. For example the Manchester united, Chelsea, arsenal and Liverpool football clubs have the largest number of supporters because they have won more trophies in the modern football hence increased revenue earnings which enable them to be competitive in the player transfer markets (Martin, 2007).
Arguments against mutual ownership of football clubs
Mutual ownership in the football organization in England has some disadvantages. For instance, due to the form of their organization, these football clubs have a limited source of funds as the organization’s capital can only be acquired through internal contributions, as shares are not sold at the external stock markets.
This constrains and limits the active participation of majority of English clubs in the player transfer markets. When the available funds are limited and teams have limited squads, winning major trophies becomes a challenge. For instance, Arsenal football club which has mutual ownership has not be competitive in the past few years due its limited squad which originated from inadequate purchasing power compared to other European football clubs (Malcolm, 2000).
Mutually owned football clubs have a management challenge in that, high chances of mismanagement is rampant due to the belief that the management cannot be held responsible and accountable for their direct involvement to the club financial dealings. Mismanagement of fund is usually common and the responsible persons are hardly prosecuted. Every company must have clear and precise methods of evaluating the financial performances of the organization. In this regard, strict follow-up should be implemented and legal action taken against responsible persons. The Portsmouth football club is an example an organization where the club funds have been mismanaged and the manager isn’t held responsible (Hamil et al, 2000).
Mutual organization’s members have less concern with the current business operations of the company which influences the noncommittal attitude of the directors leading to unavoidable bankruptcy, loss of jobs and low standards of living. In addition, mutual organizations are formed based on achieving common goals and objectives where the members are supposed to have similar interests and personalities, reality strikes when members adopt different cultures and a conflict of interest arises (Lago et al, 2006).
Club supporters who are still the shareholders may have conflicting opinions with the club managers causing instability to the club operations. Different expectation on the playing tactics has been known as one of the major issues resulting to disagreement between the fans and the manager. Many team managers experience a dilemma on whether to employ an entertaining football strategy and satisfy the fans or apply the famous match winning strategy and win trophies which are always accompanied by cash rewards.
As earlier described, the shareholders lack of motivation may result to noncommittal to the club dealings as mutual organizations are always formed based on providing services to local community where they are established. English football clubs which are managed, controlled and regulated by the Football Association (FA) lacks the freedom to conduct their operations independently. The FA can regulate the maximum number of foreign players each club is supposed to have which in turn limits the continental competitiveness of the English clubs. For example, English clubs are currently performing poorly in European competitions compared to their Italian and Spanish counterpart’s.This demonstrates the effects of mutual club ownerships in the English soccer organization (Michie and Oughton 2006).
Impact of mutual ownership in comparison to privately owned football clubs
Due to the disadvantages associated with mutual ownership of football clubs in England, majority of the English soccer clubs have shifted their focus to private ownership. Clubs which were originally owned by fans and club supporters have been sold to individual owners who promise to employ results oriented strategies to the world’s most loved sport. For the last few years there has been a notion in England that, if football clubs have to succeed in English football, then they must be owned by private companies. Manchester united football club was sold to a private American investor (Kennedy and Kennedy, 2007).
The Malcolm Glazer family purchased the shareholding of the company which resulted to fierce demonstrations by the clubs most loyal fans. After the sale of Manchester united, the club experienced some losses and lost its position as the richest football club in Europe to Spanish giants Real Madrid football club. Taking this context to consideration, once football clubs are managed by private individuals it’s not necessary true that they will have a better financial performance. In this regard, clubs management and the current owner should consider the main objective of the football club.
Chelsea football clubs ‘a club in the premier league’ sold the club to a Russian billionaire in year 2003( Roman Abramovich) after the management changed hands Chelsea performance skyrocketed and won the English premier league in two consecutive seasons (2005 and 2006) this success can be attributed to the proper management of the club by this private investors. Availability of funds has enabled the club to strengthen it squad hence remaining competitive in all major club competition within and outside the European continent ((Michie, 2000).
When football clubs which were initially owned by mutual memberships are sold to individual and private investors, a hostile welcome is extended to the new investor which reduces the fans loyalty to the club. It is well understood that fans usually have an emotional attachment to the football clubs they support. The change of ownership in the Manchester United football club fueled the establishment of F.C United of Manchester which is a rival club formed by the most loyal fans in the city of Manchester.
When previously loyal supporters quit supporting a team, the club must realize a decrease in revenue which is most earned through the sell of match tickets. This indicates how fan’s support can be of great importance to the success of any football club in the world. FC Barcelona, a Spanish football giant has experienced exceptional financial support through excellent management of mutual ownership. The club has a diverse fan base in the world and revenue is earned through club memberships and selling of club merchandise like team’s sporting kits and published club magazines (Hamil et al, 2001).
In private ownership of football clubs, decision making is always done without the complications experienced in the mutually owned clubs. For instance, a private owned club may aim at attaining long term stability and this implies that the short term goals have to be compromised. This decision can be made without any interference form the members and supported of the club. In mutually owned football clubs such decisions are hard to implement as fans are more interested with immediate results. Club managers have been known to get sacked due to pressure from fans who are not satisfied with the short term performances of these coaches. It’s of imperative importance to note that, every football coaches his or own unique strategy (Farquhar et al, 2005).
Private ownership has enabled English football clubs to acquire adequate financial support to fund player transfers which is not the case with mutually owned football clubs. Private investors who have investments in other sectors of the economy provide the needed funds to stimulate the competitive nature of the English football. In the recent years the player transfer market has been filled with unbelievable overpricing of professional players.A player is seen as an investment in a team and research shows that players can bought and sold in the same season as long as the selling price is higher than the buying price.
Due to this factor, the clubs with limited funds are unable to compete fairly with other clubs in the transfer arena (Emery and weed, 2006). Players on the other hand, have become more interested on the wages to be received than the desire and passion to play. Although wages and remunerations are considered as useful tools for motivation, player’s high demands for wages and allowances has caused clubs to go bankrupt (Conn, 2005).
Winning of trophies enhances the organizational revenue recognition and the support received from fans increases about trophies won. In the 2009/2010 premier league season the Manchester City football club experienced improved performance after the club was bought by Saudi Arabian tycoon Sheikh Mansour who provided the required funds to active participation on the transfer markets. Contracting Top class players was made possible enabling the team to finish on the 5th premier league position (Buraimo et al, 2006).
Research has shown that mutual ownership of football clubs in England and Europe cannot promise excellent management and financial supported need for excellent performances. An equilibrium position has to be identified which will balance the fans power and the private investor’s powers. Complete reliance on the mutual ownership will lead to mismanagement of funds caused by lack of accountability and collective responsibility while complete private ownership will lead to fans hostility towards new management’s decisions. The inclusion of professional financial experts and experienced legal practitioners creates the needed equilibrium (Brown, 2008).
Privately owned football clubs in England will influence the mutually owned clubs in that, due to the stiff competition in the football industry and the aggressive nature of English football, the clubs with inadequate finance will not be able compete with the privately owned clubs. By default, private companies usually attract the more experienced managers who are attracted to the high payments and how the club operations are conducted (Banks, 2002).
This means that, experienced management and control of funds is more common in the private companies. Although the football clubs which have a mutual ownership setting may receive incentives and possible bailouts from the government, as they are aimed at providing services to the society, these incentives are usually minimal and football clubs must aim at improving their management operations.
Mutually owned clubs will influence the privately owned football clubs to establish ways and means of nurturing young talent. It’s beneficial to any company to train its employees rather than hiring from competitors, the same applies to football clubs who spend large amount of money contracting the services of the already renowned superstars who are normally overpriced in the transfer markets (Adams and Armitage, 2002).
Conclusion
Based on the above analysis it is candid that English football clubs have experienced a major change in its organization. This has been fueled by the rate at which mutually owned English football clubs are experiencing financial difficulties. On the other hand, club supporters are saving their clubs from facing financial crash. Portsmouth football club has been saved by the establishment of club supporter trust where the fans can contribute and enhance the club’s operations. Football clubs should also aim at devising new and improved strategies of cost reduction and focus on the long term objectives of the club.
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