Staying Alive In The Billion-Euro Game

Borussia Dortmund is bringing investors on board, in order to be able to keep up financially. The development is, however, not a new trend and only advances the commercialization of the Bundesliga.



The last time VfB Stuttgart became a national champion was in 2007. It was "the last registered football club" to have achieved this feat, said the club's president Bernd Wahler in a newspaper interview. The probability of a registered football association winning a national championship again is very low, he added. The club has not won any titles since its last victory in 2007. It has been placed in the lower third of the rankings table.



However, that is expected to change with the help of wealthy shareholders. VfB plans to phase out its license players division and transform the club into a public holding company, in which 25 percent of the shares are expected to be sold for about 70 million euros. Automaker Daimler could become the club's largest shareholder after the share issue. At present, the company pays the association for using the stadium name.



While Hamburger SV is set to follow this example, another club Hertha BSC Berlin already sold a stake worth 60 million euros to the investor KKR Financial Holdings. Henning Vöpel, senior economist for health and sports economics at the Hamburg Institute of International Economics (HWWI), says the clubs are following the trend of the times. "The number of associations operating like a classic sports club is in decline. They are changing their legal form to become more competitive and tap news sources of financing," Vöpel explained.



Learning from the masters



The club FC Bayern Munich has been a role model. The record champion, even in monetary terms, has changed its status into a public holding company. Adidas, Allianz and Audi among themselves hold 24.9 percent of the club's stake. The insurance company Alliance alone paid 110 million euros to purchase an 8.3 percent stake. The club's shares, however, are not listed on a stock market.



It is a different story at the club Borussia Dortmund. After it nearly went bankrupt ten years ago, the club converted into a joint-stock company. At present, it is the only German football club whose shares are listed on a stock exchange. The club is also considered to be the only real competitor to FC Bayern Munich - both on and off the field.



Borussia Dortmund wants to further narrow the financial gap between it and the Munich-based club. The issuing of new shares is expected to boost the Dortmund's coffers by more than 100 million euros.



The sporting goods company Puma, the insurer Signal Iduna and the specialty chemicals group Evonik are planning to acquire significant stakes and become the club's major share holders. This development is welcomed by FC Bayern.



Issues with the sponsor



This problem affects, in particular, the club FC Schalke 04. The football association is still a registered club and it doesn't sell any shares. The club relies on sponsors' money for its financial needs. Russia's energy giant Gazprom is its current sponsor and that poses a problem for the club.



According to the 2014 "sponsorship" study conducted by the TU Braunschweig, a German university, and released on August 19, the image transfer works in both ways: Gazprom pays Schalke 04 a lot of money to benefit from the club's positive image. But Schalke 04 is currently suffering from the bad image of the state-controlled Russian energy giant. The criticism over the Kremlin's current policy is having a negative impact on the club's public image.



The model "Sports Association"



The dependence of the clubs VfL ​​Wolfsburg and Bayer Leverkusen on sponsors is even greater. The example of Bayer 05 Uerdingen shows these clubs' high-reliance. Bayer 05 Uerdingen, which is also sponsored by Bayer like the Leverkusen team, used to play in the Bundesliga as well as in the European cup. But when Bayer ended its sponsorship, the club fell to sixth level, only to compete in the Lower Rhine League.



Leverkusen and VfL ​​Wolfsburg, which is sponsored by Volkswagen, are derided by many football Bundesliga fans as "factory football club" or "company sports groups." Nevertheless, they have some things in common, HWWI economist Vöpel said. These clubs are exempted from the so-called "50 + 1" rule, which specifies that the association or club has to have a controlling stake, with the aim of preventing commercial interests from gaining control, he explained.



Protection against over-reliance



It is actually quite reasonable, analyst Vöpel stressed, pointing out that there is always a risk of shareholders interfering in the club's decision-making. The situation at the club Hamburger SV demonstrates the potential risks. For instance, the club is unable to take any decision without the consent of Klaus-Michael Kühne, head of the global transportation and logistics company Kühne + Nagel. The clubs TSG Hoffenheim and Hannover 96 are also heavily dependent on their patrons, SAP founder Dietmar Hopp and Martin Kind, head of the hearing aid devices maker Kind.



But the voting rights of shareholders are always organized in the same way: who has the money will also have the final say. Henning Vöpel says that "huge influence can be exerted even by owning a minority stake."



The last clubs



Associations that are still registered clubs and are not dependent on big sponsors can only be found in the lower half of the table. These are clubs such as Augsburg, Mainz, Freiburg, and Paderborn, among others. And they will continue to remain there, Vöpel said. Even if they "work hard, they repeatedly fall back," the expert added.



The associations Hertha BSC, HSV and VfB Stuttgart, the factory teams from Wolfsburg and Leverkusen, Borussia Dortmund and FC Bayern all point to one thing: The classic "registered club" is an outdated model in the league. Henning Vöpel believes commercialization of the Bundesliga will continue further. "This trend is spreading and, in the end, forcing each individual club to actually open up."