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1
International Association of Sports Economists
(IASE) 10th Annual Conference
Gijón, Asturias/Spain, Universidad Laboral, May
9-10, 2008
Session X Institutional Issues in the European
Soccer
Institutional Economics of Minor League Football
in Europe
Findings from the German 2nd 3rd Division
A joint research of the RUB Dept. of Sport
Management
2
Overview

• Introduction- minor leagues in European football
• Some Theoretical Considerations- institutional
  economic characteristics incentives- marketing
  strategies in minor leagues
• The German 2nd 3rd Division of Football-
  institutional background design - comparative
  analysis of economic key figures
• Marketing Strategies Case Studies - shooting
  stars, defenders, yo-yo teams fallen
  angels
• Conclusion

3
Introductionminor leagues in European football

• Europ. minor leagues (in football) Astonishing
  lack of research
• Literature on football dominant in European
  sports economics
• BUT little knowledge on (1) national team (vs.
  club team) competitions, (2) minor leagues in
  club football, (3) impact management of
  promotion/relegation, (4) business strategies in
  football (esp. of small or average clubs)
• Comparative approaches missing (e.g. club
  location, other team sports)
• Relevance of econ. analysis of Europ. minor
  leagues (in footb.)
• Real institutional trends league reforms in
  European football
• League club management advice esp. coping with
  financial distress
• Basic research collecting facts figures (data
  bases), theoretical description explanation of
  structures, incentives, market results
• The German case is illustrative insightful!
• Introduction of national 3rd division planned for
  the season 2008/09
• (Lower) part of Big Five but post-World Cup,
  positive econ. trend

Specific economics of minor leagues?? Strategic
advice for league club management!(method
comparative statistics case studies)
4
Some Theoretical Considerationsinstitutional
economic characteristics incentives

• Minor leagues clubs (in football) as product
  markets
• Intermediary markets (rank-order of league
  divisions)exogenously defined product quality,
  only temporary stability (i.e., one season)
• Higher impact of promotion/relegation compared to
  1st divisionupper lower bound of (market)
  performance affected (sandwich position)
• resource-weak environments low/no TV revenues,
  many small town clubs, maybe high local
  competition, maybe weak club/business locations
• Industrial institutional economics of minor
  leagues
• Arms (or rat) race closer than in the top league
  (European competitions aside) struggle on
  promotion/relegation (rank-order contest,
  cut-throat competition)
• Exaggerated betting on or bidding for
  promotion attractive/lucrative risk of sunk
  costs the winners curse
• Positionality adverse signaling
  dysfunctional branding by labeling the league
  2nd 3rd etc.
• Strategy (and incentives) follows structure (or
  vice versa?)
• Chandler (1962) vs., e.g., Bower (1970) SSP
  debate
• Strong incentives for catching up
  (marketing/sporting) strategies
• Investment decision highest Return-on-Inv.
  and/or strategic leverage? ? invest in legs
  (players), stones (stadium) or white collars
  (managers)?

Strategic management implications in more
detail
5
Some Theoretical Considerationsmarketing
strategies in minor leagues

• Creating competitive advantage in general
  business
• Generic strategies (Porter), product-market
  strategies (Ansoff), etc.
• Cost vs. quality leadership, focusing (niche
  strategy), diversification
• Innovation, market entrance, market
  enlargement/diffusion
• Growth strategy, mergers acquisitions
• Specific strategic options for minor league teams
• Aggressive growth (up or out ? sporting
  success first)
• Hit-and-run competition (consolidate in the
  major, attack in the minor league ?
  sporting-financial balance)
• Defending the market (just stay in the league ?
  financial viability first)
• Turnaround or rebalance financial and sporting
  success(reestablish competitiveness ? after
  mismanagement, bad luck on the pitch)
• Result strategic success competitive position
  (strategic groups)
• Shooting stars
• Defenders
• Yo-yo teams
• Fallen angels/One hit wonder

Where to start (pitch vs. stadium office)?
How to stay competitive? Catching up?
Repositioning? Demanding!!!
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The German 2nd 3rd Div. of Football
institutional background design

• 1963 74 introduction of a national 1st
  Bundesliga
• so-called Regionalliga (now 3rd div.) was the
  2nd div. with five tracks (north, west,
  southwest, south Western Berlin city league)
• 1974 94 introduction of a national 2nd
  Bundesliga
• until 1981 in two tracks (north south), then
  one track
• abolition of Regionalliga, frequent changes of
  3rd div. structure
• 1991/92 48 teams in two-track 2nd BL 92/93 24
  teams, one track
• 1994 2008 introd. of the Regionalliga as
  general 3rd div.
• highest amateur league, but actually
  professional (later with audit)
• until 2000 four tracks of 18 teams each (north,
  northeast, west/ southwest south), then 36
  teams in two tracks (north south)
• 2008 onwards introduction of a national 3rd
  Bundesliga
• one-track 3rd BL of 20 teams 4th div.
  three-track RL (18 teams each)
• 5th div. Oberliga of regional FAs, several
  tracks

? many reforms, trend towards national
one-track leagues indicator of
professionalization
7
The German 2nd 3rd Div. of Football
institutional background design
8
The German 2nd 3rd Div. of Footballcomparative
analysis of economic key figures

• Features of the data set
• in total 241 teams in two/three (football)
  divisions of four team sports(football
  benchmark others ice hockey, handball,
  basketball)
• quantitative data (mainly cross-sectional)
  about 75 variables per team (88 football teams,
  1st 3rd div.) (specificity socio-economic
  data on the team location)
• qualitative data comprehensive experts
  interviews (about 1½ h) 145 in total (52 on
  football, i.e., 59 of all teams)

9
The German 2nd 3rd Div. of Footballcomparison
of league averages (season 2005/06)
(league averages) 1st BL 2nd BL RL total RL North RL South
founded 1.72 2.06 2 2.33 1.71
club members 20,959 3,476 1,548 2,083 1,073
budgets in million 34.62 8.38 2.81 3.83 2.14
stadium capacity 48,963 24,241 17,062 20,609 13,242
attendance 40,333 12,836 4,141 5,828 2,324
city size (inhabitants) 702,882 228,513 256,810 382,505 121,446
location ranking (prognos) 112.11 140.67 135.81 166.07 103.23
unemployment 15.40 13.84 13.43 16.17 10.47
6 x
team data
4 x
3 x
3 x
3 x
location data
stands for 1 before 1900
2 1900 1945
3 1946 - 1990
4 after 1990
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The German 2nd 3rd Div. of Footballaverage
financial impact of promotion/relegation
source DFL (Bundesligareport, 2007, p.179)
Promotion
(club averages in thousand ) 2nd div. 02/03 to 2004/05 promotion to 1st div. 1st div. 03/04 to 05/06 following year Difference between 1st and 2nd div.
revenue 20,133 33,779 67.8
costs 20,628 31,538 52.9
operating profit -495 2,241
Relegation
(club averages in thousand ) 1st div. 02/03 to 04/05 relegation to 2nd div. 2nd div. 03/04 to 05/06 following year Difference between 1st and 2nd div.
revenue 27,775 19,795 -28.7
costs 27,210 21,491 -21.0
operating profit 565 -1,696
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The German 2nd 3rd Div. of Footballaverage 3rd
div. club finances over time (north)
(club averages in t) season 2003/03 season 2003/04 season 2004/05 season 2005/06
sponsorships 1,046 1,106 1,108 1,466
gate receipts 422 831 1.088 933
TV revenue 548 649 570 819
miscellaneous 1,410 1,101 1,746 1,014
total 3,426 3,687 4,512 4,232
in 1,ooo
source DFB
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The German 2nd 3rd Div. of Footballaverage 3rd
div. club finances over time (south)
(club averages in t) season 2003/03 season 2003/04 season 2004/05 season 2005/06
sponsorships 1,451 1,296 898 1,176
gate receipts 309 374 341 336
TV revenue 644 686 424 409
miscellaneous 1,040 1,045 735 787
total 3,444 3,401 2,398 2,708
in 1,ooo
source DFB
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The German 2nd 3rd Div. of Footballcomparison
between team sports (season 2005/06)
Budgets (in m)
team sport mean maximum minimum of club data
1st div. football ice hockey handball basketball 34.6 5 2.7 2.2 60 8 5.3 5 14.5 2.7 1.2 1.05 100 100 100 100
2nd div. football ice hockey handball basketball 8.4 0.8 0.6 0.2 15 1.15 0.9 0.4 4.5 0.5 0.2 0.11 100 14 21 13
3rd div. football 2.8 6.4 0.96 46
x 6,25
x 4,5
x 11
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The German 2nd 3rd Div. of Footballcomparison
between team sports (season 2005/06)
Attendance
team sport mean maximum minimum capacity utilization of club data
1st div. football ice hockey handball basketball 40,333 6,064 4,484 3,519 72,346 12,453 10,484 6,922 20,175 2,489 1,944 2,500 83 70 68 78 100 100 100 100
2nd div. football ice hockey handball basketball 12,837 2,022 952 934 40,803 3,179 1,831 2,187 3,860 1,243 539 249 52 48 50 62 100 100 100 100
3rd div. football 3,241 17,231 462 23 100
x 3
x 4,7
x 3,8
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The German 2nd 3rd Div. of Football Explaining
Club Budgets two regressions
Model 2
Model 1
Dependent variable club budgets
Dependent variable club budgets
Explanatory variables B Beta Sig.
2nd div. (dummy) -34.622 -.792 (-10.461) .000
3rd div. (dummy) -32.000 -.937 (-12.379) .000
Explanatory variables B Beta Sig.
2nd div (dummy) - 18.786 -.569 (-5.701) .000
3rd div. (dummy) - 21.483 -.609 (-5.408) .000
corporation (dummy) regional ranking local competition (team sports) stadium size attendance 6.486 .013 1.502 -2.85E-006 .000 .197 (2.886) .090 (1.442) .146 (1.982) -.003 (-.025) .296 (1.833) .006 .157 .054 .980 .074
R2 78
R2 87
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Marketing Strategies Case Studiesmarket
dynamics strategic groups
Sporting success league fluctuation
(league averages) 1st div. seasons 2nd div. seasons season2006/07 season 2005/06 season 2004/05 season 2003/04 season 2002/03
1st div. 27 8 18 15 15 13 15
2nd div. 12 9 18 11 9 6 6
3rd div. north 2 4 19 12 11 8 8
3rd div. south 0,4 3 18 12 11 11 11
Strategic groups

• Fallen angels / One hit wonder
• Union Berlin
• Preußen Münster
• Waldhof Mannheim
• SSV Reutlingen
• SSV Ulm

• Yo-yo teams
• Eintracht Frankfurt
• VfL Bochum
• Energie Cottbus

• Defenders
• Erzgebirge Aue
• Holstein Kiel
• SV Wehen
• Greuther Fürth

• Shooting stars
• TuS Koblenz
• Arminia Bielefeld
• FC Augsburg

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Marketing Strategies Case Studiesshooting
star e.g. FC Carl Zeiss Jena
Sporting financial success
season league budget in m attendance
02/03 4th div. ca. 0.9 --
03/04 4th div. ca. 0.9 --
04/05 4th div. ca. 0.9 --
05/06 3rd div. 1.7 5,747
06/07 2nd div. 6.5 8,600
Stadium
Club location
name size year of renovation stadium type
Ernst AbbeSportfeld 12,000 2006 multifunctional
population prognosranking per-capita income in unem-ployment
102,634 high future opportunity 14,650 14.3
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Marketing Strategies Case Studiesdefender
e.g. Wacker Burghausen
Sporting financial success
season league budget in m attendance
02/03 2nd div. -- 4,703
03/04 2nd div. 2.8 4,632
04/05 2nd div. 6.3 5,523
05/06 2nd div. 7.2 4,658
06/07 2nd div. 8.5 5,966
Stadium
Club location
name size year of renovation stadium type
Wacker-Arena 8,400 2002 multifunctional
population prognosranking per-capita income in unem-ployment
18,245 high future opportunity 15,936 9.4
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Marketing Strategies Case Studiesyo-yo team
e.g. 1. FC Köln
Sporting financial success
season league budget in m attendance
02/03 2nd div. 20 23,681
03/04 1st div. 34 36,911
04/05 2nd div. 22 33,901
05/06 1st div. 43.5 48,942
06/07 2nd div. 34 42,331
Stadium
Club location
name size year of renovation stadium type
Rhein Energie Stadium 50,997 2003 multifunctional
population prognosranking per-capita income in unem-ployment
965,954 high future opportunity 18,100 15.1
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Marketing Strategies Case Studiesfallen
angel e.g. RW Oberhausen
Sporting financial success
season league budget in m attendance
02/03 2nd div. -- 5,782
03/04 2nd div. 4.5 6,267
04/05 2nd div. 5 5,594
05/06 3rd div. ca. 3.5 2,852
06/07 4th div. -- 2,596
Stadium
Club location
name size year of renovation stadium type
Niederrhein Stadium 21,318 2004 multifunctional
population prognosranking per-capita income in unem-ployment
220,033 balanced opport.-risks 15,411 16.4
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Conclusion

• Analyzing minor leagues in European (football)
  sports fruitful for future research
• Strategic perspective should be more intensely
  pursued(sport policy, league management, club
  management)
• But - Troublesome data collection-
  Relationships complex for empirical testing
• Further research our next steps- Inference
  testing of hypotheses- Content analysis of
  experts interview (success factors?)

22
International Association of Sports Economists
(IASE) 10th Annual Conference
Gijón, Asturias/Spain, Universidad Laboral, May
9-10, 2008
Session X Institutional Issues in the European
Soccer
Institutional Economics of Minor League Football
in Europe
Findings from the German 2nd 3rd Division
A joint research of the RUB Dept. of Sport
Management