A Freekick Against Stock Exchange - How Football And IPO Interacts

Author: LawSphereX

Category: General Law

Published: 2026-08-23T17:17:43.242291+00:00

Updated: 2026-08-26T17:12:38+00:00

A FREEKICK AGAINST STOCK EXCHANGE: HOW

FOOTBALL AND IPO INTERACTS

Aditya Singh, B.A., LL.B. (Hons.), National Law University, Jodhpur Deepanshu Verma, B.A., LL.B. (Hons.), National Law University, Jodhpur

ABSTRACT

This article examines the intersection of corporate governance and the financial dynamics of football clubs entering public stock markets through Initial Public Offerings (IPOs). While IPOs provide clubs with much-needed capital to enhance infrastructure and recruit top-tier players, they also present significant challenges. These include increased accountability, intensified stakeholder scrutiny, and financial instability closely tied to on-field performance. Using European football clubs as examples, the article investigates the governance models that arise after an IPO, the risks of stock under-pricing and underperformance, and the misalignment between shareholder expectations and club profitability.

The findings highlight that public listings, although fostering transparency and improved governance, also amplify financial vulnerabilities due to the inherently unpredictable nature of football. The analysis concludes that listing football clubs on stock exchanges is a high-stakes strategy requiring robust governance mechanisms and prudent investor judgment. Keywords: Corporate Governance, Football IPOs, Publicly Traded Football Clubs, Stakeholder Accountability, Financial Volatility, Stock Market Performance, Initial Public Offering, European Football Clubs, Governance Challenges, Shareholder Interests.

INTRODUCTION

Football is not only seen as a sport but as a religion in many European countries. Every club wish to find a balance between profit maximisation and performance optimisation. India is still far behind in comparison of European football culture. In the context of this assignment, the author has only taken European clubs in context. Corporate governance is an important aspect of football clubs or rather than any business which discusses rules and regulations of any corporate organisation and encompassing the rights and liability of shareholders, Board of Directors and employees. For a football club, there are 2 important stakeholders namely fans who support the clubs and local communities.

This article analyses the idea of floating of football club in stock market which is done by the football clubs to generate revenues but historically and statistically speaking has been a blunder to begin with. There are corporate governance issues which can affect the stock prices.

EFFECTS OF GOING PUBLIC

The financial impact of IPOs on football clubs remains underexplored in academic literature. However, some studies, such as those by Cheffins1, have examined the effects on American football teams that went public. According to Cheffins, football clubs typically pursue public listings to secure funding for significant projects, such as constructing state-of-the-art sports arenas. These venues not only attract fans but also entice commercial sponsors to invest, enhancing revenue streams. Additionally, these ventures can bolster income from broadcasting rights, ultimately increasing the stock value of publicly traded clubs. However, Cheffins cautions that going public imposes stricter transparency and accountability requirements, which may limit managerial autonomy and complicate decision-making processes.

2 HISTORY OF IPOs Offering shares to the public may appear to be a straightforward method for raising funds, but historical evidence suggests otherwise. Two key challenges associated with IPOs have been 1 Oh, Chris Kyoosung. Why Are Sports Team IPOs Uncommon? Joseph Wharton Scholars, The Wharton School, University of Pennsylvania, May 2019, at 6.

2 Id.

identified over time: the frequent underpricing of stocks and subsequent underperformance. 3 Studies on IPO trends reveal that underpricing often occurs when the initial offering price is lower than the closing price on the first day of trading. 4 This discrepancy creates a short-term profit opportunity for investors. In the context of sports clubs, it is relatively uncommon for football clubs to go public, and only a limited number of them are currently listed on stock exchanges. A notable drawback of public trading is that the revenue generated often gets redirected toward acquiring new players rather than rewarding shareholders. This lack of returns for shareholders has led several clubs to withdraw from the stock market altogether. Borussia Dortmund is arguably bets example in this situation which is owned by individuals and individuals which are not linked with the football club.

Borussia Dortmund conducted an IPO in 1999 which gave them capital at hand to sign the acclaimed international players and construct and expand their arena which also brought success to the club. The profits made through IPO ensured that the club is financially well off. However, the trouble for the club started in 2003/04 season in which they did not perform well on the pitch. This lead to a having a negative repercussion on stock prices which fell sharply and they were forced to restructure. In 2005, the club was struggling to avoid insolvency issues because of the bad investments made in players and default in rent payment in the stadium. Dortmund’s situation sent shiver in the football market and clubs were reluctant to go public.

EFFECT OF STAKEHOLDER CONCEPT

During the 1970s and 1980s, football clubs primarily operated as utility maximizers, striving to achieve on-field success while maintaining financial stability.5 However, their focus has gradually shifted toward profit maximization, driven by the push to access capital markets and enhance shareholder value.6 The decision to list football clubs on stock exchanges has contributed to the dilution of 3 Jay R. Ritter, Equilibrium in the Initial Public Offering Market, 3 ANN. REV. FIN. ECON. 347, 347-74 (2011).

4 Suman Banerjee, Lili Dai & Keshab Shrestha, Cross-Country IPOs: What Explains Differences in

Underpricing?, 17 J. CORP. FIN. 517, 517-60 (2011). 5 Isidoro Guzmán Raja & Stephen Morrow, Measuring Efficiency and Productivity in Professional Football Teams: Evidence from the English Premier League, 15 CENT. EUR. J. OPER. RES. 309, 309-28 (2007).

6 Borja García & Jo Welford, Supporters and Football Governance, from Customers to Stakeholders: A

Literature Review and Agenda for Research, 18 SPORT MGMT. REV. 517, 517-28 (2015).

concentrated ownership structures. 7 An alternative approach is the stakeholder model, which emphasizes enhanced corporate governance, greater accountability, and increased value for stakeholders. 8 The stakeholder concept holds significant importance in football and has been acknowledged by numerous researchers. Stakeholders are broadly defined as individuals or groups capable of influencing a firm's objectives. In the football context, this includes traditional fan communities and supporters, who generate economic value through ticket purchases and merchandising. Stakeholder theory advocates for fostering a stronger connection between management and the community to promote transparency and ensure better accountability. 9 The accountability in the case of floating a football club is exorbitantly high because there is there is money tied up to it.

This accountability is a double-edged sword because there is one hand that there is transparency which comes in with accountability which gives a deep insight inside the football club and its management. It also gives the power to the stakeholder of decision making as which player to sign and which player to let go. On the other hand, this much accountability always makes decision hard and time consuming. Investing in football clubs is always a high risk because the profits made by the club are used for the maintenance of the club. The profits are also dependent on the performance of club which varies season to season and dependent on multiple factors such as the squad, spirit and other factors which are out of control of the club. This becomes a major concern amongst the stakeholder who in the fear of losing money sell off their stocks which is financially detrimental to the club.

ISSUE OF CORPORATE GOVERNANCE10

Effective corporate governance relies heavily on the transparency and disclosure of information by key stakeholders, including directors and shareholders. Such information can be categorized into two primary types: a. Details regarding the ownership structure, constitutional framework, and overall

7 Id.

8 Thomas Donaldson & Lee E. Preston, The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, 20 ACAD. MGMT. REV. 65, 65-91 (1995). 9 R. Edward Freeman & William M. Evan, Corporate Governance: A Stakeholder Interpretation, 19 J. BEHAV. ECON. 337, 337-59 (1990).

10 The issue of corporate governance is dealt in reference to the English Premier league in United Kingdom which is dealt with Combined Code (CC) and The OECD principles.

objectives of the club. b. Operational data, such as the composition of the board of directors, financial results, assets, liabilities, and strategic plans. Company law obligates clubs to fulfill shareholder requirements by providing essential documents, such as the memorandum and articles of association, which outline the company's constitutional framework. However, many football clubs fail to adhere to this obligation. 11 The integration of a stock market framework can enhance governance by instilling a sense of accountability among owners and directors, who may fear losing their positions or influence if the company underperforms. 12 Shareholders exert pressure on boards to ensure more efficient governance, monitor performance, and maintain oversight through mechanisms like Annual General Meetings (AGMs).

13 For these processes to be effective, shareholders need access to key resources such as the share register. 14 It is also important that the board of directors and shareholders are in constant dialogue and consultations so that the atmosphere of trust amongst the stakeholders is created so that good corporate governance environment can be created. However, to the flip side, the shareholders expect intricate details regarding the performance of the company but disclosure is not done by the football clubs which is against good governance but it is necessary to this. 15

INITIAL PUBLIC OFFERING AND CORPORATE GOVERNANCE

Under the Anglo-Saxon capitalist framework, Initial Public Offerings (IPOs) are regarded as a respectable financial strategy, requiring managers to adhere to market-driven principles.16 Shareholders hold the authority to replace underperforming managers with new leadership if 11 According to research done, still 14% of the clubs have not provided with Memorandum of Association and they are charging for providing with a copy.

12 Sean Hamil, Matthew Holt, Jonathan Michie & Christine Oughton, The Corporate Governance of

Professional Football Clubs, 4 CORP. GOVERNANCE 44, 44-51 (2004). 13 Sean Hamil, Jonathan Michie, Christine Oughton & Leigh Shailer, The State of the Game: The Corporate Governance of Football Clubs, 1 NEW ACAD. REV. 79, 79-92 (2002).

14 Id.

15 Alistair Dawson & Paul Downward, Measuring Short-Run Uncertainty of Outcome in Sporting Leagues: A Comment, 6 J. SPORTS ECON. 303, 303-13 (2005).

16 Gareth Low & Fredrik Karlsson, The Financial Effects of Going Public on Football Clubs (2015)

(unpublished dissertation, Jönköping Univ.) (available at https://urn.kb.se/resolve?urn=urn:nbn:se:hj:diva- 27357).

necessary. 17 However, no definitive link has been established between stock market pressures and improved governance. Instead, IPOs have often been associated with significant financial losses and marginal returns. 18 While the stated goal of IPOs is typically to fund projects like stadium construction or commercial infrastructure, clubs in the English Premier League frequently allocate these funds toward acquiring higher-caliber players. This approach, however, increases wage inflation, often surpassing the profits generated. Consequently, several clubs have faced financial difficulties, leading to acquisitions by wealthy investors, as seen with Manchester United and Chelsea F. C. 19 Strong governance practices prior to an IPO are often reflected in financial stability, which can be bolstered by revenue streams such as television rights.

These revenues attract a broader audience, enabling clubs to recruit superior players, which in turn further enhances viewership and financial success. 20

CONCLUSION

The purpose of the article was to understand the impact of floating a football club in stock market. A football club in the stock market is a dangerous venture because it is dependent volatile circumstances which are out of control of stakeholders. Floating a football club has showed no correlation that it leads to increased performance on the pitch but it has been shown that lacklustre performance on the pitch has a detrimental effect on the stock prices. The author has also laid down the good corporate governance guidelines which are followed by the football clubs and its correlation to the stock market. The shareholders who are part of football clubs are exposed to losses and it is the opinion of the author that the possible investors advise discretion while investing in the firm. 17 Cogburn, J. D. & Schneider, S. K.

, The Quality of Management and Government Performance: An Empirical Analysis of the American States, 63 PUB. ADMIN. REV. 206, 213 (2003). 18 Demir, Ender & Danis, Hakan, The Effect of Performance of Soccer Clubs on Their Stock Prices: Evidence from Turkey, 47 EMERGING MKTS. FIN. & TRADE 58, 70 (2011). 19 Botoc, Claudiu, Mihancea, Eugen, & Molcut, Alin, Football and Stock Market Performance Correlation: Evidence from Italy, 66 SCI. ANNALS ECON. & BUS. 1, 4 (2019). 20 Alessandro Baroncelli and Umberto Lago, ‘Italian Football’ Journal of Sports Economics, Vol. 7, Issue 1, 13-

28 (2006).