Are diversified football clubs better prepared for a crisis? First empirical evidence from the stock market

ABSTRACT

Research question

In this short article, we explore whether highly diversified professional football clubs, from an investor perspective, are better prepared for an unpredictable global crisis such as the COVID-19 pandemic than undiversified clubs.

Research methods

We apply event study methodology to analyze stock returns of football clubs during the first wave of the COVID-19 pandemic.

Results

Analyzing a dataset comprising 5380 daily stock returns of 21 publicly listed football clubs in Europe during the season 2019–20, our results suggest that investors preferred stocks of clubs with high levels of product diversification during the COVID-19 shock period. Vice versa, we observe a moderate negative effect of geographic diversification, i.e. a club’s internationalization efforts. Both effects are robust across various model specifications and after adding several control variables.

Implications

In the future, football executives may want to increasingly apply product diversification strategies to prepare for future crises better. In contrast, at least during a global health crisis, further expansion to international markets requires caution.

KEYWORDS:

• COVID-19
• football/soccer
• diversification
• public health
• strategy

Acknowledgments

This paper did not receive any specific grant from funding agencies in the public, commercial, or non-profit sectors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The ECA is an advocacy group for professional football clubs in Europe and consists of 246 member clubs (ECA, 2020).

2 It is worth noting that on the field, due to COVID-19, PTSCs face a new reality, too (e.g., Bryson et al., 2020).

3 One must note that such relatedness may refer to both GD and PD (Vachani, 1991).

4 On a separate note, multiple authors have emphasized the crucial role of brands when it comes to diversification strategies of PTSCs. Pritchard et al. (2020), for instance, highlight how English football clubs establish brand portfolios including business clubs, comedy clubs, and restaurants. On a similar notion, Couvelaere and Richelieu (2005) discuss how French football clubs may benefit from their brand equity, for example by rendering their merchandise appealing to fashion fans. Overall, brand capabilities still represent a largely untapped potential in professional football (Manoli, 2020).

5 For a more detailed discussion of the categorization of diversification approaches in professional sports, see, for example, Schmidt and Holzmayer (2018).

6 To capture all publicly listed European football clubs, we started with the 22 components of the STOXX Europe Football using the database Thomson Reuters Refinitiv Eikon. Two clubs, namely FK Teteks Tetevo from Macedonia and Ruch Chorzow from Poland, were excluded due to a lack of price availability on more than 50% of the trading days. Next, we added Manchester United since it is listed on the New York Stock Exchange and thus not part of the STOXX Europe Football. Altogether, our final sample consists of 21 clubs.

7 It is, however, important to note that analyzing discrete rather than logarithmic returns does not alter the overall tone of the results presented below.

8 Additional results are available from the corresponding author upon request.

9 To mitigate concerns regarding subjectivity, we conducted an interrater agreement assessment by two independent raters (LeBreton & Senter, 2008). The results indicate 96% of consensus. The remaining divergences were resolved based on a joint review of the respective data points.

10 We chose only one of the variables suggested by Fleischmann and Fleischmann (2019) since we identified multicollinearity issues when considering multiple variables.

11 To operationalize the relative importance of international sponsors, we compute the percentage of international sponsors among first category sponsors. Each club typically lists three to five sponsors that belong to the first category (e.g., AS Roma, 2020).

12 Ad-hoc stock announcements are obtained from Thomson Reuters Refinitiv Eikon. No announcements are reported for four clubs, namely AIK, BES, FEN, and TRA.

13 Official competitions include all games in the league, the cup, the league cup, the super cup (match between current league champion and current cup champion), the Champions League, and the Europe League.