OBJECTIVE

• To learn how the environment and cultural values may influence a professional football club.
• To identify the influence of these values in the Profit and Loss (P&L) account.

CONTENTS

• Read PDF case and answer the 5 questions stated at the end of the document.

—

Question 1. What are the main threats to the club’s business model in the short term? Identify the main threats and justify the answer

Question 2. What could the club do to prevent the eventuality of a local talent drain? Suggest hypothetical solutions in case local talent would not be enough to sustain the club at top level. 

Question 3. In an environment of high connection with club members, what could be done to increase the attendance of nonmember fans? Propose 3 specific initiatives and actions.

Question 4. What would be the best strategies for the club to allocate the profits? Justify your answer with specific examples. 

Question 5. If you were the club’s decision-maker, would you try to change the club’s transfer philosophy? You should develop the answer explaining pros and cons of the decision taken

Athletic Club Business Model

A case study on Athletic Club, one of the most
unique organizations in world football, by Dr.

Oliver Seitz and Matheus Girardi

In the first edition of the Football Focus, we have selected a club
that we believe to be one of the most unique organizations in world
football.

While football clubs tend to spend vast sums of money on finding
and signing the best talent from around the world, Athletic is loyal to
its tradition and limits recruitment solely to talent from the Basque
region.

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Football Business

Football Business

Despite being a seemingly simple code of practice, this philosophy
affects the entire business structure of the club.

For any club, this self-imposed restriction on talent acquisition
would have an immense negative impact on performance, as clubs
in La Liga are able to attract top players from all over the world.

Yet, despite the very limited catchment area for talent, Athletic
constantly finishes in the top half of the table and has never been
relegated from Spain’s top tier competition, which is something that
only Barcelona and Real Madrid have also achieved.

Off the pitch, the club also excels while facing the same
geographical restrictions. Despite being located in a region that
does not rank among the most populated areas of the country,
Athletic’s newly refurbished stadium, one of the top football venues
in the country, has one of the largest average attendances in Spain.

The club’s finances are thriving. Equity value is increasing,
revenues are at an all-time high, debt is low and reserves are solid.

This analysis will focus on understanding how Athletic Club
manages to combine this successful financial performance with
steady on-pitch results, while at the same time it resists the
competitive demand for transfers and does not turn away from its
traditions and local values.

How does Athletic do it? And what other football clubs around the
world can learn from their business model? Let’s find out.

BACKGROUND

Located on the north of Spain, Bilbao is the heart of the Basque
Country, one of the 17 autonomous communities of Spain. The
Greater Basque Region also comprises areas from other
autonomous communities and from France.

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The Basque Country has battled throughout history to preserve its

identity and liberty, and right to self-governance. Today, despite

being part of the Spanish state, it is widely recognized as one of the

most autonomous communities in Europe.

The region has around 2.2 million inhabitants (the Great Basque

Region has around 3 million). Bilbao is the largest city, with a

population of around 350,000 people, and is the eighth largest city

in Spain. Bilbao’s metropolitan area is significantly larger, reaching

around 850,000 people in total. Although the metropolitan area is

the fifth highest populated area in Spain, it is relatively small when

compared to other European urban concentrations.

The Basque Country’s strong economy, based on manufacturing

and mining developed long ago, has successfully adapted to

modern times with the recent growth of the service industry. The

GDP per capita of the region is 30% higher than the Spanish

average and a number of local companies are ranked among the

richest in Europe.

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SUCCESSFUL HISTORY OF PERFORMANCE

As in many coastal industrial regions across the globe, football

arrived in the Basque Country in the late 19th century and quickly

became the region’s most popular sport. Up until the mid-20th

century, the club was a major competitive force in La Liga, often

reaching the first or second place in the competition. Athletic Club

has won 8 La Liga titles and 23 Copa del Rey trophies, the last

being the double in the 1984/85 season.

In more recent times, the club has been out of the fight for the top

two positions, but has guaranteed a place in European competitions

by finishing near the top of the table in the past four seasons:

The club’s recent performance may not be as outstanding as it
once was, but this does not seem to have had an impact on the
number of fans attending the stadium.

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HIGH AND STEADY ATTENDANCES

Considering the size of Bilbao, Athletic’s stadium crowds are
impressive, reaching the equivalent of 10% of the city’s population
per match. Furthermore, attendance levels have been steady
throughout the years, regardless of how well the club performs in
the league.

This indicates a very strong connection between the club and its fan
base that goes beyond the on-pitch results, highlighting the social
role that the club plays in the region as a symbol of the Basque
culture.

In the 2013-14 season, the club’s stadium, San Mamés, underwent
a period of redevelopment, which temporarily reduced its capacity
from 40,600 to 35,686 people. In the following season, the
redevelopment was completed and the stadium’s capacity
increased to 53,289 people. With the new expanded facilities, there
was a hike in average attendance, but average utilization fell from
around 90% to less than 80%:

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The number of club members also increased significantly with the
new stadium. Curiously, average attendances are generally lower
than the total number of club members, indicating a stadium filled
with a very loyal fan base but with a low percentage of new fans:

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MORE MONEY, CONTROLLED COSTS

The drop in utilization levels at the club’s new home has not had
any impact on the club finances. In fact, completing the new San
Mamés, while playing in the Champions League in the 2014-15
season and reaching the quarter-finals of the Europa League in
2015-16, combined with increasing broadcasting revenues from La
Liga, provided the club with a strong boost in total revenues:

Commercial revenues appear to have been affected by the global
financial crisis, losing over half their value between 2009-10 and
2014-15, but have regained pace since then.

For clubs with a regional fan base and market such as Athletic, this
decline is understandable. Furthermore, the low importance of this
revenue stream when compared to other sources resulted in a
small impact on the club’s overall finances.

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Curiously, taking part in European competitions has had little
influence on both the Commercial and Membership revenues, the
latter being much more impacted by the redevelopment of the
stadium – further evidence of the loyalty of the club’s fan base.

The other source of revenue derived from the direct relationship
between the club and the supporters, Sales of Goods, has also
been remarkably stable throughout the years. This is further proof
of the powerful relationship that Athletic cultivates with its fans and
shows again how the club is unaffected by on-pitch performance:

As a general rule for football clubs, and especially in a league
dominated by few clubs such as La Liga, growth in revenues would
typically mean a subsequent growth in costs associated with
players’ salaries, as clubs seek to maximize on-pitch results rather
than any other KPI at the same time as they compete in a more
unequal financial environment. However, at Athletic Club, the
proportion of revenue spent on players’ salaries has slightly
decreased over the years.

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Remarkably, the capacity of the club to maintain the level of
performance without overspending resources is also seen on the
transfer market, as the amount that Athletic spends in acquiring
new players is very low when compared with the total expenditure
by other La Liga clubs:

Source: Club annual accounts and CIES Football Observatory Monthly Report

The difference is immense. From the 2009-10 season to the 2015-
16 season, the total money paid by all La Liga clubs in transfers
was €3.14 billion, of which Athletic was responsible for only €47
million, only 1.5% of the total amount.

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HOW DOES ATHLETIC DO IT?

The main reason behind this difference is Athletic’s famous
philosophy committed to only developing, signing and fielding
players that have Basque origins or that were developed by a
Basque club.

This unwritten rule followed by the club for over a century, which
undeniably helps to promote local Basque values to the global
football audience, has a profound impact on the business model of
the club.

By self-limiting the number of talents available for the club to the
historical connections to one small geographical area, it is little
surprise that Athletic focuses on developing young local talent, as
many other clubs around the world do, especially those with less
financial resources.

Unsurprisingly, the number of players joining the professional
squad promoted from the academy often surpasses the number of
players that the club brings from other clubs:

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Source: transfermarkt.com

However, what really sets Athletic Club apart is that when a
talented player starts generating demand from other clubs,
Athletic’s best interest is in keeping the player rather than profiting
from the transfer, as the club cannot find a direct substitute to the
talent from the general transfer market.

With this scenario, the club’s strategy is to sell only players with
maximum value, such as Javi Martínez to Bayern Munich and
Ander Herrera to Manchester United, retain most of the revenue
from them and reinvest just a small proportion each year in the
overall market:

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These two high-profile transfers in the past few years combined
with the low expenditure in buying Basque players have generated
a significant net value in the transfer market for the club:

The accumulated value from transfers, combined with the increase
in revenues and the compulsory controlled expenditure, have
changed the financial landscape of the club. With stronger financial
resources, Athletic has almost managed to clear its long-term and

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short-term debt in the past few years:

As Athletic is one of the few Spanish clubs that has retained a non-
profit association status, the positive financial results cannot be
distributed in dividends to shareholders, so they are retained by the
club. Consequently, Athletic’s equity has improved a lot in the past
few years:

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The combination of the impossibility of distributing dividends
together with the limited market available to spend money on
transfers, and no need for immediate financial concerns with the
recently redeveloped stadium, has allowed the club to improve its
short-term financial conditions, increasing the level of cash
available and even allowing itself the luxury of allocating almost
€35 million in short-term financial investments:

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ATHLETIC’S BUSINESS MODEL

The improvement in the club’s finances is remarkable, and yet it is
achievable mainly because of Athletic’s unique business model,
where increasing financial resources from low-risk sources and self-
imposed limitations on expenditure and restriction on dividends
generate the cash that has been lately transformed into short-term
financial investments.

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Fan-related revenue is historically steady and disconnected from
on-pitch performance, therefore is unlikely to change in the near
future.

Broadcasting revenue will increase due to new La Liga agreements.
Because Athletic’s performance in the league has also been steady
and is very unlikely to result in relegation, income from broadcasting
can also be considered low-risk.

Corporate revenue has been slowly declining, but represents only a
small fraction of the overall income and therefore, even in the
eventuality of a further sharp decrease, will have little impact on the
overall operation of the club.

Competition revenue is uncertain by nature, but, due to the club’s
controlled expenses, this volatility will impact mainly on the excess

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cash generated by the club and not on the overall financial picture.

With the large majority of expenses going to pay the salaries of a
squad that has a small turnover of players from one season to
another, it is safe to argue that the club management is under
control and that the business model of the club at this moment is
functional and well established.

WHAT’S NEXT FOR ATHLETIC?

Athletic‘s current situation is complex and adds to the uniqueness
of the club. Revenues are higher than ever, costs are under control
and debt is almost non-existent. There is no indication at the
moment that this will change dramatically in the next few years. In
such a scenario, any other football club would either reinvest the
money on transfers to improve the squad or distribute dividends to
the shareholders. Athletic cannot do either.

Sticking to its self-created philosophy and tradition regarding the
eligibility of players, the club cannot seek for players outside the
Basque region, which greatly limits the amount the club can spend
on transfers due to the lack of talent available.

Holding on to its non-profit status, the club needs to reinvest the
money on itself. However, with a new stadium and good training
grounds already in place, there are also limited options for
reinvestment in infrastructure on its football operations – none that
would demand a significant expenditure by the club.

The challenge that Athletic now faces is an unusual question of
where to allocate the money derived from the expected further
growth in income.

The club needs to have strong cash reserves to cope with the
unlikely possibility of severe underperformance that could mean

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relegation. As the club has not been in this situation before, it is a
bit hard to estimate the impact, therefore a good contingency plan
will prevent any eventual damage to the club’s operation, especially
the expected fall in broadcasting revenues.

With strong reserves, the club can now focus on filling the empty
seats in its new stadium, a problem that has arisen with the
increased capacity of the venue. This could be achieved by
increasing the work with local supporters on different fronts or by
being more aggressive in boosting ticket sales to external
audiences.

The club could also start to promote its female team more, and also
other sports activities. Eventually, the club could also work as a
catalyst for further non-sport-related community investment, by
funding further positive impact projects, creating a post-modern
model for a football club where the riches obtained from different
sources of revenue are redistributed in the interest of football fans
and also the interest of the overall community.

However, enforcing the local talent recruitment policy is a priority.
The presence of other Basque clubs such as Real Sociedad and
Eibar in the top tier of Spanish football reduces the availability of
local talent, as eligible players are also tempted to join them. The
growth in revenues of these clubs increases the difficulty of
approaching their players, as they can resist the transfer if the value
does not meet their financial expectations. A shortage of local talent
is one of the greatest risks that Athletic faces to its business. The
club needs to have mechanisms in place to guarantee the
development of top-level players continuously.

WHAT DOES OTHER CLUBS CAN LEARN?

The unique socio-cultural environment and transfer philosophy of
Athletic makes it a very difficult example for others to follow. Few
clubs are located in a region with such strong local identity that

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uses football as a projection of its values. Even fewer are willing to
self-limit their catchment area for talent.

Nonetheless, Athletic can be seen as an example in different ways
for clubs around the world. For those with limited financial
resources available and not fighting for the top positions of the
table, the club provides a model of how to explore the transfer
market by focusing on the development of local players.

And for those based in regions with strong traditions and local
values, the club shows how it is possible to reap the rewards from
connecting with the community and generating a fan base that is
loyal, regardless of performance.

FIVE QUESTIONS ABOUT THE CLUB’S BUSINESS MODEL

Below you can find a few questions for debate related to the future
of the club based on the business model explored:

1. What are the main threats to the club’s business model in the
short term?

2. What could the club do to prevent the eventuality of a local
talent drain?

3. In an environment of high connection with club members,
what could be done to increase the attendance of non-
member fans?

4. What would be the best strategies for the club to allocate the
profits?

5. If you were the club’s decision-maker, would you try to
change the club’s transfer philosophy?

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NOTES:

Unless stated otherwise, all information used was available in
Athletic’s Annual Financial Reports.
Average attendances are provided by different sources and
calculated according to the average of these, which vary
little. The number of club members for the 2009-10, 2011-12
and 2012-13 seasons is estimated according to articles by
the press and the historical average of the club

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