The influence of sport results on football stock markets

DOUBLE BACHELOR’S DEGREE IN BUSINESS & ECONOMICS FACULTY OF BUSINESS AND ECONOMICS (SARRIKO, BILBAO) DEGREE YEAR 2024-2025 THE INFLUENCE OF SPORT RESULTS ON FOOTBALL STOCK MARKETS AUTHOR: IÑIGO BARRENETXEA ATXURRA DIRECTOR: ITZIAR GARROTE CUESTA BILBAO JUNE 2025 INDEX 1. INTRODUCTON ……………………………………………………………………………………………………………………. 1 2. ECONOMIC CONTEXT OF FOOTBALL 2022-2023 AND TYPOLOGY OF CLUBS …………………………. 5 3. SOURCES OF INCOME AND EXPENSES OF FOOTBALL TEAMS ………………………………………………. 11 3.1. FOOTBALL TEAMS’ INCOMES ……………………………………………………………………………… 12 a) TICKET AND ANNUAL PASSES ………………………………………………………………………………… 12 b) BROADCASTING RIGHTS ………………………………………………………………………..……………… 12 c) MERCHANDISING & SPONSORS …………………………………………………………………………….. 12 d) SALE OF PLAYERS …………………………………………………………………………………………………… 13 e) SPORTS RESULTS …………………………………………………………………………………………………… 14 3.2. FOOTBALL TEAMS’ EXPENSES …………………………………………………………………………….. 15 4. FINANCIAL REGULATIONS OF FOOTBALL TEAMS …………………………….………………………………….. 17 4.1. INTERNATIONAL FOOTBALL REGULATIONS …….…………………………………………………… 17 4.2. SPECIFIC REGULATION FOR INTERCITY CF (SPAIN) ………………………….……………………. 18 4.3. SPECIFIC REGULATION FOR MANCHESTER UNITED, BORUSSIA DORTMUND AND JUVENTUS ……………………………………………………………………..…………………………………………. 19 a) ACCOUNTING STANDARDS ……………………………………………………………………………………. 19 b) OTHER SPECIFIC REGULATIONS OF ENGLAND, GERMANY AND ITALY ……………………… 20 5. SOURCES OF STUDY ……………………..……………………………………………………………………………………. 23 5.1. MANCHESTER UNITED ……………………………………………………………………………………….. 23 5.2. BORUSSIA DORTMUND ……………………………………………………………………………………… 25 5.3. JUVENTUS FC ……………………………………………………………………………………………………… 27 5.4. INTERCITY CF ……………………………………………………………………………………………………… 29 6. INFLUENCE OF SPORTING RESULTS AND CLASSIFICATION ON THE SHARE PRICE ………………... 32 6.1. METHODOLOGY …………………………………………………………………………………………………. 32 6.2. RESULTS …………………………………………………………………………………………………………….. 35 7. CONCLUSION …………………………………………………………………………………………………………………….. 39 BIBLIOGRAPHY ……………………………………………………………………………………………………………………… 41 ANNEX 1: FOOTBALL VARIABLES OF TEAMS UNDER STUDY …………………………………………………… 43 INDEX OF GRAPHICS GRAPHIC 1: EUROPEAN FOOTBALLMARKET SIZE - 2018/19 TO 2022/23 (€ BILLION) ……………….. 5 GRAPHIC 2: "BIG FIVE" EUROPEAN LEAGUE TEAM’S REVENUES ………………………………………………. 6 GRAPHIC 3: TOP 20 FOOTBALL TEAMS WITH HIGHEST REVENUES …………………………………………… 7 GRAPHIC 4: “BIG FIVE” EUROPEAN LEAGUE TEAMS’ REVENUE - 2022/23 (€M) ……………………… 11 GRAPHIC 5: “BIG FIVE” EUROPEAN LEAGUE TEAMS’ REVENUE AND WAGE COSTS – 2021/22 AND 2022/23 (€M) ………………………………………………………………………………………..…………………….. 16 GRAPHIC 6: MANCHESTER UNITED’S SHARE PRICE DURING 2022/2023 SEASON …………………. 24 GRAPHIC 7: BORUSSIA DORTMUND’S SHARE PRICE DURING 2022/2023 SEASON ………………… 25 GRAPHIC 8: JUVENTUS FC’S SHARE PRICE DURING 2022/2023 SEASON ……………………………….. 27 GRAPHIC 9: INTERCITY CF’S SHARE PRICE DURING 2022/2023 SEASON ………………………………… 30 INDEX OF TABLES TABLE 1: FOOTBALL TEAMS UNDER STUDY …………………………………………………………………………….. 3 TABLE 2: CLUB MODEL VS PRIVATE OWNERSHIP MODEL ………………………………………………………… 8 TABLE 3: LISTED FOOTBALL TEAM VS UNLISTED FOOTBALL TEAM …………………………………………… 9 TABLE 4: MANCHESTER UNITED'S INCOME STATEMENT ……………………………………………………….. 25 TABLE 5: BORUSSIA DORTMUND'S INCOME STATEMENT ……………………………………………………… 26 TABLE 6: JUVENTUS FC’S INCOME STATEMENT …………………………………………………………………….. 28 TABLE 7: INTERCITY CF'S INCOME STATEMENT ……………………………………………………………………… 30 TABLE 8: RESULT-VARIATION PRE-COMBINATIONS ……………………..…………………………………………. 32 TABLE 9: RESULT-VARIATION FINAL COMBINATIONS ……………………………………………………………… 33 TABLE 10: AMOUNT OF RESULT-VARIATION FINAL COMBINATIONS IN ABSOLUTE TERMS ……. 35 TABLE 11: AMOUNT OF RESULT-VARIATION FINAL COMBINATIONS IN RELATIVE TERMS ……… 36 TABLE 12: PHI COEFFICIENT MATRIX FOR MANCHESTER UNITED ……………………………………..…… 36 TABLE 13: PHI COEFFICIENT MATRIX FOR BORUSSIA DORTMUND ………………………………………… 37 TABLE 14: PHI COEFFICIENT MATRIX FOR JUVENTUS FC ………………………………………………………… 37 TABLE 15: PHI COEFFICIENT MATRIX FOR INTERCITY CF ………………………………………………………… 38 1 1. INTRODUCTION The sporting field has undergone a profound transformation in recent years, and football has not escaped this evolution, with the sport becoming a lucrative business, in which football is not only a mere sport. For example, European football teams earned around €35.3 billion (Deloitte Sports Business Group, 2024). Investors have identified a commercial opportunity in the sport, driving growth through investment and exploring new markets to maximise their profits, often putting the needs of the fans on the back burner. Today, football is an area where multiple interests converge; from those of football team owners and sports companies, to those of advertising agencies, the media, fans and the players themselves. This diversity of actors has reshaped sport, placing it in a context marked by economic profitability and globalisation. The increasing commercialisation of football teams has attracted numerous investors, who have acquired significant stakes in these institutions, injecting capital and facilitating their access to external financing. This phenomenon, coupled with intense competition within the industry, has led several sports teams to opt for a stock exchange listing as a strategy to strengthen their financial stability. In other words, the main reason is to raise capital. By selling shares to the public, football teams can raise funds for the acquisition of top players, the improvement or construction of infrastructure (such as stadiums and training centres), the reduction of accumulated debt and the global expansion of their brand by investing in marketing or academies in other countries. In addition to financing, an Initial Public Offering also increases the visibility and prestige of the team, which can attract more sponsors and fans. For the current owners, it allows them to obtain liquidity by selling part of their shares, diversifying their personal wealth. By being a listed company, the football team is subject to greater transparency and financial discipline, which can lead to better management. It also allows fans to buy shares, football teams can strengthen the bond with their fan base, offering them a way to ‘own’ a part of their team; however, this can lead to shares been acquired by people who do not care about the football team. Ever since I began my studies in business and economics, stock market investment has captured my interest in a special way. The dynamics of financial markets, strategic decision-making based on data analysis and the search for value in listed assets are aspects that fascinate me deeply. Understanding how various factors influence the behaviour of stocks, from a company's fundamentals to market sentiment, has been a constant in my education. Parallel to my academic training, football has been and continues to be my greatest passion. For five years, I have had the privilege of working as a football coach, an experience that has allowed me to experience the sport from the inside, to understand the importance of every result, the intensity of the competition and the emotional impact it has on both players and fans. This direct experience with the sport has shaped my vision of the impact that performance on the pitch can have beyond the purely sporting. This topic provides me with the perfect opportunity to combine my knowledge and curiosity about financial markets with my deep connection and understanding of the world of football. I am particularly motivated to analyse how a seemingly intangible element such as sporting success or failure can translate into concrete movements in the share values of listed football teams. 2 The unique nature of the football industry allows investors to evaluate the performance of their investments on a weekly basis, unlike other business sectors, which evaluate their performance normally quarterly, when the companies make public their performance. While a team's performance must be assessed in the overall context of a season, this study seeks to determine whether there is an immediate relationship between match results and fluctuations in share value during the subsequent trading session. This Final Degree Project aims to provide empirical evidence on how financial markets react to sporting success or failure on the stock market performance of football teams listed on official secondary markets, in order to reach a conclusion about which sporting factors affect the price share and whether is interesting for investors this type of financial products. The growing financialisation of football has spurred a vast area of research dedicated to understanding how performance on the pitch translates into the share value of listed football teams. A number of empirical studies have addressed this question, employing different methodologies to unravel this complex relationship and providing detailed insights into the influence of sporting performance on stock markets. The empirical literature demonstrates remarkable consistency in that immediate match results have a significant, short-term impact on football teams' stock market returns. A comprehensive study by Navest (2023) on 20 European football teams, covering the period July 2011 to June 2022, using OLS regressions in the framework of an event study, revealed that wins were associated with a positive effect on stock returns, being positive for 19 out of 20 football teams and significantly positive for 10 of them. In contrast, draws and defeats showed a significant negative effect, with draws leading to lower stock returns for 18 out of 20 football teams (significantly negative for 14) and defeats resulting in negative coefficients for 19 out of 20 football teams (significantly negative for 17). This study assumes that the effect materialises on the next business day, given that most matches are played outside trading hours. Pioneering research by Renneboog and Vanbrabant (2000) analysed 17 British football teams over three seasons between 1995 and 1998. This study found that wins resulted in positive abnormal returns of 1% on the following business day. In contrast, draws and defeats were associated with negative abnormal returns of 1.4%. Their findings indicated that match outcomes strongly influence stock prices, generating significant abnormal returns and trading volumes, and that abnormal returns for winning teams do not always reflect rational expectations, but may be high due to overreactions induced by investor sentiment. In addition, Bernile and Lyandres (2011) also found that losses are associated with significant negative postmatch returns. According to these studies, there is a notable asymmetry where losses have a stronger impact than gains, a phenomenon that aligns with ‘loss aversion’ in behavioural finance, where investors react more strongly to the pain of a loss than to the pleasure of an equivalent gain. Investor sentiment can lead to significant deviations from the Efficient Market Hypothesis, especially when outcomes are unexpected. The importance of the matches amplifies their influence; tournament matches have a greater impact than friendly matches, and European matches (such as the Champions League) tend to generate a more pronounced reaction than domestic league matches due to the greater economic implications. The study by Soana, M. G., Lippi, A., & Rossi, S. (2024) observed a significant drop in share prices for football teams in Champions League matches lasting up to 10 days after defeat, but no significant reaction to wins or draws in the same competition. 3 However, the study by Scholtens and Peenstra (2009) analysed 1274 matches of eight teams in domestic and European competitions during 2000-2004 and found that the stock market response is significant and positive for wins and negative for losses, with the response being significantly stronger for losses and for matches in European competitions. Finally, and beyond the football field, other factors also influence the valuation of football teams. Player transfers, while often generating short-term optimism, were shown in Navest M’s study to generally not significantly affect stock returns when buying or selling a football player. Similarly, coaching changes, according to Navest (2023), generally do not have a significant negative effect on stock returns, although there were specific effects for some football teams. Although there are several football teams across Europe that are listed on stock markets, this paper will consider some of the leading European football teams from four leading listed football teams from four European countries. The teams under study will be Manchester United (England), Borussia Dortmund (Germany), Juventus FC (Italy) and Intercity CF (Spain). In the case of the first three football teams, they have been chosen due to two main factors, related to the importance of the leagues they participate in and also related to their sportingly importance along time. England, Italy and Germany, together with Spain, are the most powerful football leagues in the world in terms of economic and sporting success. Within these three principal leagues, the football teams that have been selected are some of the most popular teams in their respective countries, having won each of them at least twice the UEFA Champions League, the most important competition in football competition. With respect to the fourth football teams, Intercity CF cannot be compared to the previous three football teams, which are historic football teams, with more than 100 years of existence. In the case of Intercity, it was founded in 2017, and it has never achieved professional football in Spain (which is formed by the first and second division). However, it is the only Spanish football team that is listed on the stocks market. The paper will start with in Chapter 2 with an introduction to the current economic context of European football. This section is fundamental to establish the framework in which football teams operate. It will analyse the macroeconomic characteristics of the continental football market, its turnover and the increasing professionalisation of the sport. In addition, a detailed classification of the typology of existing football teams will be made. This segmentation is crucial to understand the diversity in management and financial strategies. Table 1: Football teams under study Source: Own elaboration COUNTRY ENGLAND MANCHESTER UNITED GERMANY BORUSSIA DORTMUND ITALY JUVENTUS FC SPAIN INTERCITY CF CLUB 4 Once the general context has been established, in Chapter 3 the paper will move on to a detailed analysis of the composition of football teams' revenues and expenses. This section is vital to understanding the economic viability of these teams and how their financial transactions are directly affected by their sporting performance. The main sources of revenue will be broken down, including TV rights, match day revenues, commercial and marketing revenues, competition revenues, and player transfer revenues. In terms of the cost structure, the most relevant components will be examined: player and coaching staff salaries, depreciation and transfer fees, operating expenses and financial expenses. It will then focus on Chapter 4 on the regulatory framework affecting football teams, both at a general level and according to their typology, addressing the specific regulations governing national leagues and European competitions (UEFA). As for our objective in this paper, we will present in Chapter 5 a detailed collection and description of the financial data (revenues and expenses) of the listed football teams that will be the subject of our study, obtained from their annual reports, public financial statements and stock exchange databases. Following this information, in Chapter 6 a statistical analysis will be carried out to determine the relationship between sporting results and variations in the market price of the selected football teams' shares. Finally, the paper will conclude with a section on conclusions in Chapter 7. Here, the most relevant findings of the study will be synthesised, the research questions will be answered and the central hypothesis on the influence of sports performance on the market price will be evaluated. 5 Graphic 1: European football market size – 2018/19 to 2022/23 (€ billion) 2. ECONOMIC CONTEXT OF FOOTBALL 2022-2023 AND TYPOLOGY OF FOOTBALL TEAMS Football, beyond being a sport and a global passion, has established itself as a powerful economic industry that moves billions of euros around the world (Deloitte, 2024). In Europe, this transformation has been particularly pronounced, turning major football teams into truly multinational companies with highly complex financial structures. To understand how results on the field of play can resonate in the stock markets, it is first essential to establish the economic context that defines European football today. Based on the available data on the financial situation of European football, collected in the ‘Annual Review of Football Finance 2024’ prepared by Deloitte Sports Business Group (2024), the 2022/2023 season presented changes compared to previous years, being the first full season since 2018/19 in which all ‘big five’ European leagues operated without COVID-19 restrictions and with an unprecedented mid-season break for the 2022 FIFA World Cup in Qatar. As can be appreciated in Graphic 1, the 2022/2023 season marked another year of record revenues, with the European football market reaching a 16% growth to a new high of €35.3 billion. The ‘big five’ leagues (referring to the football leagues of England (Premier League), Spain (LaLiga), Italy (Serie A), Germany (Bundesliga) and France (Ligue 1)) continued to lead proportionally, contributing €19.6 billion (56%). Regarding this graphic from Delloite (2024), more than half of the composition of European football market size is composed only by five leagues. Within the big five leagues, it is the English league that has historically led all rankings financially. During the 2022/23 season, the start of the Premier League's new broadcasting rights cycle contributed to an 11% increase in average revenues for English top-flight teams, which exceeded £300 million for the first time. Source: Annual Review of Football Finance 2024 (Deloitte, 2024) 6 In Spain, LaLiga football teams reached an all-time record total revenue of €3.5 billion (with an average of €177 million per team). It is worth mentioning that LaLiga has two of the highestgrossing football teams in the world, Real Madrid CF and FC Barcelona, with revenues in excess of €800 million. It is interesting to compare this figure with the average of the other 18 LaLiga football teams, where the average revenue is €106 million. (Deloitte 2024) The 2022/23 season saw the full return of fans to stadiums in Germany and Italy, with Bundesliga and Serie A teams recording the highest overall percentage growth in income compared to the previous season. On the one hand, Serie A teams generated €2.9 billion in revenue (with an average of €143 million per team), representing an increase of 22% compared to the previous season. On the other hand, German teams achieved significant growth in total revenue, reaching €3.8 billion (averaging €213 million per team) and the highest percentage growth among the five big leagues. Finally, with respect to France, although broadcasting revenues decreased, Ligue 1 teams achieved a 17% increase (€352 million) in total revenues, reaching €2.4 billion (with an average of €119 million per team). This growth was mainly due to an agreement with the investment fund CVC for the exploitation of the Ligue de Football Professionnel’s audiovisual rights. In summary, and with the help of the Graphic 2 it can be appreciated the increase on income in all countries, with England being the most dominant league and almost doubling the revenues with the second highest country which is Germany. On an individual level, following the predominance of these five major leagues, based on a UEFA report, the 20 football teams with the highest revenues in the 2022/23 season belong to one of the leagues mentioned above (Graphic 3). This group of teams is composed of nine teams from England, four from Italy, three from Spain, three from Germany and one from France. Furthermore, the average revenue of these teams grew by 15.7% in 2023, being led by FC Barcelona (+€176M), Paris St-Germain (+€137M), AC Milan (+€126M) and SSC Napoli (+€120M). Graphic 4: "Big five" European league team's revenues – 1996/97 and 2013/14 to 2024/25 (€m) Source: Annual Review of Football Finance 2024 (Deloitte, 2024) 13 annually through merchandising, driven by fan fanaticism and identification with the team. The arrival of stars at the team can also significantly increase sales; a clear example is the impact of signings such as Cristiano Ronaldo or Lionel Messi at the teams where they have played. On the other hand, sponsorships represent another key source of revenue. Companies seek to associate their image with prestigious football teams through commercial agreements that may include stadium naming, shirt sponsorship or exclusivity agreements with apparel and technology brands. Global companies such as Adidas, Nike, Emirates or Coca-Cola have signed multi-million dollar contracts with football teams, ensuring a constant presence in the world of sport. The combination of a strong merchandising model and well-structured sponsorship strategies allows football teams to diversify their revenues, reduce their dependence on TV rights and maintain long-term financial stability. In an increasingly competitive market, the ability to maximise these revenue streams is key to the growth and sustainability of football teams on the international stage. According to Deloitte (2024), football teams’ aggregate merchandising and sponsorship revenues grew by €1.2 billion (19%), reaching a total of €7.6 billion, driven by new and improved sponsorship deals or the use of stadiums beyond match days. Not as much as, broadcasting revenues, commercial revenues imply around 30% of the revenues in each of the “Big Five” European leagues (Graphic 4). d) SALE OF PLAYERS The sale of players represents a key source of revenue for football teams, especially for those that adopt a business model based on the development and revaluation of talent. This strategy allows not only to generate economic benefits, but also to reinvest in new additions and strengthen the financial sustainability of the team. However, this “sale of players” also implies a cost for other teams, because what is earned by one specific football team, must have been spent by another concrete team. The income derived from the transfer of players can have a significant impact on a football team’s accounts, especially in terms of compliance with the Financial Fair Play imposed by bodies such as UEFA. Teams such as Benfica, Borussia Dortmund or Ajax have managed to consolidate themselves as training teams, obtaining important profits by buying young players at low cost and then selling them to teams with greater purchasing power. In addition, the transfer market has evolved in recent years with the introduction of resale clauses and performance bonuses, allowing football teams to receive additional income even after a player has been transferred. Similarly, termination clauses have generated historic transactions, such as the sale of Neymar to Paris Saint-Germain for 222 million euros, which marked a turning point in football economics. Despite being a relevant source of revenue, over-reliance on player sales can lead to sporting instability, as the departure of key players can affect the team's performance in competitions. Therefore, football teams must balance their financial strategy with their sporting planning, ensuring both financial sustainability and success on the pitch. 14 In the 2022/23 season, as football teams looked to secure world-class talent before and after the World Cup, we saw transfer spending reach an all-time high. Premier League teams spent a total of £2.8 billion on player transfers during the winter and summer windows, beating their previous record, set in the 2017/18 windows, by 47%. e) SPORTS RESULTS Teams receive cash prizes for their performance in both domestic and international competitions, i.e. the better they finish or the further they go in tournaments, the greater the financial rewards. In domestic competitions, revenues from sporting results are mainly distributed through television rights, where a significant share is allocated to teams based on their final league position. Teams that achieve higher rankings receive higher percentages of this revenue, which incentivises competitiveness and rewards consistent sporting success. In addition, winning titles such as the league or the national cup often results in direct financial rewards from the federation or competition organiser. As for the international competitions organised by UEFA, such as the Champions League, the Europa League and the Conference League, income from sporting results is generated mainly through prize money for participation, wins, draws and qualification to the different stages of the competition, reaching significant figures especially in the Champions League where the champion can exceed €100 million in direct prizes alone, not counting the variable amounts for UEFA coefficient and market pool; similarly, although to a lesser extent, the Europa League and the Conference League also distribute prizes for sporting performance in their different stages. Qualification for UEFA's teams competitions (UEFA Champions League, UEFA Europa League and UEFA Conference League) depends mainly on teams' final positions in their respective domestic leagues and results in domestic cups. 1) UEFA Champions League: o Spain (LaLiga), England (Premier League), Germany (Bundesliga), Italy (Serie A): The top four from these leagues qualify directly for the league phase. In addition, from 2024-25 onwards, these leagues can obtain an additional 5th place if they are among the two leagues with the best UEFA coefficient in the previous season (known as the "European Performance Spot"). o France (Ligue 1): The top 2 qualify directly for the league phase, while the 3rd placed team must play a preliminary qualifying round (play-offs). o UEFA competition winners: The winner of the UEFA Champions League and the winner of the UEFA Europa League from the previous season also secure a direct place in the Champions League, even if they did not qualify via their league (Regulations of the UEFA Champions League, 2024). According to the “UEFA Financial Distribution Circular” from 2024 the revenue distribution for the participating teams in the UEFA Champions League is structured around two main pillars. Firstly, the initiation fees represent 27.5% of the total distributed, amounting to €670 million, which are distributed among the 36 teams qualifying for the league phase, guaranteeing each football team an allocation of €18.62 million, broken down into an initial payment of €17.87 million and a balance of €750,000. 15 Secondly, the performance-related payments, which constitute 37.5% of the total with 914 million euros, reward the results achieved in the league phase (€2.1 million for a win and €700,000 for a draw, with a system of redistribution of unallocated funds for draws based on ranking) and progress in the knockout rounds (€1 million for qualifying for the knockout playoffs, €11 million for the round of 16, €12.5 million for the quarter-finals, €15 million for the semifinals, €18.5 million for the runner-up and €25 million for the champion). Finally, a bonus for qualification in the league phase distributes 666 equal shares with an initial value of €275,000 per share, ranging from one share for the team in 36th place to 36 shares for the team in first place in the league phase. 2) UEFA Europa League: o Spain, England, Germany, Italy: Generally, the 5th placed team in the league gets a direct place (or the 6th if the 5th Champions League place is activated). In addition, the National Cup winner (Copa del Rey, FA Cup/EFL Cup, DFB-Pokal, Coppa Italia) also gets a direct place. If the cup winner has already qualified for a higher European competition by virtue of their league position, the cup quota is reallocated. o France (Ligue 1): The 4th placed team in the league gets a direct place, as does the French Cup winner (Regulations of the UEFA Europa League, 2024) Revenue distribution in the UEFA Europa League is also structured on two pillars. The starting fees allocate each of the 36 teams that qualify for the league phase an amount of €4.31 million. Performance-related payments reward victories in the league phase with €450,000 and draws with €150,000, with a redistribution of unallocated funds for draws according to league phase ranking; in addition, qualification to the knockout rounds carries increasing prizes: €300,000 for the round of 16 play-offs, €1.75 million for the round of 16, €2.5 million for the quarter-finals, €4.2 million for the semi-finals, €7 million for the finalist and an additional €6 million for the champion (UEFA Financial Distribution Circular, 2024). 3) UEFA Europa Conference League: o Spain, England, Germany, Italy: Usually, the 6th placed team in the league (or 7th, depending on the displacement of cup winners' places or the 5th place in the Champions League) enters the qualification phase (play-offs). o France (Ligue 1): The 5th placed team in the league usually gets a place in the qualifying round (Regulations of the UEFA Europa Conference League, 2024). Regarding the UEFA Europa Conference League, starting fees guarantee each of the 36 teams in the league phase €2.85 million, while performance-related payments award €400,000 per win and €133,000 per draw in the league phase, with a redistribution of unallocated funds for draws based on ranking; also, advancement in the knockout rounds is rewarded with €200,000 for the round of 16 play-offs, €800,000 for the round of 16, €1. 3 million for the quarterfinals, €2.5 million for the semi-finals, €4 million for the finalist and an additional €3 million for the champion (UEFA Financial Distribution Circular, 2024). 3.2. FOOTBALL TEAMS’ EXPENSES The main items of expenditure of a football team are mostly focused on the cost in its human capital and the infrastructure necessary to operate. 16 The most influential and significant item of expenditure is the salaries of players and coaching staff (which will be discussed below). This represents the largest part of a team's budget, as the contracts of elite footballers and the professionals who train and assist them are often multimillion dollar and recurrent in nature. It is a constant and long-term expense, unlike other costs. This wage bill is followed by player signings and transfers. Although not a constant expense each season, football teams spend in the acquisition of new talent, including the amortisation of the transfer fees paid to other teams (which is considered an intangible asset), commissions to agents and signing bonuses for the players themselves. This is a crucial investment to maintain and improve the competitiveness of the squad. Finally, the maintenance and improvement of the team’s facilities and infrastructure is also a considerable outlay. This ranges from the stadium and training grounds to the medical centres and administrative offices. It includes rental costs, repairs, basic services (water, electricity), security and constant modernisation to offer the best conditions for both players and fans. As already mentioned, by far the most influential item of expenditure for football teams is the salaries of players and coaching staff. According to Deloitte (2024), the football teams’ aggregate wage costs were €13 billion (Graphic 5). The substantial increase in aggregate revenue (€2.3 billion) exceeded football teams’ increased wage costs (up €0.7 billion), such that the average wages/revenue ratio fell across all of the ‘big five’ leagues. In Graphic 5 can be easily appreciated how this wage costs have evolved and its difference with the revenues. Although in the “Annual Review of Football Finance” from Deloitte (2024) does not appear the breakdown of football teams’ other expenses (as wages is the most significant item when talking about expenses), in Chapter 5 it will be analysed each team’s main expenses subject of study. Next, the accounting regulations that apply to football teams will be addressed, discussing the differences between the different regulations that exist depending on the structure of the football team (club model, listed private ownership model or unlisted private ownership model). Graphic 5: “Big five” European league teams’ revenue and wage costs – 2021/22 and 2022/23 (€m) Source: Annual Review of Football Finance 2024 (Deloitte, 2024) 17 4. FINANCIAL REGULATIONS OF FOOTBALL TEAMS The football industry, beyond its sporting passion, constitutes a global business of considerable economic size, generating billions in added value and having a significant impact on national economies. In this environment, the implementation of robust accounting and effective financial transparency becomes essential. Adequate financial information is indispensable for a wide range of users, including investors, lenders, creditors and government entities, enabling them to make informed economic decisions. As has been mentioned in Chapter 2, there are three main structures in which a football team can be consolidated (Club model, Unlisted Private Ownership model and Listed Private Ownership model). However, as all the football teams that are going to be studied are a Sports Limited Company that are listed in the stock market, this chapter will only focus on this type of football teams, concretely about Intercity CF (Spain), Manchester United (England), Borussia Dortmund (Germany) and Juventus FC (Italy). 4.1. INTERNATIONAL FOOTBALL REGULATIONS Beyond national particularities, the professional football industry in Europe is governed by a set of supranational regulations, mainly established by UEFA. UEFA does not establish ‘accounting regulation’ in the same sense as IFRS or national regulations. That is, UEFA does not dictate how football teams should prepare their basic financial statements. Instead, UEFA exerts its influence through its Club Licensing and Financial Sustainability Regulations (formerly known as ‘Financial Fair Play’ or FFP). These regulations are a set of financial rules that football teams must comply with in order to participate in UEFA's competitions (UEFA Champions League, UEFA Europa League and UEFA Europa Conference League). UEFA regulations: Financial Fair Play (FFP) and Financial Sustainability Regulations (FSR) UEFA's regulations, initially known as Financial Fair Play (FFP) and introduced in 2010, were born with the purpose of preventing football teams from spending more than they earn, looking for financial sustainability and limiting losses. Although FFP was criticised for limiting the internal market and protecting the “status quo” of the biggest football teams, it succeeded in improving the financial health of European teams. On 1 June 2022, the FFP was replaced by the UEFA Club Licensing and Financial Sustainability Regulations (FSR). These new regulations seek to promote greater financial sustainability in the post-pandemic and increasingly globalised context of football. The FSR are built around three main pillars: o Liquidity: - Overdue Payables: Football teams must settle overdue payments to other teams, employees, social security and tax authorities, and to UEFA itself (these payments are controlled three times per licensing season) with a grace period of 15 days. Overdue payments more than 90 days old are considered an “aggravated non-compliance”, which can lead to exclusion from future competitions. (UEFA FSR, 2024) o Profitability: - Football Earnings Rule: This rule replaces the FFP “Break-Even” requirement. Football teams must have an aggregate surplus of football profits or an acceptable deficit over three successive reporting periods. The maximum allowable deficit has been increased 18 from €30 million to €60 million but must be fully covered by cash or equity contributions in the current reporting period. (UEFA FSR, 2024) - Squad Cost Ratio: This is a new focus of the FSR, which requires that a team’s “staff cost ratio” does not exceed 70% of its total annual revenue per season. This ratio includes employee benefit expenses (which refers to the costs that employers incur to provide non-salary benefits to their employees, in addition to their regular wages or salaries), amortisation/impairment of player costs and agent/intermediary costs. This rule applies to football teams with employee benefit expenses of more than €30 million and aims to align salaries with revenues to prevent financial instability. (Morgan Sports Law, 2022) o Solvency: - Net Equity Rule: This rule limits the ability to acquire new players and take on debt to do so, as they cannot purchase players if their equity is not positive or has not improved by 10% or more since the previous 31 December. Transfers involve high disbursement that can jeopardise the viability of teams by reducing their equity (through amortisation of intangible assets) if they are not compensated by satisfactory performance revenues. (UEFA FSR, 2024) The evolution from FFP to FSR reflects UEFA's adaptation to the complex financial realities of modern football, moving from a primary focus on balanced budgets to a multi-faceted strategy focusing on solvency, stability and cost control, particularly regarding players' salaries. 4.2. SPECIFIC REGULATION FOR INTERCITY CF (SPAIN) Like any commercial company in Spain, CF Intercity must apply the General Accounting Plan (PGC, by its acronym in Spanish), approved by Royal Decree 1514/2007, of 16 November, and its subsequent amendments. This includes the Conceptual Framework, the Registration and Valuation Standards, and the structure of the Annual Accounts (Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement and Explanatory Notes). However, it should consider specific rules adapting the PGC to the specificities of the professional sports sector. (PGC, 2021) The “Institute of Accounting and Auditing (ICAC), by its acronym in Spanish” is the body in charge of the correct application of the PGC and its specific adaptations for SLCs, and compliance with auditing standards. The purpose of these adaptation rules is to recognise the specificity of the professional football activity, which has unique elements not present in other industries (for example, the costs of acquiring a footballer as an asset) and ensure uniformity in the accounting of SLCs, allowing for greater comparability between them and facilitating supervision by bodies such as LaLiga or the Higher Sports Council (CSD, by its acronym in Spanish). These rules focus on how specific elements of the football business should be recorded. Players' rights are the most relevant and distinctive aspect in the accounting of Spanish SLCs. The rules adapting the Spanish the General Accounting Plan set out in detail how the costs of acquiring these rights, which include the amounts of transfers and signing bonuses paid, should be journalized. These costs are recognised as intangible assets in the balance sheet of the SLC and are amortised systematically over the duration of the player's contract. Furthermore, the accounting regulations set criteria for the initial and subsequent valuation of these rights as well as for assessing their possible impairment. Such impairment occurs if the market or usage value 19 of the player decreases significantly below player’s book value. (Orden 27-06-2000 Sociedades Anónimas Deportivas) It is crucial to differentiate between player rights (which are amortised) and contract renewals before it finishes. Renewals are usually treated as an extension of the useful life of the already existing intangible asset, which adjusts its remaining amortisation. The rules also address the accounting treatment of training rights and solidarity mechanisms. These are compensations that benefit football teams that have contributed to the training of a player when he is transferred, thus recognising their formative work, which shall be recognised as income when the conditions for its payment are fulfilled. (Orden 27-06-2000 Sociedades Anónimas Deportivas) What is more, the “National Securities Market Commission (CNMV), by its acronym in Spanish” plays an important role. When a SLC decides to go public, it is subject to a much higher level of scrutiny and supervision than unlisted SLCs. This additional regulation is designed to protect investors and ensure the transparency of the securities market. The “National Securities Market Commission (CNMV), by its acronym in Spanish” plays a central role in this supervision. The Securities Market Law establishes the transparency and periodic reporting obligations that listed companies must comply with. Thus, listed SLCs must publish regular financial information, including annual, half-yearly and quarterly reports, which must be detailed and presented in accordance with the applicable accounting standards. In addition, they are obliged to immediately report any significant event or change that may affect their share price. This could include changes in management, player transfers, unexpected financial results or major litigation, among others. Finally, the annual accounts must be audited by independent external auditors. The CNMV has the power to require additional audits if it considers it necessary to verify the reliability of the financial information presented. (Circular 3/2013, de 12 de junio, de la CNMV) Role of the Higher Sports Council (CSD) and LaLiga: o Higher Sports Council: The CSD is the governmental body that oversees sport in Spain. In addition to passing regulations, the CSD has an active role in the economic supervision of SLCs. Historically, they have issued circulars or guidelines on the minimum content of the Annual Report and other financial information that SLCs must present, seeking to standardise and facilitate supervision. o LaLiga: For teams competing in LaLiga (including Primera RFEF where CF Intercity plays), LaLiga's Economic Control rules are crucial. Although they are not "accounting rules" in the sense of the PGC, they are based on accounting figures. LaLiga requires football teams to regularly submit detailed financial information (budgets, balance sheets, income statements or cash flow statements, among others) which must be faithful to the football teams’ accounts, but which is then analysed by LaLiga according to its own metrics (e.g., the Sport Staff Cost Limit). Failure to comply with these LaLiga rules may result in sanctions (such as restrictions on registering players). 4.3. SPECIFIC REGULATION FOR MANCHESTER UNITED, BORUSSIA DORTMUND AND JUVENTUS a) Accounting Standards When it comes to accounting standards, Manchester United, Borussia Dortmund and Juventus FC work under the International Financial Reporting Standards (IFRS), which are a set of standards and interpretations issued by the International Accounting Standards Board (IASB). 20 The primary objective of these standards is to provide useful information about an entity's financial position, financial performance and cash flows. The IFRS aim to establish a “universal accounting language” that facilitates comparability and analysis of financial information between companies in different countries. The sports sector presents particularities that set up unique challenges in the application of these standards. Innovation in contracts or agreements, such as those related to players or sponsorships, can lead to variations in the underlying economic substance of transactions, requiring a case-by-case assessment of the accounting implications. This inherent complexity of football operations may make direct comparability between football teams difficult, even if they all apply IFRS. (PWC, 2024) The accounting treatment of Players' Rights (IAS 38 – Intangible Assets) is one of the most distinctive and significant areas of football teams’ accounting. Player acquisition rights are generally recognised as intangible assets. They are capitalised at acquisition cost, which includes the amount of the transfer fee paid to the home entity and all expenses necessary for the acquisition of the player. The amortisation of a player's registration rights takes place systematically over the duration of the player's original contract, with a maximum limit of five years. In the case of a contract extension, the value of the player's registration fee can be amortised over the remaining period of the original contract or over the extended period, also up to a maximum of five years. When a player is sold, the football team calculates a gain or loss on the sale of the intangible asset (player's registration right), which is recognised in the income statement. (PWC, 2024) Furthermore, the image rights of players and technical staff are also a relevant accounting item. Amounts paid to other football teams to obtain these rights for a period of more than one year can be recognised as an intangible asset and then taken to income statement annually over the period of use. (PWC, 2024) Revenue Recognition (IFRS 15 - Revenue from Contracts with Customers) is critical for teams as they have multiple sources of revenue: o Broadcasting Rights: Revenue recognition throughout the season as performance obligations are fulfilled. o Match Day: Revenue from tickets or food and beverage sales, among others, generally recognised at the time of the match. o Commercial (Sponsorships, Merchandising): Revenue recognition based on the terms of the sponsorship contract or when goods are delivered to the customer. o Sale of Players: As mentioned previously, money received from the sale of a player is not “revenue” within the meaning of IFRS 15, but a “gain or loss on the disposal of an intangible asset” under IAS 38. Finally, when a football team does not own the stadium where it plays and leases those premises or other significant facilities (IFRS 16 - Leases) requires these leases to be recognised on the balance sheet as "rights to use assets" and "lease liabilities", which increases the size of the team’s balance sheet. (PWC, 2024) b) Other Specific Regulations of England, Germany and Italy In addition to International Financial Reporting Standards (IFRS), which are the primary standard for its consolidated financial statements due to its stock exchange listing, Manchester United, 21 Borussia Dortmund and Juventus FC are subject to several layers of accounting and financial regulation in their respective countries. Manchester United: As a company registered in the United Kingdom, Manchester United must comply with the general provisions of the Companies Act 2006. This Act sets out the fundamental requirements for all companies in the UK in terms of keeping proper accounting records, the preparation and content of annual accounts (ensuring a “true and fair view”), and the requirement for an audit by an independent auditor. Although Manchester United is listed on the New York Stock Exchange (NYSE), the fact that it is a company with significant operations and public recognition in the UK, and with securities potentially traded on unregulated markets in the UK, makes it relevant to consider the rules of the Financial Conduct Authority (FCA). The FCA is the regulator of financial markets in the UK. Its Listing Rules and Disclosure Guidance and Transparency Rules set out strict requirements for companies listed on regulated markets. These rules require: o Regular publication of financial reports: Annual and half-yearly reports, which must be prepared under IFRS. o Disclosure of inside information: Prompt communication of any information that could significantly affect the share price. o Transparency in ownership: Requirements on disclosure of significant shareholdings in the company. On the other hand, the Financial Reporting Council (FRC) is the UK's independent regulatory body for auditing, accounting and corporate governance. As such, the FRC reviews the financial reports of large companies to ensure that they comply with IFRS (UK-adopted IAS) and all relevant regulations and also sets the auditing standards (ISAs (UK)) that companies must follow. Lastly, Premier League establishes Profitability and Sustainability Rules (PSR) to all its member football teams. These are not “accounting standards” in the sense of how financial statements are prepared but are based on accounting figures and dictate acceptable loss limits. The main rule is that football teams cannot lose more than £105 million in a three-year period. Failure to comply with these rules can lead to severe penalties, such as points deductions in the domestic league competition. Borussia Dortmund: Although IFRS are mandatory for its consolidated financial statements, Borussia Dortmund, like any German company, must prepare its individual (separate) financial statements in accordance with the rules of the German Commercial Code (HGB, by its acronym in German). The HGB is the main body of law governing accounting and commercial law in Germany. It sets out accounting principles generally accepted in Germany (German GAAP), which often have a more conservative and creditor protection-based approach, in contrast to the more investororiented approach of IFRS. What is more, since Borussia Dortmund is a “Kommanditgesellschaft auf Aktien (KGaA)”, a specific form of stock corporation in Germany, it is subject to the provisions of the Stock Corporation Act from 1965. This law sets out requirements for the corporate governance structure, shareholder rights, auditing, and disclosure obligations for this type of company. 22 Finally, the Deutsche Fußball Liga (DFL) is the organising body for the Bundesliga and 2.Bundesliga. For football teams to participate in these leagues, they must obtain a licence from the DFL on an annual basis. According to the DFL Licensing Regulations require the German teams the following conditions: o Submission of audited financial statements and financial forecasts. o Demonstration of solvency (ability to pay its debts on time, including players' salaries, transfer payments to other teams and tax obligations). o Proof of financial stability for the next season. o Compliance with criteria on infrastructure (stadiums, training grounds), youth talent (mandatory youth academies), staff and administration. These regulations use and require transparency of accounting figures to assess the financial viability of football teams and prevent insolvency. Juventus FC: As a Sports Limited Company incorporated in Italy, Juventus FC must comply with the accounting provisions of the Italian Civil Code for its individual financial statements. The Civil Code sets out the general accounting principles to be followed by Italian companies, including the obligation to keep accounting books and records, and the requirements for the preparation of annual accounts. What is more, being listed on the Borsa Italiana, Juventus is subject to the regulations of “Commissione Nazionale per le Società e la Borsa” (CONSOB), the Italian financial market regulator. This implies several disclosure and transparency requirements for listed companies, including insider information compelling to immediately communicate any event or information that may have a significant impact on the price of its shares. To conclude with this aspect, and like the case of England and Germany, as a member team of the Italian Football Federation (FIGC) and a participant in Serie A, Juventus must comply with the strict licensing regulations of the FIGC. These regulations include financial criteria such as submission of audited financial statements and financial projections and demonstration of solvency (ability to pay its debts on time), including players' salaries, payments to other football teams for transfers, tax and social security obligations. 29 amounted a bit more than €94 million, accompanied by other operating expenses, reaching around €100 million. Another important aspect to bear in mind is the amortisation and writedowns of players’ registration rights, which amounted almost €160 million. 5.4. INTERCITY CF Unlike other top-tier European football leagues, the presence of major Spanish football teams in the public equity markets is remarkably limited. While teams in England, Italy, Germany, France, Portugal and Turkey have adopted the structure of going public to raise capital and increase their visibility, the major Spanish teams remain absent from this landscape. A significant exception to this trend is Intercity CF, which is the only Spanish football team currently listed on the stock exchange. The limited presence of major Spanish football teams in the stock markets is mainly due to a combination of unique ownership structures and historical contexts. On the one hand, as mentioned throughout this paper on the different types of football teams, the Sports Limited Company (SLC) is a specific legal form introduced in Spain in 1990 with the aim of improving financial management and transparency within professional sports teams. This legal figure initially required most of the teams participating in La Liga and the Second Division to become SLC as a condition to continue competing due to the fact that many football teams were carrying large debts and had a lack of transparency in their management. The figure of the SLC sought to establish a more rigorous model of legal and economic responsibility, guaranteeing the business viability and transparency of the football teams’ finances. Historically, a significant exception was granted to four of Spain's most emblematic football teams: Athletic Club, FC Barcelona, Real Madrid and CA Osasuna. These teams were allowed to retain their original status as non-profit sports associations, rooted in their historical circumstances and member-centered governance models. The fundamental nature of the member ownership structure in these clubs inherently excludes the acquisition of shareholdings by private investors. Ownership resides directly with the club members, rather than with shareholders of a publicly traded company. On the other hand, with respect to the historical and cultural context, there is a deeply rooted tradition of fan ownership within Spanish football, particularly in the case of the major clubs mentioned above. This tradition fosters a strong sense of community and identity among supporters, which could make a transition to a publicly traded model, with its emphasis on shareholder value, less attractive to the club's social mass. Founded relatively recently, in 2017, Intercity CF has experienced a remarkable rise through the various categories of Spanish football, culminating in its current participation in the Primera Federación (the third division of Spanish football). This football team expressed its ambition to become the first Spanish football team to achieve a stock market listing, a goal it successfully achieved through an Initial Public Offering (IPO) in 2021. Its debut took place on BME Growth, the Spanish stock market for small and medium-sized growing companies, at a starting price of €1.2 and generating great expectation, where its shares experienced a 40% rise, reaching €1.68 per share. During the 2022/23 season, as can be appreciated in the Graphic 9, Intercity CF’s share price on BME Growth experienced a significant decrease during 2023, closing the period at €3.77 compared to €5.58 at the beginning of the season. Throughout the year, the price fluctuated between a high of €8.56 and the closing low €1.87, showing a really high daily volatility of a 30 8.34% and an annualized volatility of 132.41% for the 2022/23 season.. This negative performance on the stock market coincided with the publication of financial results that revealed losses of €6 million for the team in the 2022/2023 season, despite having tripled its revenues on its debut in Primera RFEF. On a sporting level, Intercity CF competed in Group II of the First Federation during the 2022/2023 season, marking its debut in this category following its promotion. Throughout the campaign, the team finished 12th in the league table. This sporting performance allowed Intercity to maintain the category in its first year in Primera RFEF, placing it in the middle of the table and avoiding relegation to the Segunda RFEF. Regarding the Copa del Rey, Intercity CF had an outstanding participation reaching the round of 32, losing 3-4 against FC Barcelona in a very disputed match. INTERCITY CF'S INCOME STATEMENT 2022/23 2021/22 INCOMES 1.257.508 395.413 Ticket & Annual Passes Revenue 855.763 49.788 Sale of Products & Sponsorship 387.737 257.512 Other Revenues 14.008 88.113 EXPENSES 7.041.114 4.735.668 Personnel Expenses 3.928.134 2.837.003 Other Operating Expenses 3.112.980 1.898.665 According to Table 7 about Intercity CF’s income statement extracted from its annual report from 2023, it experienced a substantial increase in its income, tripling it compared to the previous year and reaching approximately €1.25 million. In terms of season ticket and season ticket sales, revenues amounted to around €850,000, largely due to the team's participation in the Copa del Rey, where it faced FC Barcelona, generating a significant impact on turnover, with a figure of Source: Investing.com Graphic 9: Intercity CF’s share price during 2022/2023 season (15/08/2022 – 31/05/2023) Source: Own elaboration, based on annual report Table 7: Intercity CF's income statement 31 €731,186. Additionally, the team generated income through the commercialization of sports material and merchandising, showing an increase of around €100,000 compared to the previous season, reaching almost €400,000. Finally, both personnel (€3.9 million) and operating expenses (€3.1 million) increased significantly compared to the previous season. For the elaboration of this paper the evolution of the share price during 2022/23 season has been analysed in order to find anomalous events, such as the case of Manchester United with the departure of Cristiano Ronaldo or in the case of Juventus FC with the case about the 10-point penalty for the capital gains, which in the Italian case will be excluded from the later analysis, for been occasional event, with no relation with sport results and could undermine the analysis. After having analysed the sporting and financial performance of these four football teams (Manchester United, Borussia Dortmund, Juventus FC and Intercity CF) during the 2022/2023 season, the following chapter will analyse whether the sporting results and classification affect the share price of the football teams under study. 32 Source: Own elaboration 6. INFLUENCE OF SPORTING RESULTS AND CLASSIFICATION ON THE SHARE PRICE Once an approximation has been made in the previous sections both to the economic and financial context in the world of football and to the main drivers of the cash flows of the teams, and a brief approximation has been made of the football teams under study and their particularities, it is necessary to carry out a statistical experiment in order to try to obtain a conclusion in relation to the sensitivity of football teams to the sporting results and their respective position in their national competitions in their share price. In short, the aim is to check whether there is any relationship for these teams with the effects that the different results obtained by the teams have on their respective share prices the trading day after the achievement of the said result. In order to determine and quantify the sensitivity and correlation between the results of the matches and the price of the shares, a database has been prepared with the results of the football teams under study in the 2022/2023 season, where the daily variation of their respective share price (calculated as (Price (t)-Price (t-1))/Price (t-1), being Price (t) the price of the share the next trading day after the match and being Price (t-1) the price of the share before the matchday) has been analysed for each team for all the matches played in their respective domestic competitions throughout the season, that is, 38 matches for the case of Manchester United, Juventus FC and Intercity CF, and 34 matches for Borussia Dortmund. The battery of data used for this analysis is composed of all the results obtained by the teams under study in the 2022/2023 season, exclusively in their domestic competition, accompanied of their respective classification which is the main competition for all of them throughout the season, and the prices of their shares the previous and next trading days of the match days. All these data have been extracted from the football website “BeSoccer” and the financing website “Investing.com” and recorded in an Excel to carry out the corresponding analyses. In short, for each of the four teams that have been studied, both sporting and stock market information has been compiled in order to be able to draw the pertinent conclusions of this dissertation. 6.1.- METHODOLOGY First, the analysis will begin by relating the result of the match (win, draw or loss) to the change in the next day's share price (up, constant or down). In this way, each observation will fall into nine possible combinations, as shown in the table below. SCORE STOCK-MARKET CONSEQUENCE WIN GO UP WIN REMAIN THE SAME WIN GO DOWN DRAW GO UP DRAW REMAIN THE SAME DRAW GO DOWN LOSE GO UP LOSE REMAIN THE SAME LOSE GO DOWN Table 8: Result-variation pre-combinations 33 Once all the matches have been analysed, as well as the consequent variation in the price of the asset on the following trading day, a table with the absolute and relative frequencies of the possible combinations will be obtained for each team under study. Although, as mentioned above, there are nine possible combinations; however, in order to make the tables easier to understand and simplify the results, we have reduced the number of combinations to the following five: SCORE STOCK-MARKET CONSEQUENCE FAVOURABLE RESULT GO UP FAVOURABLE RESULT GO DOWN DETRIMENTAL RESULT GO UP DETRIMENTAL RESULT GO DOWN Therefore, these four extreme categories will be studied exclusively, mainly in order not to saturate the reader and to obtain the conclusions more easily, and also because a draw, which could be generally understood as an equivocal result with different implications depending on the team, can be, as explained below, equivalent to a defeat for the teams studied. While, for some teams, a draw can be understood as a positive result (“one point gained”), for others it can be understood as a negative result (“two points lost”). For the purpose of our research we have chosen three teams, which are among the top teams in the English, German and Italian leagues, used to fight for the league title or at least Champions League classification every year, so we assumed that for these teams the achievement of a draw is in any case perceived as a loss of points and a negative outcome for their title and sporting aspirations in general. In the case of the Spanish football team, although it is not as an important team as other three, it is considered one of the references in the Spanish football third division, so a draw can be also considered as a “negative” or detrimental result. Consequently, we have made the result of a draw equivalent to that of a defeat, as this will theoretically be negatively received news for investors. As has been mentioned in Chapter 5, there are mainly two outlayers which are the departure of Cristiano Ronaldo from Manchester during the last week of November 2022, rocketing the price share. However, this event does not affect our concrete study because in that period the domestic leagues stopped due to the World Cup 2022. However, the 10-point penalty for the capital gains for Juventus FC happened during the last week of May 2023, that is, when the domestic league was finishing and league positions were at stake. That week, the value of Juventus FC’s share plummeted and that is the reason why the matchday 36 will not be considered for the future analysis. The next step, and as an initial approach to the analysis, it will be calculated some conditional probabilities about the variation of the share price when there is a favourable result and a detrimental result. In this sense four categories will be reached: o Number of times out of total matches won that, the price increases on the next trading day. o Number of times out of total matches won that, the share price does not increase on the next trading day. Table 9: Result-variation final combinations Source: Own elaboration 34 Phi Coefficient Matrix Phi Coefficient Formula o Number of times out of total matches not won that, the share price goes up on the next trading day. o Number of times out of total matches not won that, the share price does not increase on the next trading day. Then, and once having collected all this information, the “Phi Coefficient” for these football teams will be calculated. For this analysis, it will be considered the categories of “Sports Results” and “Price Variation” as Dummy Variables. A Dummy Variable is a numerical variable used to represent categories or attributes in a statistical analysis. These variables take values of 0 or 1, where 1 indicates the presence of a specific characteristic or category and 0 indicates its absence. For “Sports Results” category (X), value 1 will be attributed to a “Win” and value 0 to a “Draw or Loss” and for “Price Variation” category (Y), value 1 will be attributed if the share price increases in the next trading day and value 0 if not. The Phi Coefficient (ϕ) is a statistical measure used to assess the strength and direction of the association between two binary variables. It is used when both variables can take only two possible values. The values this coefficient can reach are between -1 and 1; in this sense, values close to 1 or -1 indicate a strong relation and values close to 0 indicate a weak or no relation. Finally, a linear regression for each football team will be carried out to make the analyses more rigorous. The linear regression is a statistical technique used to model the relationship between a dependent variable and one or more independent variables. The objective is to predict or estimate the value of the dependent variable for new values of the independent variables and to understand the strength and direction of the relationship between the variables. The form that will be used in these analyses is the simple linear regression, involving a single independent variable. Yt = α + βXt + ut Where: o Yt is the dependent variable (what wants to be predicted or explained); in this case, is the Price Variation of the shares. o Xt is the independent variable (what is going to be used to predict Yt); in this case, is the Sport Result of each team, recorded as a Dummy Variable, where a “Win” is represented by a “1” and a “Draw or Loss” is represented by a “0”. o α is the constant, which represents the average value of Yt when Xt equals zero. o β is the coefficient of the slope of the variable Xt, representing the average change in Yt for each unit increase in Xt. 35 Source: Own elaboration o ut is the residual, which represents the variation in Yt that cannot be explained by Xt and captures other factors not included in the model. From this regression, the R2 and t-students will be obtained, which will be useful to extract some conclusions about the model proposed to analyse the relationship between the “Sports Results” and the “Price Variation” of the shares. The R2 (R-squared), also known as the coefficient of determination, is a key statistical measure in linear regression that indicates how well the regression line fits the observed data. In other words, it quantifies the proportion of the variance in the dependent variable (Yt) that is explained by the independent variable (Xt) in the model. The range of values is always between 0 and 1. An R2 = 0 means that the regression model does not explain any of the variability in the dependent variable. That is, the independent variables have no linear predictive power over the dependent variable. An R2 = 1 means that the regression model explains 100% of the variability in the dependent variable. This would imply a perfect fit, where all data points fall exactly on the regression line. The t-statistic (or t-student) and its corresponding p-value are used to assess the statistical significance of each of the individual coefficients of the regression (including the intercept). If the p-value is less than the significance level (commonly 0.05), it means that the coefficient of that independent variable is statistically significant and that the variable has a significant linear relationship with the dependent variable in the model. If the p-value is greater than the significance level, it means that the independent variable is not a significant predictor of the dependent variable in this model. 6.2. RESULTS Table 8 shows for each football team under study in absolute values, after a win, the number of times the share price went up and the number of times the share price did not increase the next trading day; and after not winning, the number of times the share price went up and the number of times the share price did not increase the next trading day. FAVOURABLE RESULT DETRIMENTAL RESULT GO UP NOT GO UP GO UP NOT GO UP MANCHESTER UNITED 8 15 9 6 BORUSSIA DORTMUND 17 5 1 11 JUVENTUS FC 12 10 5 10 INTERCITY CF 7 5 7 19 In Table 9, the same information as in the previous table can be appreciated, but this time in relative terms, showing the conditional probabilities for each team. Table 10: Amount of result-variation final combinations in absolute terms 36 Source: Own elaboration Source: Own elaboration FAVOURABLE RESULT DETRIMENTAL RESULT GO UP NOT GO UP GO UP NOT GO UP MANCHESTER UNITED 34.8% 65.2% 60% 40% BORUSSIA DORTMUND 77.3% 22.7% 8.3% 91.7% JUVENTUS FC 54.5% 45.5% 32.3% 67.7% INTERCITY CF 58.3% 41.7% 26.9% 73.1% Once these results have been recorded from the observations collected, an analysis and interpretation of the results can be carried out, which will be individualised for each team: Manchester United: Regarding sports results, this English football team presents a reverse situation, in the sense that when Manchester United obtained the 3 points, the variation of the share price in the following trading day decreased the 65% of the times. However, when it could not achieve the victory in its match, the share price increased the next trading day the 60% of the times. Y=1 Y=0 TOTAL X=1 8 15 23 X=0 9 6 15 TOTAL 17 21 38 Considering the Phi Coefficient about the relation between sports results and price variation, Table 10 shows the matrix for these two variables, in which the coefficient that is obtained is -0.25 which is a value something close to 0, which means that there is a negative weak relationship between these two variables. Finally, regarding the linear regression model, the formula that has been calculated is: Y=0.004-0.014X. What is more, it has been obtained that the R2 and the adjusted R2 are of 3,36% and 0.67% respectively, which means that this regression model does not explain any of the variability in the dependent variable. Considering the p-value of α and variable X (“Sports Result”), the values obtained are about 0.67 and 0.27 respectively, being both higher than the significance level (0.05), meaning that the variables are not a significant predictor of the dependent variable in this model. Borussia Dortmund: Borussia Dortmund presented a different scenario regarding sports results compared to Manchester United. For the German team, the 77% of the times that it won its match, the price of the share increased the following trading day, and almost the 92% of the times when it did not the 3 points, the value of the share decreased. Table 11: Amount of result-variation final combinations in relative terms Table 12: Phi Coefficient Matrix for Manchester United 37 Source: Own elaboration Source: Own elaboration Y = 1 Y = 0 TOTAL X = 1 17 5 22 X = 0 1 11 12 TOTAL 18 16 34 Following these data in Table 11, the Phi Coefficient between these two variables was about 0.66 which is closer to 1, meaning that there is somewhat strong relation between sports results of Borussia Dortmund and its stock price variation. Lastly, and with respect to the linear regression model, the formula that has been calculated is: Y=-0.051+0.068X. What is more, it has been obtained that the R2 and the adjusted R2 reach the values of around 27% and 25% respectively, which means that 25% of the variability in the dependent variable can be explained by the independent variables included in the model. Considering the p-value of α and variable X (“Sports Result”), the values obtained are about 0.003 and 0.002 respectively, being both lower than the significance level (0.05), meaning that both variables are a significant predictor of the dependent variable in this model. Juventus FC: The Italian follows a similar trend as Borussia Dortmund regarding the relationship between sports results and price variation, although is not as significant as the German team’s one. When Juventus FC achieved a victory in its respective matchday, around the 55% of the times the price went up the following trading day; and when the victory was not achieved, the price went down 2/3 of the times. Y = 1 Y = 0 TOTAL X = 1 12 10 22 X = 0 5 10 15 TOTAL 17 20 37 With respect to Phi Coefficient as appears in Table 12, the achieved value was of 0.21 which cannot secure strong relationship between these two factors. Lastly, and with respect to the linear regression model, the formula that has been calculated is: Y=-0.014+0.019X. What is more, it has been obtained that the R2 and the adjusted R2 reach the values of around 15% and 13% respectively, which means that only the 15% of the variability in the dependent variable can be explained by the independent variables included in the model. Considering the p-value of α and variable X (“Sports Result”), the values obtained are both of them 0.02, being both lower than the significance level (0.05), meaning that both variables are a significant predictor of the dependent variable in this model. Table 13: Phi Coefficient Matrix for Borussia Dortmund Table 14: Phi Coefficient Matrix for Juventus FC 38 Source: Own elaboration Intercity CF: Finally, as well as Borussia Dortmund and Juventus FC, when the Spanish team achieved a win, the 58% of the times the price of its share increased, and when this result was not achieved, the value decreased the 73% of the times. Y = 1 Y = 0 TOTAL X = 1 7 5 12 X = 0 7 19 26 TOTAL 14 24 38 Following Table 13 about the Phi Coefficient considering these two variables, presented higher than Juventus FC and lower than Borussia Dortmund, with a value of 0.3 showing a weak relation. Regarding the linear regression model, the formula that has been calculated is: Y=-0.022+0.09X. What is more, it has been obtained that the R2 and the adjusted R2 are of 15.5 % and 13.2% respectively, which means that this regression model only the 15% of the variability in the dependent variable can be explained by the independent variables included in the model (very similar to Juventus FC). Considering the p-value of α and variable X (“Sports Result”), the values obtained are about 0.26 and 0.01 respectively, being only the first value higher than the significance level (0.05), meaning that the variable is not a significant predictor of the dependent variable in this model. However, the value p-value of the variable X is lower than the significance level, which means that is a significant predictor. Having obtained different results from the conditional probabilities, Phi Coefficients and linear regressions for Manchester United, Borussia Dortmund, Juventus FC and Intercity CF, in the last chapter, some conclusions will be made around this study. Table 15: Phi Coefficient Matrix for Intercity CF DATE FOOTBALL MATCH CLASSIFICATION PRICE MATCHDAY PRICE AFTER MATCHDAY VARIATION 15/08/2022 Juventus 3-0 Sassuolo 2 3,2559 3,2644 0,2611% 22/08/2022 Sampdoria 0-0 Juventus 4 3,1517 2,9929 -5,0386% 27/08/2022 Juventus 1-1 AS Roma 8 3,0305 3,0868 1,8578% 31/08/2022 Juventus 2-0 Spezia 4 3,0851 3,0203 -2,1004% 03/09/2022 Fiorentina 1-1 Juventus 7 3,0732 3,0015 -2,3331% 11/09/2022 Juventus 2-2 Salernitana 8 3,0049 3,0032 -0,0566% 18/09/2022 AC Monza 1-0 Juventus 8 2,8564 2,7983 -2,0340% 02/10/2022 Juventus 3-0 Bologna 7 2,4722 2,4449 -1,1043% 08/10/2022 AC Milan 2-0 Juventus 8 2,4773 2,4056 -2,8943% 15/10/2022 Torino 0-1 Juventus 8 2,3834 2,4449 2,5803% 21/10/2022 Juventus 4-0 Empoli 8 2,5473 2,491 -2,2102% 29/10/2022 Lecce 0-1 Juventus 7 2,351 2,3561 0,2169% 06/11/2022 Juventus 2-0 Inter Milan 5 2,3032 2,4978 8,4491% 10/11/2022 Hellas Verona 0-1 Juventus 4 2,5047 2,5183 0,5430% 13/11/2022 Juventus 3-0 Lazio 3 2,5183 2,532 0,5440% 04/01/2023 Cremonese 0-1 Juventus 3 3,1227 3,1125 -0,3266% 07/01/2023 Juventus 1-0 Udinese 2 3,1415 3,0988 -1,3592% 13/01/2023 Napoli 5-1 Juventus 3 2,8273 2,8495 0,7852% 22/01/2023 Juventus 3-3 Atalanta 10 2,8 2,6566 -5,1214% 29/01/2023 Juventus 0-2 AC Monza 13 2,5781 2,5149 -2,4514% 07/02/2023 Salernitana 0-3 Juventus 10 2,5456 2,6259 3,1545% 12/02/2023 Juventus 1-0 Fiorentina 9 2,5712 2,5747 0,1361% 19/02/2023 Spezia 0-2 Juventus 7 2,5627 2,5849 0,8663% 28/02/2023 Juventus 4-2 Torino 7 2,6071 2,5832 -0,9167% 05/03/2023 AS Roma 1-0 Juventus 7 2,6805 2,6327 -1,7832% 12/03/2023 Juventus 4-2 Sampdoria 7 2,8256 2,7744 -1,8120% 19/03/2023 Inter Milan 0-1 Juventus 7 2,7403 2,7505 0,3722% 01/04/2023 Juventus 1-0 Hellas Verona 7 2,829 2,8939 2,2941% 08/04/2023 Lazio 2-1 Juventus 7 2,882 2,9195 1,3012% 16/04/2023 Sassuolo 1-0 Juventus 7 2,882 2,8939 0,4129% 23/04/2023 Juventus 0-1 Napoli 3 2,9537 2,8427 -3,7580% 30/04/2023 Bologna 1-1 Juventus 3 2,4705 2,491 0,8298% 03/05/2023 Juventus 2-1 Lecce 3 2,4176 2,4125 -0,2110% 07/05/2023 Atalanta 0-2 Juventus 2 2,4586 2,5115 2,1516% 14/05/2023 Juventus 2-0 Cremonese 2 2,4432 2,4278 -0,6303% 22/05/2023 Empoli 4-1 Juventus 7 2,4381 2,4995 2,5184% 28/05/2023 Juventus 0-1 AC Milan 7 2,5081 2,4859 -0,8851% 04/06/2023 Udinese 0-1 Juventus 7 2,7829 2,7829 0,0000% Source: Own elaboration JUVENTUS FC ("JUVE") ANNEX 1: FOOTBALL VARIABLES OF TEAMS UNDER STUDY DATE FOOTBALL MATCH CLASSIFICATION PRICE MATCHDAY PRICE AFTER MATCHDAY VARIATION 28/08/2022 Numancia 0-1 Intercity 6 5,58 5,3 -5,0179% 04/09/2022 Intercity 1-3 Real Murcia 11 5,32 5,2 -2,2556% 10/09/2022 Gimnàstic Tarragona 1-3 Intercity 5 4 3,9 -2,5000% 17/09/2022 Intercity 5-2 Real Sociedad B 2 3,4 3,4 0,0000% 25/09/2022 SD Logroñés 1-0 Intercity 4 3,4 3,23 -5,0000% 01/10/2022 Intercity 1-2 UE Cornellá 7 2,7 2,7 0,0000% 09/10/2022 Bilbao Athletic 1-0 Intercity 11 3,47 3,4 -2,0173% 16/10/2022 Intercity 2-1 Osasuna Promesas 5 3,12 2,62 -16,0256% 22/10/2022 CE Sabadell 2-1 Intercity 10 2,48 2,32 -6,4516% 30/10/2022 Intercity 2-2 UD Logroñés 10 2,42 2,57 6,1983% 06/11/2022 CD Castellón 1-0 Intercity 13 2,41 2,09 -13,2780% 20/11/2022 Intercity 1-2 Real Unión Club 17 2,16 2,04 -5,5556% 27/11/2022 Atlético Baleares 0-0 Intercity 17 3,46 3,6 4,0462% 03/12/2022 Intercity 0-0 Barça Atlètic 18 3,02 3,48 15,2318% 06/12/2022 CF La Nucía 0-0 Intercity 18 3,38 3,68 8,8757% 11/12/2022 Intercity 4-1 Alcoyano 15 4,22 4,94 17,0616% 17/12/2022 SD Amorebieta 1-0 Intercity 16 5,7 5,7 0,0000% 08/01/2023 Intercity 1-1 Eldense 17 6,7 6,94 3,5821% 15/01/2023 Intercity 1-0 CD Calahorra 16 5,84 6,32 8,2192% 22/01/2023 Real Sociedad B 2-1 Intercity 17 5,98 5,8 -3,0100% 29/01/2023 Intercity 1-2 Gimnàstic Tarragona 17 5,9 5,12 -13,2203% 04/02/2023 Real Unión Club 2-2 Intercity 17 5,26 5,2 -1,1407% 12/02/2023 Intercity 1-0 Bilbao Athletic 14 5,12 4,9 -4,2969% 19/02/2023 UE Cornellà 0-0 Intercity 15 4,8 4,7 -2,0833% 25/02/2023 Intercity 3-1 CD Castellón 11 3,86 4,84 25,3886% 05/03/2023 Alcoyano 1-1 Intercity 13 4,42 4,36 -1,3575% 12/03/2023 Intercity 2-2 Atlético Baleares 13 3,92 3,79 -3,3163% 19/03/2023 UD Logroñés 0-1 Intercity 12 3,83 3,76 -1,8277% 26/03/2023 Intercity 0-0 SD Amorebieta 12 4,48 4,9 9,3750% 02/04/2023 Eldense 2-0 Intercity 13 5,22 4,9 -6,1303% 09/04/2023 Osasuna Promesas 5-1 Intercity 14 4,76 4,36 -8,4034% 15/04/2023 Intercity 2-2 CF La Nucía 15 4 3,66 -8,5000% 22/04/2023 Intercity 1-1 Numancia 16 3,72 3,49 -6,1828% 30/04/2023 Real Murcia 0-1 Intercity 14 2,76 3,6 30,4348% 07/05/2023 Intercity 1-1 CE Sabadell 15 3,24 3,01 -7,0988% 13/05/2023 Barça Atlètic 0-2 Intercity 12 3,22 4,06 26,0870% 20/05/2023 Intercity 1-0 SD Logroñés 11 5,08 5,26 3,5433% 27/05/2023 CD Calahorra 2-1 Intercity 12 4,2 3,77 -10,2381% Source: Own elaboration INTERCITY CF ("CITYC") ANNEX 1: FOOTBALL VARIABLES OF TEAMS UNDER STUDY