As the new Bundesliga season kicks off, Borussia Dortmund has brought big money into the club in hopes to stay competitive. The trend that clubs seek outside investors spells the end to traditional football structures.
In 2007, Stuttgart won the German football chanpionship. It was the last time a club registered as an association under German law achieved this feat, Stuttgart President Bernd Wahler noted in a recent newspaper interview.
"The probability of a registered football association winning a national championship again is very low," he added. As Stuttgart finished last season in the lower half of the table, they are now seeking to turn their fortunes around with the help of wealthy investors.
The club plans to spin off its license players division and transform it into a public holding company. A quarter of the newly-issued shares are supposed to be sold to outside investors for an estimated 70 million euros ($93 million). German auto maker Daimler is set to participate in the share issue, scheduled to become the club's largest shareholder. Situated in the Stuttgart region, the carmaker already holds the rights to the name of the club's stadium which is called "Gottlieb Daimler Arena."
Hamburg-based football club HSV is set to follow in Stuttgart's footsteps, and Hertha Berlin in the German capital has already taken a foreign investor on board, selling a stake worth 60 million euros to private equity firm KKR Financial Holdings. Henning Vöpel, a senior economist with the Hamburg Institute of International Economics (HWWI), told DW that German clubs were following a global trend in professional football.
"The number of associations operating like a traditional sports club is in decline. They are changing their legal status to become more competitive and tap news sources of financing," Vöpel said.
Allianz funding has helped Bayern build a brand new stadium. The insurance giant has recently raised its stake in the club
Learning from the champions
Reigning German champions Bayern Munich serve as a role model in these endeavours. Bayern are Germany's record titleholders also in financial terms. Longo ago it changed its status, becoming a public holding company. Sportsgear manufacturer Adidas, insurance giant Allianz and premium carmaker Audi now hold a combined stake of 24.9 percent in the club. Allianz alone paid 110 million euros to purchase the 8.3-percent stake it owns. Bayern shares, however, are not listed on a stock market.
Last season's runners-up Borussia Dortmund have followed a differnt strategy of ensuring sufficient funding. Close to the brink of bankruptcy ten years ago, Dortmund went public and have since been Germany's only football club listed at the stock market. The IPO has helped Dortmund to face up to Bayern, both on and off the field.
However, Dortmund's revenues are still only half as big as those garnered by the Munich-based champions. Therefore, the club has sought to close the funding gap with a capital increase, issuing new shares worth an estimated 100 million euros. Dortmund's main sponsors, sportswear maker Puma, insurer Signal Iduna and chemical company Evonik have acquired significant stakes and are now the club's main shareholders. Bayern Munich has welcomed Dortmund's move.
Issues with sponsors
Dortmund's arch rivals in the Rhur Valley region are Schalke 04. The club is still registered as a traditional football association and doesn't plan to sell shares or go public. However, it has tied its financial wellbeing to a big sponsor, Russia's state-contolled gas giant Gazprom - a deal that has turned out to be not without any problems.
According to a study on football sponsorships, released this year by Braunschweig Technical University, the image transfer associated with sponsorship deals is problematic. Gazprom pays Schalke enormous sums to benefit from the club's positive image. But Schalke has less reason to jubilate these days as Gazprom's global image has worsened over Moscow's role in the Ukraine conflict.
Clubs Wolfsburg and Bayer Leverkusen depend even more on sponsorship money than Schalke. Wolfsburg is backed by carmaker Volkswagen, which is based in the town, while Leverkusen receives nearly its entire funding from chemicals firm Bayer. How fragile such dependencies could be can be seen at the example of former first-division club Uerdingen, which was also sponsored by Bayer. Following relegation to third division, Bayer withdrew its support. Today Uerdingen languishes in the wilds of sixth division amateur football.
Leverkusen and Wolfsburg also face the problem of being derided by fans as "factory clubs" or "company sports groups" that are not used to the stiff winds of competition and subsequently will never make it to the top.
Protection against over-reliance
HWWI analyst Vöpel pointed out that accepting outside capital always entails the risk of unwarranted meddling in club affairs. Hamburg-based club HSV was a case in question, he said, where club officials were unable to make decsions without the consent of Klaus-Michael Kühne. Kühne owns logistics company Kühne + Nagel and is HSV's biggest financier.
Two other clubs in German top-flight professional football, Hoffenheim and Hanover, are also heavily dependent on their patrons. There, SAP founder Dietmar Hopp and Martin Kind, owner of hearing aid devices maker Kind, call the shots.
Gazprom's money enables Schalke to keep top-notch players like national defender Benedikt Höwedes on the team
Vöpel said that even minority shareholders in clubs can excert "huge influence."
Traditionalists hold out
Unlike their "big money" rivals, current first division clubs Augsburg, Mainz, Freiburg and Paderborn are still organized along traditional lines. As registered football associations, their fortunes, however, will remain bleak. Völpel believes they will continue to have far less money to spend on players and will remain stuck in the lower end of the table. "Even if they work hard, they repeatedly fall back," the expert said.
In Vöpel's opinion, current developments in professional German football would indicate that traditional club structures and their legal underpinnings will come under increasing pressure as German Bundesliga football has become a billion-euro game. With revenues of some outpacing those of others ever faster Völpel thinks commercialization will remain the order of the day. "This trend is spreading and, in the end, forcing each individual club to actually open up," he concluded.