How can MENA countries mobilize investment to improve their football?

The 2022 World Cup in Qatar is the first to be held in the Arab world and for the first time in World Cup history, an African team (Morocco) advanced to the semifinals. Regardless of the outcomes of the games, this tournament contributed to changing the course of soccer history in the Middle East and North Africa (MENA).  A positive course would require transforming MENA’s soccer clubs into well-managed, attractive, and profitable sports companies and the football industry into a professional and competitive sector. This transformation can create more opportunities for MENA’s large youth population to contribute to their country’s development.

The major challenge in achieving the professionalization of soccer clubs is breaking the vicious cycle of less-talented league players and financially weak clubs that are in turn incapable of attracting or developing talent.  Even fiscally-constrained MENA countries can initiate a virtuous cycle by focusing on leveraging private capital into soccer clubs. MENA countries could follow a three-step strategy:

Step 1 - Mobilize more financing for soccer clubs from domestic and foreign private sectors. In many countries, soccer clubs are viewed as prized assets, given their potential to attract talent and generate significant financial and socioeconomic benefits. However, in some countries, the capacity of clubs to generate private financing is undermined by the privileged access of some businessmen to decision-making and management, a situation that leads to soccer clubs being both opaque and ineffective. Following a thorough assessment of the value of clubs—which are often comparable to SMEs with great potential—private capital may be mobilized mainly in two ways:

• • Listing on the stock market, which has the advantage of promoting more transparency in the privatization process while facilitating the participation of the domestic private sector and small investors, such as supporters and associations.  One limitation of this approach is that small investors tend to sell their shares when the market falls or their expectations at the aren’t materialized in reality.
  • Opening share capital to technical and/or financial partners using institutional mechanisms usually deployed for foreign direct investment in SMEs. One important tradeoff to bear in mind is that some partners might focus more on identifying and exporting young talent than on achieving championship.

Therefore, emphasis should be placed on encouraging club owners to develop young talent that will help enhance competitiveness, increase match revenues, and promote the sale of players (after a minimal stay in clubs where they trained)  while advancing the reach and influence of clubs, the league, and the national team at regional and international levels.  Bigger clubs that have large numbers of supporters will find it easier to attract private investment in stadiums, along the lines of the one-club-one-stadium English model. 

Step 2 - Increase club revenues by strengthening collection and sharing of ticket sales and TV broadcasting rights. While TV broadcasting rights account for two-thirds of club revenue in comparator countries, having a large base of supporters is key to boosting revenue from ticket sales, sponsorships, and merchandising. Statistical analysis in this area has shown that club revenue is positively correlated with population size, the level of development of their region, and the competitiveness of these clubs (Dessus and Raballand 2020).

• • In some countries, match revenue is not systematically turned over to the clubs, which limits their potential to grow and become more competitive.
  • In terms of TV broadcasting rights, several countries have opted for centralized negotiations conducted by their professional leagues, which then redistribute the resulting revenue to the clubs (England, Italy, France, and the USA). This model represents a tradeoff between the competitive balance in domestic competitions, on one side, and international competitiveness, on the other. In some countries, the monopoly enjoyed by national TV providers to broadcast certain matches is a major constraint.
  • Efforts to increase the revenue of soccer clubs could be thwarted by other organized sports or amateur leagues due to politics.  Some countries have established a sports development fund to address this political economy issue.

Step 3. Strengthen the regulation of clubs and improve league governance to promote competition and healthy development of the sector. It is important to establish a unit that is responsible for monitoring the audited accounts of clubs and for overseeing spending limits. This unit should also put credible rules and sanctions in place to promote financial transparency and sustainability of clubs.

To support good league governance, the benchmarks that were examined in this exercise show that models differ from one jurisdiction to another, depending on the history and political economy of the countries.  In some countries, clubs are also managed by other members of the professional football fraternity, including coaches’ unions, players’ unions, sports medicine physicians, etc. When regulating a league, it is important to decide on an optimum number of clubs, as too many clubs can undermine individual clubs’ revenues.

To create an exciting domestic soccer league and be competitive on the world stage, fiscally constrained and middle-income countries need to mobilize private capital to modernize soccer clubs.  Qatar 2022 renewed enthusiasm for soccer in the MENA region and there is a real window of opportunity to turn the tide when it comes to mobilizing private capital for better management of soccer clubs.