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Espanyol: Game Over for Historic Tournament?

An annual tournament hosted by the Spanish soccer club Espanyol has been operating at a loss. Should Espanyol call time on the event? Or was the prestige built up over decades enough reason to keep the ball in play?

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Note: Forum open until September 19, 2017

THE CASE

On a summer's day in July, Jordi Sanchez, marketing director for the Spanish soccer club Espanyol, was reviewing the finances of the upcoming City of Barcelona Fernando Lara Memorial Trophy. Espanyol had been hosting the event since 1974 and it was one of the competitions used by Barcelona to promote itself as a global sports capital. However, with growing numbers of other preseason tournaments, and falling as it did during August when most people were away on vacation, public enthusiasm for the event had been waning in recent years. For Sanchez, the numbers weren't adding up. But was there more to the event than just what was on the balance sheet?

An Illustrious History
Although Barcelona is often associated with another famous soccer club, the history of Espanyol is just as illustrious, dating back to 1900 and as closely tied to the city as FC Barcelona, aka Barça. After starting out as Sociedad Española de Football, it was rebranded as the Royal Sports Club Espanyol in 1912.

Espanyol was one of the teams that founded La Liga -- the top division of professional soccer in Spain, equivalent to the Premier League in England. While it has never won La Liga, it did win the national King's Cup four times, in 1929, 1940, 2000 and 2006. In addition, it reached the finals of the UEFA Europa League in 1988 and 2007. Espanyol also pioneered a national women's division, and its women's team has won a league title and six Queen's Cups.

After the Sarria stadium that had been Espanyol's home for decades was sold, the club moved to temporary digs in Montjuïc, site of the 1992 Olympic Games, until it finally acquired a new stadium of its own in the Municipality of Cornella-El Prat. With a capacity of 40,000, the stadium generated new excitement for the club when it was inaugurated in 2007.

However, as Sanchez assessed the club's more recent track record during the summer of 2015, what was fresh in everyone's mind was that Espanyol had finished 10th in La Liga and reached the semifinals of the King's Cup. Not bad, he thought. But not quite the pinnacles of previous years either.

Sources of Income
Like many soccer clubs, most of Espanyol's revenues came from media rights, which in 2015 reached 22 million euros. The package included La Liga, the King's Cup and all summer matches.

The next biggest source of income came from ticket sales, including season tickets (which during the 2014-15 season amounted to 5.7 million euros) and match-day sales (1.5 million euros), which included what fans spent on food, beverages and merchandise. VIP boxes, usually bought by companies for the whole season, added to stadium revenue.

The third biggest revenue stream was generated through related marketing activities. Espanyol received 1.5 million euros from its apparel sponsor, Joma, and 745,000 euros from merchandising. Friendly matches brought in an additional 600,000 euros.

Finally, Espanyol generated revenue from the sale of players, though this varied considerably from year to year.

Players' salaries accounted for half of all expenses during the 2014-15 season. Each player received a base salary, with bonuses for hitting targets based on individual as well as team performance.

Time to Leave the Past Behind?
The City of Barcelona Trophy was legendary in the history of the club. It had brought big international teams, such as Liverpool, to play at Espanyol's stadium, which was the only time -- apart from the few years that Espanyol had qualified in European competitions -- that fans could see foreign teams play on home turf. Tickets for the tournament were priced at 20 euros to appeal to the general public and were included as part of the package for season ticketholders.

That said, friendly tournaments were losing their appeal, partly because the regular playing season started a month earlier than it used to. Moreover, the tournament was making a loss. In recent years, the fixed costs of organizing the game -- paying the visiting team and referees, stadium costs and so on -- had exceeded the dwindling box office by tens of thousands of euros.

Weighing the costs and benefits, Sanchez knew that, from a purely economic perspective, he should scrap the tournament. But he wasn't just the marketing director, he was also a lifelong fan of the club. The City of Barcelona Trophy, for him, represented part of Espanyol's heritage and tradition. Did being a soccer club with a loyal fan base, not just a business, change the rules of the game?

Was it worth propping up an unprofitable tournament for old times' sake? Or was it time to let go of the past and look for new ways to achieve future profitability?

The case study "La Liga's RCD Espanyol: Analyzing the Economics of Soccer Games" (C-783-E), by IESE Prof. Tony Davila and Daniel Oyon, is available from IESE Publishing at www.iesep.com.


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