The profit-utility trade-off
As a sports owner or director of a team it is crucial to know the purpose of our organisation. Are we there to make a profit, or are we there to win trophies? The ideal answer would of course be both but whilst everyone could be profitable, by definition not everyone can be a winner.
The theory of behind how these two forces interact in sport has long been established. Academic research reflecting on the nature of North American and European sport- and our own experience with clubs – has outlined the competing camps of profit-maximisation vs utility-maximisation (i.e. winning trophies). In a nutshell the theory tells us pursuing profit in a utility environment means you get left behind; pursuing utility will ultimately be unsustainable for most people.
Clearly the question is: how can this theory help us in practice?
The sporting world, especially in Europe, is moving toward a more nuanced environment where the interaction between profit and utility is ever more complex. To be able to plan and thrive in this dynamic world the starting point is a clear definition of your goals.
A rounded understanding of the fundamentals of theory can help develop a sense of what might be realistic to aim for and what the eventual consequences may be. Is it acceptable to our organisation that protecting the balance sheet may come at a cost to the trophy cabinet? Is the attempt at increasing your chances of success worth the risk to the long term health of the organisation? A good current example of this is FC Porto. A bold rebuilding plan in the pursuit of trophies dramatically increased their losses and has endangered their ability to compete in the future seasons.
We have already seen this issue recognised by UEFA with the introduction of financial fair play regulations however ultimate responsibility lies with individual organisations. If we can form and answer the types of questions above we can better understand what our purpose really is and position ourselves to succeed within this frame.