On Sunday (from 11 a.m.) the eagerly awaited general meeting of Hertha BSC will take place. The supervisory board is re-elected, the presidency has to submit an application for vote-out. This time, however, there was no big showdown between Werner Gegenbauer and Lars Windhorst at the trade fair. The investor, who attacked President Gegenbauer head-on a few weeks ago, will address the members personally for the first time, but Gegenbauer has not been in office since his resignation on Tuesday.
How things will continue under the changed circumstances between Hertha and the financier Windhorst, that will be one of the exciting questions for the Berlin Bundesliga club in the near future. We discussed this with Prof. Dr. Henning Zülch, who heads the Accounting and Auditing chair at the Leipzig Graduate School of Management.
I’m a very big football fan, I come from the Ruhr area and have an affinity for a club that is always runners-up.
Gifts look different. But yes, Hertha is a very nice case study. In general, the question arises: What about the future of the Bundesliga? And what is the resilience of the German football clubs? I personally believe that it will no longer work without strategic investors. And: We have in the German professional leagues – only – one Bundesliga club that is listed on the stock exchange.
Exactly. For BVB, going public was a blessing in view of the corona crisis. Because while other clubs tended to hide certain information, BVB was as transparent as possible. And that brings us to Hertha BSC and Lars Windhorst and the question: What does his entry as an investor mean?
That the club has to rethink structures and management behavior. That he has to be more transparent in his financial communication – because Hertha has to be accountable to the investor. Investors are the future of the league. That’s clear to me.
The operating business football is in deficit. Alternative sources of funding are therefore required. The growth rates for classic sales such as match operations, TV, sponsoring and transfers are finite. This means that football clubs have to think about how they can develop additional business areas in order to stabilize and, ideally, increase their operating business and sales. On the other hand, it is necessary for the equity base to be increased through the injection of external funds. That’s why football needs support from investors, sponsors or the capital market.
It’s not just that you’re a private equity firm pumping money into a club, trying to link it and then selling it for a profit. In Germany, this is not possible at all due to the general conditions, and we don’t want that either. What is clear, however, is that investors are not always interested in profitability or a monetary return. Investors often want something completely different.
They want social visibility and political influence. These are implicit returns. Or, if you are a major sponsor: you want to participate in the popularity of a football club’s brand. This also applies to investors. The only question is: What is Lars Windhorst’s intention?
Unfortunately I can’t tell you that either.
First of all: Wow, that’s a big hit for Hertha BSC, because it averted the negative equity situation and the threat of over-indebtedness. Secondly, it will be interesting for the club and the fans.
If such an investor, who is not unknown in the market and is also not undisputed, joins Hertha, he will first completely turn the whole place upside down. That means: there will have to be serious changes, because the association has to account to the investor for the strategically efficient and effective use of the transferred equity capital.
Actually just a blessing. You get a good equity base, you become stable, and on the other hand you are forced to think about your structures and processes.
Do you recognize this beneficial influence at Hertha?
You can actually answer the question yourself. Take a look at the sporting record of the past season. Look at the number of trainers that have worn out. But one should also look at what possible factors for future success are. That’s the youth work, that’s a high level of professionalism in many areas, the ability to restructure. One has to hope that the investment sum will be used in such a way that it optimizes the club’s business model and future prospects.
Certainly. These are social and political motives. Berlin is the capital of Germany, Berlin is the political center. It’s a social factor. In this respect, Lars Windhorst will not only pursue financial return targets. It’s also about branding that can be shaped positively through football – if there’s sporting success. Look at Paris Saint-Germain and Qatar. The sporting goals are not in the foreground for Qatar. Paris is one of the largest financial centers in Europe, one is politically and socially involved. This gives you a completely different appearance and you can present Qatar as a country in a completely different way. In my opinion, the social factor was also a key motive for Lars Windhorst to join Hertha BSC.
But now you have to say in fairness: Windhorst has pushed the club over 374 million euros. 374 million! As an investor, I would like to have a certain say in what happens to my money.
That’s correct. Put simply, on paper, this prevents an investor from gaining control over what the club is doing. But we are talking about factual control. Lars Windhorst has them. Of course he influences. But that is also very reasonable. Windhorst comes from the economy and he tries to optimize the construct Hertha BSC with his money. But if you look at what Hertha did with the money, you unfortunately have to say: It’s not sustainable.
The following is reported here: Hertha bought back the shares of KKR for 100 million euros, 130 million were spent on transfers, and there was a minus of 100 million due to Corona, which had to be covered. And a single-digit million amount finally flowed into the infrastructure. A single-digit million amount of 374 million! The money has apparently been used to overcome the prevailing financial bottlenecks. Of course, the club now has a high equity base, which is very good from a financial point of view. But sustainable investing looks different. For example, I would have liked an investor to intervene more clearly in the strategy to ensure investments in future concepts.
Hertha BSC is a company with a turnover of around 100 million euros. That’s not much, in the Bundesliga you’re in midfield. I can’t hammer out investment sums with the highest risk without any investment controlling, without risk management systems. Is one driving the other in front of him? No, you are a company, you must work together to ensure that the money is used strategically and efficiently. Just buy three or four players for a lot of money and everything gets better: it doesn’t work that way.
It’s not just the money. This is start-up financing, or better: it should be. I can’t expect to get to the top of Europe within a year, two or three years. This is a strategic process that I need to stem. You have to stabilize the club with the investor out of a difficult situation and then look: What is my potential for success?
What are those at Hertha BSC?
One thing has to be youth work in the future. Another is the location. You are in Berlin, in the capital! So you have the best possible conditions. But even the best conditions must be activated. And that takes time. But you can only get to the top using this lever, solid work, a good image, good management. Take a look at Eintracht Frankfurt: from chaos club to European Cup winner. But that doesn’t happen overnight. A successful company has a strategy and lets this strategy work.
If sporting success is the most important driver, then Hertha – we don’t have to discuss that – is of course far below average. That has to do with the frequent changes of coach, the turnover in the squad and the lack of continuity. Player development is Bundesliga average, if not worse. The brand is also a huge construction site. Hertha is generally known as a traditional club, but the attitude towards the brand is largely negative. Branding is essential in professional sports. That carries the association. That attracts sponsors, that attracts money. But Hertha BSC stands for unrest. This is not good. And that reflects in everything else.
It’s like in a company when the chairman of the board says to the CEO: “Look, you’re a slob. We will not renew your contract.” As far as image effects are concerned, this is the worst thing that can happen to you. Catastrophe. Reputation damage is maxed out.
He can say whatever he wants. You just have to be careful not to damage the company’s reputation. In the end, what matters is not what you say, but what you do. And seriously: The 50 1 rule in Germany only exists on paper. I am very much in favor of the 50:1 rule, but technically it is no longer up to date. Because it is contestable and has long since been overturned in practice.
We still believe that the Bundesliga is the best league in Europe, but to be honest, we’re not going to be able to match the Premier League and La Liga anytime soon. This can only be changed with strategic investors. And these investors are just around the corner. They want. But they are kept from the 50 1 rule or the supposed 50 1 rule. We need clarity, a clear regulation without loopholes. I am convinced that there will be a modification. We need investors who credibly buy shares in a corporation. But as an investor, I also want to know what happens to my money. I don’t want control, but I want at least a say and accountability.
I don’t think either side knew what to expect. In addition, in my opinion, Hertha BSC had no strategic plan for how the money should be used. And no one thought at all about the strategic and cultural fit of the club, fans and investors.
There has to be a cultural fit between the club and the investor, not just financially. The motifs must be superimposed and congruent. Nothing has been superimposed on Windhorst and Hertha. This is the classic in such a situation. The clubs are looking for investors who will initially fill a financial gap. It was the same at Hertha: replace KKR and compensate for the poor equity base. A strategy department was only implemented at Hertha last summer – two years after the investor got involved. So I ask myself: what strategy did you use to go into this interaction?
The money is almost gone! What do you want to do? I’m not an insider, but to the outside Hertha, with all the communication and strategic problems, doesn’t give the impression that they are in control of the situation. It was certainly a good move to get Fredi Bobic. But such strategic decisions do not have an ad hoc effect, but only in three to five years. Soccer is everyday business. Correcting that afterwards is going to be difficult.
What we see at Hertha BSC is not an isolated case. Albeit in a dimension that is dramatic. I think that people haven’t given enough thought: where do I want to go? What’s the strategy? Which investor do I need for this? Then the investor himself is asked: What are my motives? What are my goals? Can I reach them with this club? The third factor is the fans. The fans are a fundamental element in Germany. I have to take them with me in some way on the way to finding investors. What is happening at Hertha BSC? The fans have been completely left behind. Hertha has a large fan and member base, but there is no longer any significant growth in fans and members. This indicates that the fans no longer identify with the club.
We don’t know how it will turn out. But I don’t think it’s an efficient and sustainable connection.