Bonuses save football clubs’ finances
More and more of footballers’ pay is in the form of bonuses. This is a smart way for football clubs to avoid ending up in the red, shows a study carried out at NHH.
Text: Sigrid Folkestad
Many Norwegian football clubs have really struggled financially in recent years. This has resulted in more use of bonuses as part of the players’ salaries, according to a new master’s thesis at NHH.
Read more about the bonus systems used by Norwegian top flight clubs in ‘Norske fotballklubbers bruk av prestasjonslønn’ (‘Norwegian football clubs’ use of performance-based pay’ – in Norwegian only) by Simon Arenberg and Eirik Haraldsen Hvamstad.
Sunnmøre top the bonus table
Aalesund football club tops the bonus statistics, with bonuses making up 30 per cent of players’ salaries. This club from the Sunnmøre region had a wage budget of NOK 19 million last year.
Next comes Viking with a bonus share of 27 per cent of a wage budget of NOK 24 million, and Sarpsborg 08 with a bonus share of 25 per cent of NOK 13.5 million.
Neither Brann nor Rosenborg wanted to disclose their wage budget to the NHH students, who recently submitted their thesis, but they were told that Rosenborg spends 22.5 per cent of its wage expenditure on bonuses.
Mjøndalen is among the teams with the smallest wage budget and lowest bonus share.
Bonuses mean less risk
‘The clubs are not wealthy and must adapt their expenses to their income level. A bonus scheme is a way of sharing the risk between the club and the players. It is a natural way of thinking. If the clubs aren’t successful, the players help to share the burden,’ says Associate Professor Iver Bragelien of the Department of Business and Management Science.
‘The alternative to paying a bonus is to give the best players a high fixed salary?’
‘Yes, but that would involve a very big risk. If the club performs poorly over a long period, it is left with little money at the end of the season. In that case it must either give away or sell players. By paying a lower fixed salary and including a bonus option instead, the clubs do not have to pay high salaries when they perform badly on the pitch. But when they do achieve results, the players are paid all the more.’
Bragelien is an expert on financial management, pay and bonus systems and he is therefore supervising a number of master’s students writing theses on these topics. In one of the most recent theses, the students interviewed representatives of Norwegian top flight football clubs (see reference).
Explosive increase in the use of bonuses
Brann football club was one of the first to introduce performance-based and result-based pay, and by 2001, almost all the top flight clubs had introduced bonuses in parallel with big cuts in salaries.
Before that, all the top teams had run at a loss, both because of high salaries and because they lost money on buying and selling players. Something had to be done.
The situation reflected changes in the rest of society, according to Bragelien.
‘There was an explosive increase in the use of bonuses in business and industry at the turn of the millennium, both in Norway and internationally. Sogndal was the only Norwegian football club not to have any form of bonus agreements with its players.’
Does not improve performance
In their master’s thesis, the students also investigated whether the teams that want their bonus system to motivate the players are the same teams that do well.
The argument for introducing a bonus system, according to clubs’ management, is that it helps to motivate the players. This is not the case, according to Bragelien.
‘The students found no connection between the use of bonuses to motivate players and how well the clubs perform, which is not particularly surprising. This is not something that is easy to grasp,’ says Bragelien.
Bonus systems are performance-related and based on achieving results. They are linked to individual matches or the final result achieved in the league or cup, or a combination of the two, and they usually depend on how much the players have played. Many of the clubs pay out bonuses as they are earned.
When researchers study different types of bonus systems, they often discuss whether monetary rewards can weaken the recipient’s internal motivation. This does not seem to be a problem in football, according to Bragelien.
‘It’s a very interesting discussion on a general basis, but in football, the extra reward corresponds to the players’ values. Football is their profession, and when their club does well, the fans are happy and the club makes more money from ticket sales and TV agreements. That the players also receive their share of the extra revenues reinforces the values they already have, and there is therefore no reason to believe that it affects their motivation.’