Bloomberg News

Borussia Dortmund CEO Shuns Investors as Team Outshines Madrid

November 13, 2012

The chief executive officer of Borussia Dortmund GmbH (BVB) has a message for institutional investors after Germany’s only listed soccer team posted the biggest profit in its history: Don’t buy our shares.

Hans-Joachim Watzke said he doesn’t want shareholders disrupting his club, which announced record annual net income of 34.3 million euros ($43.7 million) on Aug. 28 after winning back-to-back German Bundesliga titles. That’s a bigger profit than closely held Real Madrid, which calls itself the world’s biggest sports team by sales.

Most shareholders are fans with an emotional tie to Borussia Dortmund, Watzke said. Institutional investors could pressure the club to increase profit at the expense of sporting success, according to Klaus Kraenzle, an analyst at Silvia Quandt & Cie. in Frankfurt. The combined stake of money managers rose to 14.2 percent from 6.5 percent since Aug. 26, according to data compiled by Bloomberg.

“We would not like to have them,” Watzke, a Dortmund fan for more than four decades, said in an interview. “It’s very important that I am free” to make decisions, he added.

Borussia Dortmund was founded in 1909 and named after a local brewery -- the Borussia Brauerei. Borussia is Latin for Prussia, the former German state. Its shares began trading in 2000, and about 80 percent of its equity is publicly listed. The biggest shareholder is Bernd Geske, who is a “crazy” fan of the team, according to Watzke. Geske, a board member, holds 11.6 percent.

Bundesliga Titles

On the field, Ruhr-based Dortmund has rarely had it so good. Coach Juergen Klopp’s side won the last two Bundesliga titles, last season’s German Cup, and leads Real Madrid, Ajax and Manchester City in its Champions League group. It won the elite European competition in 1997. To be sure, the team isn’t doing so well in the German league this season, trailing leader Bayern Munich by 11 points.

Shares of eight-time German champion Dortmund, which regularly sells out the 80,000-capacity Westfalenstadion, have risen 40 percent this year. They were trading at 2.66 euros yesterday, giving the club a market value of 163 million euros. There are no plans to buy back shares, Watzke said.

The team yesterday posted first quarter net income of 2.3 million euros on sales of 52 million euros. Fan shareholders would rather see soccer success than a financial return, allowing Dortmund to pay a “disappointing” dividend of 6 euro cents for the last fiscal year, Kraenzle said.

“I wouldn’t sell my shares for anything,” Alexander Marek, 26, who has owned about 100 for seven years, said as he sipped beer before a match against Real Madrid last week. “I love Borussia Dortmund.”

Manchester Unrest

In Spain and England, some fans see outside investors as a threat. In September, Real Madrid supporters moved to block a potential takeover by requiring presidential candidates to be club members for 20 years. Real had net income of 24 million euros on revenue of 514 million euros in the year through June.

Manchester United Supporters’ Trust, a group that opposes the team’s ownership by the Glazer family, says the Americans are risking the club’s sports prospects in pursuing their financial interests after their 2005 takeover. More than half of England’s top division is now foreign-owned.

For now, there is no prospect of institutional investors interfering with Dortmund’s sporting decisions because none holds large enough stakes, Kraenzle said. U.S. money managers Vanguard Group Inc. and BlackRock Fund Advisors, which have holdings worth a combined 750,000 euros, said they own them because the club is part of an index of stocks they track.

“That’s the only reason we hold the stock,” Vanguard fund manager Michael Perre said by telephone, adding he doesn’t have an opinion on the club.

Bankruptcy Avoided

Watzke has led Dortmund since 2005, when its initial 11- euro share price had plummeted to two euros and, he said, it was close to bankruptcy because of 122 million euros of debt. His previous job was running his company, Watex Schutz-Bekleidungs GmbH, which makes fire-proof clothing. He reduced the club’s debt to 30 million euros and reacquired its stadium from a real- estate fund.

Borussia Dortmund is outperforming rivals off the field because it has a smaller payroll than many in soccer thanks to its policy of hiring younger players. Salary costs were 35 percent of its 215 million-euro sales in the year to June 30. Wage costs at Bundesliga teams were on average 53 percent of sales in the 2010-11 season compared with 70 percent in the English Premier League, according to Deloitte LLP which ranks Dortmund as the 16th-biggest team by sales.

‘Exotic’ Investment

“We have a good position, no question,” Watzke, 53, said. While some Spanish soccer clubs are struggling with liquidity, Dortmund is “as reliable as the Bank of England” in paying salaries, Watzke added.

Silvia Quandt, which has a “buy” rating on the club, predicts it will make a 19.9 million-euro profit for this fiscal year and pay out a dividend of 5 euro cents, according to a Sept. 12 note to investors. The team remains an “exotic” investment that’s mainly for people who have a bond with the club, Kraenzle said.

In soccer, it’s harder to maintain a successful cycle than in other businesses and Dortmund is likely to come under pressure to trade players like forward Marco Reus, Kraenzle said. The club traded another 23-year-old, Japanese midfielder Shinji Kagawa, to Manchester United for 16 million euros this year.

German league rules don’t allow investors to take management control of a team by buying shares, Kraenzle said.

That’s fine by Watzke.

Borussia Dortmund is part of the culture of Germany and “not for someone in Abu Dhabi, Russia or China,” Watzke said. “We must earn our money ourselves.”

To contact the reporters on this story: Alex Duff in Madrid at aduff4@bloomberg.net.

To contact the editor responsible for this story: Christopher Elser at at celser@bloomberg.net


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