To make your life easier I have also attached a sample essay of the same assignment one of my friends wrote! It will give you a blueprint and you can take ideas from that assignment also! Thanks!

What is Borussia Dortmund’s financial situation (positive or negative) currently based on their financial documents?

(Income statement)According to the income statement, Borussia Dortmund shows a negative financial situation according to their previous year in 2018-2019. To start of, sales declined from the previous year from 446,030,000 units to 442,126,000 units. This was mainly due to their match operations sales, which can be associated with less tickets sales and fans purchases during game day. These sales were 12,000,000 euros less than the year prior. In this case, if the expenses are similar or slightly greater, then the performance of Dortmund would be negative no matter what compared to the previous year, and that is exactly what happened. Personal expenses only increased slightly in the 2019-2020 year from -193,686,000 to -203,523,000. Income from profit and interest earned also decreased from the previous year where interested earned greatly differed from 1,003,000 to 180,000. The biggest reason for the result of Dortmund’s negative net value in 2019-2020 was the large increase of expense the category “other operating expenses” which increased about -40,000,000 over a year. This was due to an increase of transfer fees, directly related to acquiring players. With lower sales and greater expenses, Dortmund had a loss of -49,418,000 for the 2019-2020 year, where they earned 27,656,000 in the year prior.

(Balance sheet)According to the balance sheet, Dortmund’s financial situation is balanced or positive as their value of assets equals their liability, giving them a net worth of zero. Compared to the previous year though, Dortmund had increased their intangible fixed assets, by 64,000,000 euros. These intangible assets include trademark rights, computer software and prepayment, and the highest amount due to player registrations. There current assets were relatively similar, except the cash on hand went from 52,120,000 to 3,157,000 in 2019-2020, and this is probably due to Dortmund using this money to invest in an asset such as a player. When looking at equity, capital reserves remained exactly the same at 144,337,000 euros for both years. Dortmund even increased their revenues reserves by 20,000,000 euros, but equity still declined because of the net loss of the year of -49,662,000 euros. They increased their revenue reserves through their addition of treasury shares. Liabilities also increased from the 2018-2019 year by a large margin, from 86,094,000 million to 172,547,000. This huge increase was due to trade payables, which include transfer fees when acquiring new players and talent. These payable increased from 60,602,000 to 135,122,000 in a year. Although having a major increase, stockholders equity and liabilities only increased by about 5,000,000 from the previous year. Both years balanced out assets and liabilities, giving the net worth of Dortmund to be 0.

(Cash flow)Dortmund shows a negative cash flow from the 2019-2020 season and a negative cash flow for the year. Broken down further, the cash flow statement shows a negative cash flow for operating activities at -362,000. This is mainly due to the -46,583,000 profit and liabilities that weren’t classified as investing or financing activities which had a value of -18,818,000. In the year prior, cash flow from operating activities were positive at a value of 28,710,000 and this was mainly due to a positive change in other liabilities that weren’t from investing or financing at 10,063,000. When looking into cash flows from investing activities, these cash flows increased negatively from -23,509,000 to -50,769,000. This is due to the payments for investments in intangible assets, which increased from 2018-2019 from -129,458,000 to -152,736,000. Cash flows from financing stayed relatively the same, but change in cash and cash equivalents were greater then the cash and cash equivalents at the beginning of the period. Therefore, there was a negative cash flow at the end of the period of -4,714,000.

Borussia Dortmund finished second in the Bundesliga during the 2019 - 2020 season

1. What were the financial benefits and costs for finishing second? (pg 96)

The financial benefits for finishing in second place were a performance bonus of 29,363,000 euros. They also qualified for the UEFA champion’s league and finished in the round of 16, which automatically qualifies them for the group stage in next year’s competition. This promises Dortmund future money when they participate in this outside competition. The cost of finishing second was shown through an increase in the operating expenses for Dortmund. The operating expense increased by 40,186,000 euros, and this was largely seen through transfer deals. In order to stay competitive and try to win the league, Dortmund was looking for talent, and this shows why there was an increase in 37,132,000 euros to 80,058,000 euros from the previous year. The other cost that increased was the advertising expense. With the rise in advertising income from making it to the UEFA tournament, advertising income increased, which meant an increase into the commissions paid to “SPORTFIVE GERMANY GmbH”.

2. Why is their stock only $6.35 as of 9/16/2020?

It seems that the Dortmund stock has been trying to recover since the start of the Coronavirus as after February, 21st 2020 the stock was trading at 9.39 and now it has slightly rebounded and been trading steady around 6 dollars over the past few months(investing.com). On July 10, 2020, the adjusted calendar for the 2020/2021 season was also announced for the DFB Cup stating the Bundesliga matches would start on September 18th 2020(pg 208). With no fans in the stands currently, stockholders are certainly awaiting to see the outcome during the 2020/2021 season and make the decision if it’s worth investing during an uncertain future. The Dortmund stock also shows earnings per share that is negative, at -0.28. Negative earnings per share could tell you many things about a stock, but the first thing it tells you is that the company reported a negative net income in the last 12 months since its been reported (Gunnars, 2020).

As an investor though, there are a few other reasons to look into a negative earnings per share, such as the company having a struggling business, have strong revenue growth but are unprofitable, and one time effects where a company may have to pay a big expense where the earnings per share may go negative for a period of time (Gunnar, 2020). In the case of a struggling business, the company may be spending more cash that it takes in to stay alive. Investing in a sports franchise is tough in this case, because the main reason for negative earnings was because Dortmund invested in players and had large expenses on transfer fees, but it resulted in the team finishing second for the second year in a row. This goes along with next thought of Dortmund having strong revenue growth but is unprofitable. Dortmund was shown to have a profit in the 2018-2019 season, but when they took the money and invested it into the soccer team for improved performance, they recorded a net loss for the year. As an investor, this could be a sign of a better future because now that the transfer fees are paid, the expenses won’t be as high, and if the team performs as well or better the following year, then Dortmund will generate a profit and it will be a sound investment. The earnings per share may have been influenced by a one-time effect or a big time expense as well. In sports organizations such as Dortmund, this is more likely where teams occasionally suffer from negative income and negative earnings per share, because of a big time expense acquiring new players. Investors have to look into this and see if this is a common theme within the organization, and if it is then it will be very risky to invest in the stock because of an uncertain future.

When looking into why the stock price is only $6.35, you have to look into the risks that investors are looking at before they put money into Dortmund stock. Investors look into strategic risk, personnel risk, macroeconomic risk, and competitive risk (62,63,64,65). Strategic risk involves investors looking into putting money into the team and hoping they perform well in the next year. The amount that a club is certain receiver varies greatly if they finish second or seventh in the Bundesliga, so investors have to make their best educated guess (62). Personnel risk is the next thing investors look into for the soccer club. A big reason for this is because how a team manages there players, such as giving them rest time during the season and possibly sacrificing a game because their best team isn’t on the field, can hurt how a team performs and finishes, and affect the investors investment (63). Macroeconomic risk takes into account things on a general economic and political scale. The best example of this right now is the pandemic, which as it effected the world economically, it had a direct effect on Dortmund and the interruption of their games and league. Obviously things like this are hard to see coming, but investors need to be aware of this happening and affecting the team and the investment (64). Competitive risk is the last thing investors need to look into and this is self-explanatory. This looks into how the team is performing relative to other teams, and how this performance is influencing their monetary value. So as of right now, the stock seems to be only $6.35 at September 16th, 2020 because the uncertainty of the future with the coronavirus, as the biggest concerns for investors are going to be strategic risk and macroeconomic risk of investing into a sports team like Dortmund right now.

In 2003-2004, Borussia Dortmund was in debt around $100 million pounds, and they even accepted a loan from their rivals (Bayern Munich). The team was on the verge of bankruptcy.  How are they doing financially since 2004?

1. How was the organization able to survive bankruptcy?

After occurring a huge debt through mainly spending lavishly on player transfers and salaries faster than money was coming in, the first step to Borussia Dortmund’s recovery was a change in their management (Alikhan, 2018). The club selected Hans-Joachim Watzke to save them from financial ruin, and he did this over time by making paying off a debt a huge priority over anything else (Alikhan, 2018). Watzke also had to convince shareholders, banks they owe payments to, and the league that they had a financial future before being able to start the process ( CITE JAZEERA). After getting another chance, Watzke had some work to do and he started off by having each player take a 20% paycut, which allowed them to avoid bankruptcy, and then he had the club slash their budget and get rid of overpaid players (CITE JAZEERA). With a slashed budget, Dortmund would no longer be able to pursue experienced, expensive players, which was a good thing, and in turn they started to invest in young talented players showing promise for the future. The last piece of the puzzle was bringing the team back to success and through that earning back money and financial stability. This was only to be done with a great club manager, who they found in Jurgen Klopp. Klopp was able to develop the youth over time, with one of his best showings in the Champions League final in 2011 with a roster worth less than 35 million and an average age of 22 years old (Alikhan, 2018). After surviving bankruptcy, one thing was for sure though under Watzke’s rule, the club would never spend more than their means in the pursuit of success again (CITE ALJAREEZA).

2. Is the organization still on the verge of bankruptcy?

I think Borussia Dortmund is still on the verge with bankruptcy because through its financial statements, they seem to be close to the route of spending more than they are bringing in. When they went bankrupt in 2004, they were spending a lot of money on player contracts, and you can see this increase of spending again through their increase of liabilities in trade payables by about 75,000,000 from 60,602,000 to 135,122,000(pg 81). Also, when assets equal liabilities than a company has a net worth of zero. In the year 2019-2020, the balance sheet for Dortmund shows that assets and liabilities were both 518,768,000 euros giving them a net worth of the year to be zero. Then looking at the income statement where it shows a net loss of -49,662,000 for the year 2019-2020, this shows that if Dortmund continues on this path of negative income in the future, they can find themselves in the same situation in 2004 and on the verge of bankruptcy once again.

1References:

https://bvbbuzz.com/2018/01/24/look-back-borussia-dortmunds-remarkable-financial-recovery/

https://www.aljazeera.com/sports/2013/05/21/how-borussia-went-from-bust-to-boom/