The never-ending discussion on CEO compensation 

Reading time: 7 minutes

CEO compensations are again a motive of discussion, as inequality rises: 

Chief Executive Officers’ (CEO) compensations are once again the topic of the moment, with several news coverages reporting increases in the earnings of the ultimate day-to-day firm managers, in the last year of 2022.  

For example, Dara Khosrowshahi, Uber Technologies Inc.’s CEO saw a total increase in compensation of 22% in the last year alone, culminating in a total payment of $24.3 million. According to the report issued by the Securities and Exchange Commission, his payment was composed of a $1 million base salary, stock awards of around $14.3 million, $5.9 million in options, a $2.9 million bonus and a “symbolic” $170 thousand compensation for personal travel and security costs. James Gorman’s salary, CEO of Morgan Stanley, rose 13% to $39.4 million, of which $1.5 million in base salary, $7.5 million in a cash bonus and stock awards of $30.4 million. According to Reuters, these numbers reflect a ratio of 274 to 1 when comparing Gorman’s pay to the median pay of an employee in 2022, an increase from the previous year’s ratio of 255 to 1. American CEOs of oil companies experienced a large growth in their pay checks as well, as their record profits were driven by the increase in energy prices, with ExxonMobil’s CEO, Darren Woods, having a 52% raise in his payment of $35.9 million. However, the same cannot be said for the median oil company worker, who saw a decline in the average salary, with those of Exxon seeing a decrease of 9% to a total yearly salary of $171,582. Moreover, just this week, Alphabet and Google’s CEO, Sundar Pichai, was reported to earn $226 million, which included stock awards of $218 million. This represents more than 800 times the annual pay of a median employee and it is subject to controversy and outrage as the company has been cost-cutting with their employees through layoffs that have already started, following Google´s plan to cut 12,000 jobs, representing around 6% of its total workforce. 

These numbers express a growing concern in today’s society, with the rising disparity between CEO’s average salary and the median worker. In fact, in June 2022, the Institute for Policy Studies released a study including the top 300 publicly traded US firms, in which it was concluded that the average pay gap between CEO and median worker jumped to 670 to 1, an increase of 31%, from 2020’s 604 to 1. In total, 49 firms had ratios higher than 1,000 to 1, signalling that, for each dollar the median employee received, the company’s CEO would earn more than $1,000. Furthermore, in more than a third of surveyed companies, the median worker salary did not keep up with inflation

Figure 1: Aggregated CEO-to-worker compensation ratio for the 350 largest publicly owned companies in the U.S. from 1995 to 2021

Figure 2: Ratio between CEO and average worker pay in 2018, by country

However, such large differences in pay do not occur in every country. There are cross-national differences which relate to the culture of the country in question. Indeed, the average US executive compensation is significantly higher than that experienced in Europe or Asia. This relates to the fact that Asian countries, like Japan, favour group rewards while others, such as China, value other aspects more highly, namely promotions or potential political careers. Nevertheless, for the sake of exemplification, in this article, the US will be used as a case study. 

The agency problem as a potential explanation: 

To truly comprehend where these differences arise from, one must start by understanding what an agency is.  An agency is a contract by which one party, the principal, grants authority to another party, the agent, to act on his behalf in a particular matter. Consequently, the agent – which may be a CEO – is expected to act in the best interests of the principal – in this case, the shareholders – and, normally, is not held liable for his actions as long as he acts under his fiduciary duty. However, an agency problem occurs due to the separation that exists between the management and shareholders, such that both parties’ interests are not aligned, with CEOs potentially acting in their self-interest due to several reasons, like imperfect contractability or the fact that actions are not perfectly observable. In order to mitigate this problem, many times CEOs are attributed compensation that is related to their firm’s performance, such as stock options or golden parachutes to align incentives. 

The medium-class lifestyle seems more and more distant: 

To say that things are not going well in the United States and many other advanced countries is an understatement. Discontent is widespread in these parts of the world, namely in the US, displaying the world’s most severe corporate inequality, in which the gap between a company’s highest and median pay – known as its pay ratio – should not be as sky high. 

Income inequality has resulted in a substantial gap in society, making it more challenging for individuals to attain a middle-class standard of living. This divide not only demoralizes the workforce but also shrinks the chances for billions of people to earn a liveable wage. Moreover, income inequality is a deterrent to economic growth, as it is estimated to reduce demand by 2-4%. Adding to that, the accelerated inflation rate, which will have the most significant impact on low-wage earners, emphasizes the necessity for businesses to prioritize policies that elevate the average worker.  

A significant majority of Americans (close to 75%) view the economic disparity between the wealthy and the less affluent as a critical issue, and their concerns are well-founded: income inequality ratios between the highest and lowest percentiles have been steadily rising over the past five decades. Americans have thus an informed sense that there is a misalignment in the proportion of exorbitant CEO pay vis-à-vis lower-wage workers. Relatedly, a majority of Americans (66%) recognize wage stagnation as a significant issue, and slightly over half (51%) feel that there are not sufficient prospects to improve their financial status. Roughly half of Americans also recognize wage discrimination against Black individuals and women as significant problems.  

Figure 3: Assessment of the inequality and discrimination as problems in the U.S.

What can be done?: 

The CEO compensation issue needs to be addressed, and companies should consider limiting the pay of their top executives to prevent it from growing excessively. Such a cap could have positive effects on the workforce if the excess compensation is redistributed among them. A recent study by the Financial Times revealed that capping CEO pay could help alleviate financial insecurity among low-wage workers. For instance, if the top 110 publicly traded US companies were to set a $1 million limit on their CEO pay, workers in these companies could potentially receive an additional $400 per month

Lawmakers in seven US States are collaborating to propose higher taxes for wealthy individuals and corporations in their respective state legislatures. Many of the new proposals suggest taxing the overall wealth of the rich, not just their annual income. In 2021, ProPublica released a report based on leaked tax documents from wealthy individuals, revealing how they evade paying income tax. The report showed that, in some instances, the wealthiest billionaires avoid income tax altogether by accumulating wealth through stock and property ownership, which are taxed at lower rates than income. As part of his budget proposal last spring, US president Joe Biden introduced a 20% “wealth tax” at the federal level, which would apply to an individual’s total income, including growth in assets, such as stocks.  

According to Sarah Anderson of the Institute for Policy Studies, companies should not view measures to reduce income inequality as punitive, but rather as potentially beneficial for them. Anderson believes that narrowing income gaps can actually improve a company’s bottom line by motivating employees and ensuring they feel fairly rewarded. She suggests a fair ratio of 25:1, where the median pay at a company should be $200,000 if the CEO earns $5 million. Companies have the option to reduce CEO pay, increase worker pay, or pay higher taxes, which can then be used to address inequality in other ways. 

All in all: 

The message from the public is clear: corporate leaders, including CEOs, have a responsibility to address income inequality in America by prioritizing worker wages and financial sustainability. Nobel prize winner Joseph E. Stiglitz emphasizes that paying taxes is the first element of corporate social responsibility. 

To build fairer economies, it is crucial to ensure that the lowest-paid workers can meet their basic living costs. Americans believe that companies can contribute to this by raising their minimum wages to a decent pay. 

Sources: MarketWatch, Reuters, The West Australian, The Guardian, CNN Business, BBC, Financial Times, Institute for Policy Studies, ProPublica, Grenness, Tor; “The Impact of National Culture on CEO Compensation and Salary Gaps Between CEOs and Manufacturing Workers” in ResearchGate 

Hannah Ribeiro

Pedro Teixeira

B-Corporations: The New Tomorrow

Reading time: 5 minutes

Consumer Activism Nowadays 

In a progressively connected world with access to more information and data than ever before, consumer demands are becoming ever greater and more ambitious. Consumers’ choices are based on their tastes and values and, therefore, it is expected that they would want to buy and use companies’ products that are aligned with said values. With companies operating on an increasingly public stage, we have witnessed the advent of mainstream media and social platforms that accelerate consumer movements, which in turn has culminated in the concept of Consumer Activism – consisting, in simple terms, on taking an action in favor of a company (BUYcott) or against it (BOYcott).  

Consumers´ Impact 

The wake of a more demanding and aware consumer, with a larger desire to see their consumption habits produce as little environmental impact in the world as possible (or at least in some way improve upon it), has led companies on an ongoing journey towards sustainability and corporate social responsibility. This change in the outlook of firms has as main goals not only the satisfaction of customer needs and demands but also an improvement on customer loyalty, that is translated through repeated purchases, word of mouth, increased revenues, and a more positive reputation

This change of path is being clearly reflected in the actions that many large corporations have taken recently, in the form of pledges and initiatives towards a more sustainable world. For example, Google is aiming to become carbon free by 2030, being already carbon neutral since 2007. The firm announced in October 2022 that it has restored over 15 acres of native habitats with oak and willows in Silicon Valley. Amazon has also pledged to become net-zero carbon by 2040. In 2019, it created the Right Now Climate Fund, a $100 million fund to restore and preserve forests, wetlands and grasslands globally, currently supporting programs in Italy, Germany, Brazil and the United States. In 2021, 85% renewable energy was used in its operations, with the plan being to exclusively rely on this type of energy by 2025.

Questionable Decisions

However, this road towards sustainability has not always been smooth, with clients becoming increasingly more skeptical of the claims enterprises make in this department to justify some of their controversial actions. An example of this was seen when in 2020, with the announcement of the iPhone 12, Apple made the decision to no longer provide its customers with a wall charger or earphones included in the box when purchasing an iPhone, claiming that it was it could “fit up to 70% more products on a shipping pallet, removing carbon emissions in their global logistics chain” due to a “smaller and lighter iPhone box” leading to lower shipping emissions and the reduction of e-waste. Nevertheless, the removal of these items created knock-on effects as clients needed to buy a separate charger as older chargers are less efficient and are susceptible to breaking. Consequently, this requires more packaging to be utilized and even more fossil fuels to be burnt due to its shipping. This decision led Apple to be able to reduce costs and diversify its revenue streams by increasing the likelihood of selling either its chargers or earphones to its clients and, ultimately, improving its financials, with environmental concerns ultimately pushed to the background and essentially used as an excuse.   


Nowadays, it is possible to characterize a company in as many ways as the consumer sees fit: “sustainable”, “environmentally friendly”, “polluting”, among many others. A point has been reached in which, with the aim of standardizing the classifications given to companies and ensuring clients of the truthfulness of the claims said enterprises make, the creation of non-profit organizations becomes essential. 

With this motto in mind, the B-Corp Movement was built to change the economic system and to “Make Business a Force For Good”. This movement has its starting point on the slogan “There’s no Planet B”, in a way to create an international network of organizations that all together will lead economic systems towards change in order to support an inclusiveequitable, and regenerative economy. Moreover, the B-Corp movement is responsible for analyzing and certifying companies according to rigorous standards to ensure that B-Corps and Non-B-Corps jointly plan a more resilient future. 

B-Corp Movement

Therefore, certified B-Corporations are companies verified by B Lab to meet high standards of social and environmental performance, transparency, and accountability.


The number of B-corporations has grown immensely over the past few years around the world, currently accounting for 5,981 firms spanning 158 industries. A successful case is ECOALF – combination of “ECOLOGY” and “ALFRED” – a Spanish company, founded in 2009, operating in the apparel industry, manufacturing its products with fabrics made from 100% recycledplastic, cotton, wood, coffee, fishnet, and tires. In 2018, the company obtained the B-Corporation certification, recognizing its core business as being an environmentally responsible business while still seeking to make profit at the same time. In this same year, ECOALF was already a case of success with a product portfolio with high quality garments, footwear, and accessories featuring in various global media outlets (i.e., The economist; Bloomberg; etc.), essentially becoming an icon of the sustainable fashion industry. 

ECOALF´s logo

All this success is greatly due to several and heavy investments that the company made in research and development to create a unique and unparalleled production process and input fabrics, as well as cooperating with well-known brands and personalities, creating alliances and partnerships to increase brand awareness.


All in all, ECOALF is a success story among many others that is able to showcase that, with help and having the right direction and goals in mind, there is a growing market directed towards sustainability yet to be fully explored by companies, challenging them to attract investors and entrepreneurs through impact investments for an area that benefits everyone.

However, at the end of the day, there is still a long path to forge before a fully sustainable, greener, and circular economy is reached. Nevertheless, efforts by various entities, authorities and companies trying to channel the effort of society towards that end are remarkable and seem promising.

Sources: Forbes, Google, Amazon, The Verge, B Lab, Pasquini, Martina; Kolk, Berend van der. (2019). “Because There Is No Planet B: El Caso de ECOALF”. In IE Publishing

João Correia

Hannah Ribeiro

Patagonia: The owners that don’t own

Reading Time: 6 minutes

The debate about the true role of a firm in society is a longstanding and recurring one. Since Milton Friedman publishing, in 1970, that managers bear the responsibility of conducting the business according to shareholders’ wants and requirements – generally achieved by maximizing shareholder value – the concept has evolved over time. Now, a broader definition comes into play, with many perceiving a company as being an entity that has a responsibility towards the environment and the society it is inserted in, which has subsequently led to the creation and adoption of concepts such as Corporate Social Responsibility (CSR). This extension of a firm’s responsibility towards other stakeholders and society more broadly has paved the way for companies that test the limits of the definition of for-profits, such as the American clothing company Patagonia, Inc.   

Patagonia’s Foundation  

Yvon Chouinard, an American rock climber since his 14 years old, founded Patagonia, Inc in 1973, having always shown an entrepreneurial spirit throughout his earlier life: from making his own rock-climbing tools to teaching himself blacksmithing, and later moving on to selling rock-climbing tools and clothing.   

Patagonia has made significant strides in distinguishing itself from other brands, offering a wide range of products in its portfolio, from food to hiking clothing, while assuring a commitment to the environment and its causes. This fact stems a lot from its founder Chouinard, who has always sought to do more for the planet, pledging the word “activism” as a motto for the brand. 


Consumer Activism Nowadays 

In an increasingly connected world with access to more information and data than ever before, consumer demands are becoming ever greater and more ambitious. Consumers’ choices are based on their tastes and values and, therefore, they want to buy and use companies’ products that are aligned with their values. Nowadays, companies operate on an increasingly public stage, with mainstream media and social platforms accelerating consumer movements, leading to Consumer Activism, consisting of taking an action for (BUYcott) or against a company (BOYcott).  

Indeed, according to a study conducted by Weber Shandwick, 60% of US and UK consumers have reported some form of activism, as of August 2017. Here, any activism action can range from something simple like stop watching a show that a brand is advertised on or recommending a brand to friends, to larger scale events such as taking part in demonstrations or protests against or in support of a brand. 

Differentiating through environmental concerns  

Patagonia has been able to create a competitive advantage in comparison to its peers by continuously differentiating itself in its environmental sustainability efforts, which are entirely aligned with the previously mentioned consumer activism. Patagonia’s stance and values can be comprehended through several examples of marketing practices which actually tend to be considered by many “anti-marketing” campaigns. A well-known example of this marketing strategy is Patagonia´s “Don’t Buy This Jacket” campaign that was launched in the middle of the Great Recession in which they demonstrated the impact that the production of one of their best-selling garments had on the environment.  

Also, Patagonia is known for putting in practice the messages it preaches as it promotes used wear on its website, through the platform Worn Wear. There, customers can find second-hand items that have been cleaned and/or repaired, contradicting the fast-fashion trend and consumerism issue, which tends to be associated with higher profits for companies due to increased sales, but also a higher impact on the environment. Moreover, currently, Patagonia is pledging 1% of sales to the environment’s preservation and restoration. 

The results of these actions and core values have not only led Patagonia to grow its business and brand recognition but also to occupy a distinct position in the customer’s portfolio, as it has become intrinsically associated with environmental consciousness, especially targeting consumers that are preoccupied with sustainability and climate change. 

Patagonia’s Activism 

In September 2022, Chouinard donated his family’s ownership of the company, with a US$ 3 billion estimated valuation, stating that “Earth is now our only shareholder”.   

Back then, before the donation, various paths presented themselves for Patagonia´s future, including those most referred to as “common route” ones, such as the possibility of selling the company to the highest bidder, and then proceeding with the donation of that amount, or quoting the firm in the stock market through an IPO. However, after analyzing the various available options on the table, Chouinard reached the conclusion that neither would be totally aligned with Patagonia´s (and his own) values, as made clear in his open letter posted on Patagonia’s official website. There, he states that they “ couldn’t be sure a new owner would maintain [their] values or keep [their] team of people around the world employed” or how quoting the firm in the stock market through an IPO wouldn´t also work because “even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility”, considering that the company managers would become myopic and succumb to short-run pressures to provide a return on the new stockholders’ investment.  

So, faced with this situation, Chouinard and his team decided to tailor make a solution that would go in line with what the company represents, creating checks and balances to ensure that its mission and values remain unharmed. This solution, in which Patagonia will continue to operate as a private enterprise but the Chouinard family will not continue to have control over it was put into operation in two stages.   

To begin with, back in August 2022, the family transferred irreversibly 2% of Patagonia to a newly created entity called Patagonia Purpose Trust. This trust will continue to be supervised by members of the family and their advisors and has voting stock, having as its main goal safeguarding that Patagonia remains independent and its average profits of US$ 100 million would be used to combat climate change and protect the forests. Due to the portion of voting stock, the family will have to pay US$ 17.5 million in taxes for the donation. Secondly, this September, the family proceeded to donate the remaining 98% to Holdfast Collective, a non-governmental organization that will use the profits to fight climate change, with this part of the donation consisting of non-voting stock.   


The decision to donate the shares has an incalculable social impact attached to Patagonia, stakeholders and society. With this action, Patagonia, Inc. opens a new possibility in the markets, creating the potential of donating shares for the benefit of society instead of the unbridled pursuit of profits. 

One thing is certain, this decision will be a subject of debate and study in the future in order to analyze if this solution will be the one that is able to yield the best results in the trade-off between cash flow maximization, including profit maximization towards these charitable causes, and ensuring that Patagonia remains the B-Corp corporation that continues true to its values for which their clients have come recognize it for.  

Sources: Financial Times, Observador, Público, McKinsey, “Battle of the Wallets: The Changing Landscape of Consumer Activism” (2018), in Weber Shandwick

João Correia

Hannah Ribeiro

Supply Chains Constraints: Can the solution be delivered on time?

Reading time: 6 minutes

The Covid-19 pandemic has disrupted global supply chains. These are still facing huge challenges and struggling to bounce back in a period where demand has surged. This is leading to increases in the prices of products, shortages, and delays in deliveries. With Christmas around the corner, a season with above average consumption, the situation is only expected to worsen as the problems in the supply chain don’t seem to have an end near.

But what exactly are global supply chains? What led to the problems that we are observing worldwide? What have governments done to ease the situation?

What are the Global Supply chains?

Nowadays, a desire for something can be fulfilled with a simple click, but it was not always easy as today. In fact, a dramatic change occurred in the markets around the 80’s with the globalization, and liberalization of world’s markets, lower transports costs, advances in information and communication technology, and innovations in logistics. From that moment forward, low cost, high quality and satisfied customers became the buzz words, and with this new reality in global markets a new concept was implemented: Global Chain.

Global chains are networks that can span across multiple continents and countries with the purpose of sourcing and supplying goods and services. It also involves flow of information, processes and resources across the globe enhancing its efficiency. With this new concept, firms and organizations could now have its production broken into different parts in different countries to achieve high quality while lowering costs. The importance of the global chain is so notable that since 1995 intermediate manufacturers represent more than half of manufactured exports and imports at a global level.

Different geographical regions have a different net effect in the global chain. Africa and Oceania export more intermediate goods as a share of their manufactured exports than others. In Europe there is a balanced intermediate imports and exports. Meanwhile in Asia imports exceed exports as a share of their intermediate imports and exports.

However, the pandemic disrupted the normal functioning of the global supply chain. These difficulties showed up at the beginning of the pandemic with countries like China, South Korea, Germany, and Southeast Asian countries, being forced to reduce their production since workers were sick or in lockdown, leading to an overall decline in global supply with shortages in food, toys, chips, etc., driving prices up. 

Figure 1 – Supply Chain Problems by Matt Kenyon.
Source: Financial Times

The causes behind the disruption in Global Supply Chains

Many factors lie behind the explanation for the supply chain crisis that the world has been facing. Overall, it is a culmination of lingering Covid-19 disruptions and a sudden surge in demand, with the supply side not being able to adapt quickly enough to demand´s rapid pace. Indeed, on the demand side, in the past few months, with many restrictions being lifted, the economy has been experiencing an unparalleled boom in demand. However, on the supply side of the issue, we face a still slowly recovering productive industry from the hardships imposed by the past year’s Covid-19 restrictions.

Many factories were forced to shut down, some have had to cut back on the number of workers and as such production still falls quite behind pre-pandemic levels, being unable to keep up with this increase in demand. Moreover, general labour issues across the globe, particularly a shortage of workers, have also greatly contributed to a clogging up of transportation networks. The lack of sufficient truck drivers has been a troubling concern in multiple countries, particularly in the UK as recent months have shown, with Brexit having greatly contributed to it. In the US, significant labour shortages have been felt in warehouses companies and major ports. This reality, combined with inadequate infrastructures and a shortage of the proper space and equipment to deal with the surging demand have resulted in warehouses running out of space and ports working under full capacity, leading in turn to port congestions and blockages in multiple cities.

Adding to all of these, the punctual raw material shortages as well as a scarceness of key components (such as the case of the microchip crisis), have also compromised timely deliveries of final products. Indeed, one of the biggest issues with the supply chain crisis is that the way the productive and distributive chain of a large deal of activities is organized, with numerous intermediaries and bottlenecks along the route from the assembly line to the final consumer, it makes it so that as one supplier depends upon another´s delivery, and the delays end up feeding on each other, amplifying the effects of the disruptions. 

Figure 2 – Number of vessels sitting in the main ports.
Source: Refinitiv Eikon
Figure 3 – US active truck utilisation. Source: Bloomberg

What has been done to ease the situation?

In the U.S., the Biden administration has been increasing its dialogue with the corporate sector to try to ease some of the ways that supply chain issues could affect consumers. Namely, the U.S. Gov. has secured pledges from retailers such as Walmart and from shipping companies UPS and FedEx to increase their working hours in an effort to ease some potential difficulties that could arise during the hectic holiday shopping season that is expected to be strong this year due to the fiscal stimulus pursued by the Biden administration. They are also urging rail and trucking companies to increase their transportation capacity, but labor shortages in these areas have made this difficult, which has contributed to worsening the bottlenecks. Moreover, the FTC (Federal Trade Commission) has requested information from big retailers to monitor whether they engage in dishonest business practices which might amplify the damages form the supply chain problem.

In September, in the U.K., to help with problems in the supply of fuel, the government resorted to the military to help deliver fuel to gas stations. A shortage of fuel would be even more devastating to other supply chains as it wouldn’t allow transportation of goods by truckers. Also in the U.K., the Treasury introduced measures to freeze taxes on the trucking sector, to attempt to ease supply chain pressures there. However, logistics companies say that this does not address the truck driver shortage that is bottlenecking many of their operations.

The U.K had also previously implemented 25 measures to try to tackle the chronic shortage of HGV (heavy goods vehicle) drivers, including increasing capacity for testing new drivers by the Driver and Vehicle Standards Agency (during the pandemic these tests had been severely decreased) and, generally, making it easier for new drivers to enter the truck-driving labor force. The U.S. new infrastructure bill would also allow drivers as young as 18 to drive trucks across states (currently the minimum is 21).


Economies all over the world have been struggling with a global crisis in supply chains in result of the pandemic. Even though governments have put forward legislation to help ease these problems, the issue is still very present. Higher prices, shortages and delays in delivery are just some of the problems that consumers and businesses have been dealing with. These problems won’t last forever but they are likely to get worse before they get better.

Source: CNDC, Bloomberg, BusinessInsider.

Diogo Almeida

João Baptista

Inês Lindoso

João Correia

European Football | Cash is king in the king of sports

Reading time: 7 minutes

Football is king in Europe; it is a sport that moves millions of die-hard fans as well as billions of euros every year, 28.9 in 2019 to be precise. Despite the fact that the COVID-19 pandemic took a major hit on the finances of most football clubs, the revenue of the big five leagues (England, Germany, Spain, Italy and France) is expected to reach a new record of 18.2 billion euros in 2021.

Even tough business seems prosperous, there are a number of problems to be addressed, and the Super League, the international competition announced earlier this year that quickly fell apart, suggests that the elite of football wants to solve only their own problems. It is, however, important not to forget that this competition points to a huge problem in modern football – the growing asymmetries within the sport.  

How did we get here?

Disregarding the health-driven financial crisis lived today, Football’s health has been struggling for a while now, as there has been an overall overspending by teams, mainly from larger clubs, either on the acquisition fees or payroll. Moreover, most domestic leagues have become uncompetitive and monotonous and, there has been a lack of commercial interest in most of the “smaller” confronts.

The importance of the competitions and broadcasting’s income for the clubs and their rapid growth have led to major “financial confronts” outside the pitch, with every club looking for the best talent out there. This has been transformed into skyrocketing wages and transfer fees between clubs, with the average Premier League transfer fee having more than tripled since 2007, to an average of more than £16 million. 

Figure 2 – Average Premier League Transfer Fee
Source: Chronicle Live

This has been made possible by overleveraging clubs, through debt or the help of wealthy owners, who can invest large sums of money in hope titles. In fact, only one of the 12 initial clubs in the Super League is free of debt, with several of them having a large net debt as of 2021, which, by not being accompanied by positive profits, keeps increasing from season to season. This has led to enormous asymmetries between those who can sustain said debts, or have wealthy owners who can bail them, and those who rely solely on their revenues from more conventional sources.

Figure 3 – Net Debt of Super League Founding Member
Source: Bloomberg

On the other hand, leagues have been struggling with commercial interest on some of their games, especially those between smaller teams. TV broadcasting rights and sponsorships, which play an important role on clubs’ revenues, also help perpetuate the differences between teams, with some in leagues where there is no “unified type” of TV rights selloff seeing a larger disparity, whereas in the Premier League or Bundesliga there is a more centralized and organized revenue sharing.

This reality leads to the final problem Football is facing: most domestic leagues are becoming uncompetitive. Looking at Top-5 leagues, only the Premier League has constantly 6 teams fighting for the title, whereas the others either have 2 main competitors (La Liga and Bundesliga), or even a single competitor that stands immensely (Serie A and Ligue 1). This era has become more and more polarized between title candidates, and the others, with the second group playing on an unleveled playing ground, and only in some rare occasions being able to surprise the recurrent candidates. This diminishes the spectacle of football, and only helps perpetuate the problems in Football, the inequalities and the surviving difficulties small teams suffer recurrently.

Figure 4  – Market Size of Professional Football Leagues in Europe from 2017 to 2019, by league type (in billion euros)
Source: Statista

How did COVID-19 put the Super League on the table again?

The COVID-19 pandemic affected our lives in every possible dimension, with football not being an exception. According to KPMG, the pandemic had a $5 billion impact on the sport, with the biggest clubs alone having $1 billion losses in revenues.

Figure 5 – Aggregate revenue in European top divisions (in EUR million)
Source: KPMG and UEFA

With the major European clubs taking major hits to their finances because of COVID-19, the plan of a European Super League (ESL) came abruptly to the foreground this April, in an attempt to ramp up revenues.

What is the plan, then?

According to the official ESL plan put out in mid-April, 12 major European clubs (+3 that would be announced) would join as Founding Clubs and the competition would consist of a closed tournament between those teams and 5 other teams in rotating slots that would be chosen each season.

This plan has major implications for the economics of European football:

Firstly, each founding member would have received around $400 million for the founding of the ESL. Secondly, revenues coming from broadcasting and advertising would be much more concentrated on the ESL founding member-clubs, because such a league would siphon off much of the attention from the Champions League and other competitions in Europe. Furthermore, as an essentially walled-off competition, the ESL would hurt revenues of smaller clubs which would be left out of the ESL’s elite roster, thus losing access to the millions of the European stage.

Finally, it could have large impacts on the wages paid to players and on the clubs’ finances, as many large clubs spend considerable percentages of their revenues on players’ wages to attract the best players in the world, and ultimately win titles.

Figure 6 – Wage burden of clubs looking to join the new Super League
Source: FT

The new ESL founding clubs would commit to spending limits of 55% on wages. This would reduce competitive behaviour between these large clubs, leading to lower wages for players and more profits for clubs.

The potential negative effects on smaller clubs and the fact that the 15 founding clubs would have their place in the ESL guaranteed, no matter what, led to outrage from both football fans and football confederations, who claimed that this would further increase the inequality between clubs and would hurt the spirit of the sport. The UEFA went further threatening sanctions against the clubs who would undertake the project, namely barring clubs from all its competitions and preventing their players from representing their national teams.

Eventually, as pressures from the backlash increased against the large clubs, even from politicians, English clubs began to pull out from the ESL project and the ESL put out a statement saying that the project was “suspended”.

What does the future hold for European Football?

Though the Super League was killed off earlier this year, it does not mean that European Football will stay the same, as a new format of the Champions League is to come into effect in 2024. Moreover, an all-new tournament is coming in 2021, the UEFA Europa Conference League, a third-tier competition. The new Champions League will adopt a swiss-style model instead of the traditional group stage, and there will be a single league in which teams play 10 games each against “teams of their level” to qualify for the knock-out stage. This new format addresses some complaints of the biggest clubs regarding the quality of the matches, as the best teams will face each other more frequently. Furthermore, the addition of 4 more teams to the competition serves the same purpose as the Conference League, that is allowing for more teams to have a chance in the European stage, hopefully making the sport more competitive, which is what fans look for. The problems that football faces today are not exclusive to the sport. We have witnessed sports introducing significant changes in order to remain relevant. Formula 1 is a great example, as the sport has changed itself over the years, managing to attract a new generation of fans in return. F1, perhaps the most expensive sport in the world in which money means titles, recently announced budget caps, as well as sliding scale for car development, which intends to create a level playing field for teams and ultimately make the sport more interesting for fans.

Figure 7 – F1 rebranded itself in 2017 to attract new fans
Source: F1

Football faces the same challenges as F1 in terms of competitiveness and the difficulty to resonate with a new generation of fans that, due to social media, is more interested in the accomplishments of players such as Ronaldo or Messi than in their teams’. Consequently, football must constantly reinvent itself too, without losing the essence that made it what it is today.

Football is at a crosswalk; the sport must remain relevant in the modern era of entertainment and social media, while still being a profitable business. The innovations brought by UEFA show that the sport is evolving. However, that alone will not make it. Certainly, the smaller teams will get a bigger pie of the money and the elite better matches, though that will be verified only in the short run.

Sources: Bloomberg, Chronicle Live, FiveThirtyEight, Financial Times, KPMG, The New York Times, Statista, UEFA

Tiago Rebelo

João Baptista

Jorge Lousada

Red Bull: Behind the Notorious Blue Can

Reading Time: 6 minutes

Red Bull is an energetic drink sold by the Austrian Red Bull GmbH in over 170 countries. It was introduced in the market in 1987 and, since then, it has achieved the selling landmark of 7.5 billion cans in a year, achieving market leader status with a market share of 43% in the energy drink market. You have probably heard “Red Bull gives you wings”, which has become one of the world’s most recognizable slogans.  

The brand was created by the Austrian entrepreneur Dietrich Mateschitz with Chaleo Yoovidhya, a Thai businessman who created the original Thailand Red Bull drink. With a slight modification to westernize the original energy drink, Dietrich led the company to worldwide success.  

In the more than 30 years since its inception, Red Bull has kept its essence as an energy drink, selling the same idea which sold in the beginning, despite some variations in taste and special editions. In fact, Red Bull remained very loyal to its strategy, only amplifying to a greater audience. It is a very loyal brand, associated with radical sports, such as Formula 1, Surf and Snowboarding. Furthermore, it also sponsors a lot of athletes and YouTube personalities. It is a brand associated with a healthy and active lifestyle and aims to portray these aspects in every marketing campaign. 

Global Energy Drinks Market Share 
Source: T4 Data 

The Business Model 

The Austrian energy drink has been the dominant brand in the industry, despite fierce competition from copy-cats. It can easily be argued that Red Bull’s unique business model is what gives the company an edge over the competition

An important aspect of the business model has been little to no diversification whatsoever. When it comes to the variety of products, Red Bull produces the very same product, although with some differences geographically. It has introduced special editions from time-to-time and, in total, 20 different variants, including a sugar-free version. Red Bull’s decision not to move to other segments in the food and beverage industry relates to their intent to preserve the values and principles of the firm. This strategy contrasts with what has been the golden rule in the industry of expanding to other segments to gain market power and benefit from synergies, exemplified by Coca-Cola’s rule in the beverage market, from sodas to tea and bottled water. Pepsi has followed Coca-Cola’s lead too, also producing energy drinks and even entering the food industry with Lays, Cheetos and Sun Chips, besides having the regular soda. 

Another peculiarity of the energy drink lies in the company’s operations, or lack thereof. The majority of consumer goods companies, especially in the food and beverages industry, such as the Coca-Cola Company, have a strict control of their operations for a quality guarantee standpoint, as well as to keep their formulas secret. Red Bull, on the other hand, is not in charge of its own production, which is outsourced to two companies licensed under the Thai Red Bull. In fact, Red Bull GmbH is not even directly responsible for the entirety of its distribution, relying on already established distributors to bring the famous blue can to some parts of the world.  

Outsourcing operations is not too uncommon in the corporate world. It is actually a way of bringing value to the value-chain that the company could not bring on its own. Nevertheless, it is uncommon for a brand the size of Red Bull to have so little control over its operations. This is not a result of poor resources or capabilities; it is part of a greater strategy to focus on what the company does best – marketing – which has been a winning formula so far. 

The famous blue Red Bull can 
Source: Red Bull 

Marketing as Core Activity  

Red Bull’s success was determined not only by the quality of its product, but also by its marketing strategy. Red Bull has the highest market share of any energy drink in the world, with approximate revenue of €6.07bn in 2019, a third of which was re-invested into marketing, which proves the importance of that department to the company.  

“In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi”, says Koehn, professor of business administration at HBS. 

Rather than following a traditional approach to mass marketing, Red Bull has generated awareness and created a seductive “brand myth”. Their strategy has not focused on promoting the popular product, but rather to create a brand that embodies a distinct lifestyle and audience. 

Their advertisement objectives were to create a brand preference as their primary source of income within Generation Y’s young active males, but also to attract and maintain a secondary target market of older males needing energy to maintain their heavy workloads. 

To increase awareness among their most likely consumers, 18- to 34-year-old-males, Red Bull followed a marketing strategy with the aim of making the drink just edgy enough to grab the interest of this public (“Wing 1 of the Dragonfly Effect Model”). The focus was subtle branding that grabs attention, while having high production quality without an overproduced look. In addition, to start engaging with both its original and second target demographics, Red Bull began sponsoring “breath taking” stunts. Big doing so, RB subtly invites people both to take action and fulfil their biggest dreams. Besides sponsoring and participating in multiple sports, Red Bull also owns Red Bull TV Online, Red Bull Radio, and Red Bull Media House.  

Other revenue streams  

In 2019, Red Bull sold 7.5bn cans of their energy drink, for a revenue of over US$6bn. Despite the impressive numbers, this is not the only revenue stream that Red Bull is capitalizing on, especially given the decreased growth that they have observed since 2012, triggered by their one-product only strategy. Many of the marketing initiatives to promote the energy drink got a life on their own as businesses, in addition to serving as a support activity to the drink: 

  1. Media Production: They own Red Bull Media House, a globally distributed multi-platform media company that seeks to “inspire with ‘beyond the ordinary’ stories”, both direct-to-consumer and through partnerships. 
  1. Team ownership: Some of the Football teams owned include RB Leipzig, FC Red Bull Salzburg, Red Bull Brazil and New York Red Bulls, allowing them to take advantage of synergy. They also own teams in Hockey, EC Red Bull Salzburg, in Formula 1, Red Bull Racing, and other sports, such as MotoGP and Skateboarding. 
  1. Broadcasting: Inserted in their media house, they own Red Bull TV Online, where they share the exclusive images from the events they organise. This platform also includes radio, magazine, and digital platforms.

4. Contract Management: Red Bull established contracts with professional athletes that aim for the top brackets in their areas, adopting this as a way of promoting their brand.

Sebastien Vettel, F1 World Champion for Red Bull Racing
Source: Formula 1


Red Bull is no ordinary company, with no ordinary business model. The Austrian company has taken advantage of industry best practices to create a brand bigger than its blue can, becoming the biggest player in the energy drinks industry in the way, with a market share of over 40% of the energy drinks market. Despite competition from industry giants, such as Coca-Cola, through Monster, and Pepsi’s Rockstar, Red Bull did what no other drink achieved – successfully marketing itself to a new customer base.  

What is more, the company created a media and advertising ecosystem to project the energy drink, which cemented its brand image as seductive ‘myth’, that is still the company’s biggest asset. As a result, that same media ecosystem that once started as a marketing campaign became a business of its own rather than an annual expense.   

Sources: Banknotes, Forbes, Inside Beer, Investopedia, MarketLine, Medium, Red Bull, Statista, The Economist, T4, Whide Group

Tiago Rebelo

Alexandre Bentes

Diogo Almeida

Electric rEVolution | Will Tesla win the race?

Reading time: 6 minutes

Tesla, the electric car company, has been making headlines on a regular basis, not only due to Elon Musk’s unique persona, but also owning to pioneering growing trends in the market, including driverless capabilities and car sharing.

The company’s innovative approach changed the landscape of the automotive industry from the process of buying a car all the way to what powers it. Its influence is so significant that the public’s changing perspective regarding electric vehicles has come to be known as Tesla effect, as a result of the role of the American manufacturer in marketing the segment as tech and performance oriented, rather than just environmentally friendly, as previously perceived.

However, Musk’s success in the automotive world may be short-lived as traditional manufacturers, such as Volkswagen, Volvo and Chinese brands follow suit and make a move to the now-mainstream electric vehicles, a market Musk essentially created, thus threatening Tesla’s dominance in the process.

A bubble waiting to burst?

Tesla’s impressive current market capitalization makes it the most valuable car company worldwide. In fact, its share price skyrocketed more than 700% just last year; if we went back a decade, then, since it went public in 2010, Tesla´s stock price registered no less than a monstruous 20,000% increase. However, digging deeper into production output and financial performance, there is not much significant substance to back up this massive growth, other than investors’ expectations.

Figure 1 – Tesla 5 years stock price performance
Source: Nasdaq

As a matter of fact, only last year was Tesla able to avoid a net loss (registering for the first time a positive $690 million net income), with a net profit margin of 2.2%. Adding this to an extremely high P/E ratio of around 1000, it is not difficult to reach the conclusion that Tesla is be overvalued.

Figure 2 – Tesla Net Income evolution 2011-2020
Source: Macrotrends

Nevertheless, we cannot possibly disregard the huge driving force that Tesla represents as the clear market leader among the EV (Electric Vehicle) market, being undoubtedly the main trigger of the electric revolution we are currently facing. Indeed, Tesla has a great lead in this ever-growing sector, both with its first-mover advantage and its crucial competitive advantage in terms of technology and batteries, as the partnership with Panasonic provided the manufacturer with the best-performing battery autonomy range in the market. Moreover, the fact that the company was able to experience such an impressive sales growth in a year in which many car makers saw their revenues decreasing is by itself a remarkable achievement, leading many to expect Tesla to become the future leader of the car industry.

Figure 3 – Global Plug-In Electric Vehicle Market Share between January and June 2020, by producer               
Source: Statista

A future market leader?

This poses the question of whether, once the EV market matures, Tesla will be able to maintain its position as market leader, with other historical giants of the industry massively shifting their production towards the electric sector. Most likely, the answer to this question will be directly linked to the direction towards which Elon Musk will decide to take his company; by all means, choosing to focus on high-performance vehicles or opting instead to pursue his original master plan of making cars affordable to all may dictate Tesla´s future fate in the car market.

Despite the fact that Tesla’s product portfolio is on the high-end side with prices up to $140k, the brand had long planned an affordable vehicle – Model 3. This is a $35k (in the USA) entry level car and bestselling EV with 365k deliveries in 2020, though the car is still rather expensive for most people, particularly outside the US. Moreover, it comes packed with technology and features seen as luxurious, which are not a priority for the majority of consumers who see price as a determining factor, especially now that EV are no longer a niche market.

Can Tesla withstand competition from legacy manufacturers?

As aforementioned, the company’s plan to dominate the industry is now threatened by conventional carmakers, such as Volkswagen, which is committed to this new market and even has an ambitious plan to knock out Tesla from the podium by 2025.

Last December, the new ID.3 from Volkswagen was the second most sold car in Europe, with 27,997 units sold, 3,430 more than Tesla’s Model 3. Volkswagen’s brand-new car has a slightly greater range (15km) and is cheaper (€4,000), but has lower power than Model 3, smaller cargo space and does not have autopilot. Most importantly, it does not seem to discourage consumers from buying a ID.3 instead of a Model 3, especially because the car already fulfils the needs of most consumers in a great package overall.

Figure 4 – New Volkswagen ID3, released in September 2020.

Competition also comes in the tech segment, mainly in China. The commanding position in the biggest electric vehicle market (China) is occupied by Tesla. Nonetheless, during last year, Tesla saw rivals such as Nio Inc., Xpeng Inc. and Li Auto Inc. catching up. The difference in cars sold between the trio and Tesla has been declining, reaching the lowest value in September 2020, amounting to a total of 1,000 cars. The rise of Chinese EV is strongly connected to Nio’s boosted sales, even though at a higher price tag than Tesla’s Model 3. The threat from China should not be ignored, since it is Tesla’s second largest market.

Figure 5 – Monthly EV Sales figures in China in 2020 by producer                    Source: CAIN

Which Tesla will we see in the future?

Although Tesla has surprised us before, its best chances are to stick to its current target market of high-performing cars, that offer the best technological features to consumers who value those features and are willing to pay a premium. In this area, Tesla has a big advantage that allows it to exercise a fierce competition with its direct rivals: no other car company has yet been able to offer the same high-speed range in an EV and battery autonomy like Tesla. However, it is unclear whether the company will be able to sustain this competitive advantage in the long term, as the tendency is for other companies to be able to eventually reach the same technological potential. Moreover, even with superior features, Tesla has not been able to convince a big share of the loyal consumers of long-standing companies, who prefer to abdicate some horsepower for the quality and reliability traditional automakers have left us accustomed to. Most importantly, legacy manufacturers seem to be transporting the driving essence people are familiar with to electric cars, making the move to electric easier, which might make Tesla’s job to win over customers certainly more difficult.

Notwithstanding, Tesla has been especially successful in captivating the American market, with more than 50% of its sales being centred in the US, a fact they have most definitely taken into consideration, as it has been made clear with Tesla’s bet on the innovative Cybertruck, surely having this prosperous target market in mind.

Regardless of Tesla being or not the biggest manufacturer in 5- or 10-years’ time, one thing is certain: Tesla has accomplished every objective the company established back in 2006 when Musk released The Secret Tesla Motors Master Plan. Furthermore, the brand shed light on a fundamental aspect, the sustainability of transportation, a sector responsible for 28% of all greenhouse gas emissions. Whether you buy a Tesla, a Volkswagen ID or any other electric car, you are proving Elon was right in pursuing the sustainable energy project.

Sources: Business Insider, CAIN, Car and Driver, Cleantechnica, Forbes, Inside EV, Macrotrends, Marketline, Nasdaq, Statista, Tesla, Volkswagen.

Tiago Rebelo

João Correia

Inês Lindoso

Scientific revision: Patrícia Cruz

Market Democratization and a new wave of investors

Reading time: 6 minutes

Greater ease of access to information and technology created a new paradigm in the market that was further accentuated by the COVID-19 pandemic. The result has been a new balance of forces in the market, as seen in recent events. Whether this new paradigm will last, only time will tell… or the SEC.

Financial markets have long been associated with high-net-worth individuals and institutional investors. In fact, as of 2017, according to the National Bureau of Economic Research, the top 10% in the United States were in control of 84% of the total value of stocks, bonds, trusts and business equity. Much of this wealth is managed by institutional investors, such as hedge funds, commercial banks, or mutual funds – the so-called “smart money”. The dominance over the market by institutional investors meant that retail investors – individual investors often referred to as “dumb money”, due to the belief that these lacked the expertise, as well as the understanding of market forces – were undermined by hedge funds managers and investment banks for a long-time.

However, greater ease of access to information and technology created a new paradigm in the market that was further accentuated by the Covid pandemic. The result has been a new balance of forces in the market as seen in recent events. Whether this new paradigm will last, only time will tell…or the SEC.

The rise of retail investors

The coronavirus outbreak in the mid-quarter of 2020 triggered the growth of retail investors, which translated into a revolution in the stock market. With millions of people worldwide confined in their homes, their attention to the stock market increased, with more than 1 million new online brokerage accounts opened in the first three months of 2020. The new market participants were mainly young investors with little or no expertise who disregarded risks while pursuing new opportunities.

According to Deutsche Bank, “increased retail trading is ‘largely responsible’ for elevated stock prices and record-high options activity”, showing how these individual investors are driving the stock market. In addition, this increase in the number of call-options was mainly evident in small companies with low profitability. Retail investors are trading speculative stocks with low share prices, due to zero-commission investing apps and online brokerages. The New York Stock Exchange report demonstrated that, during several months in the Spring and Summer of 2020, more than 25% of the shares traded in the U.S. stock market were in companies with a share price below $5. To reinforce this tendency, Goldman Sachs, an investment bank, provided an index of non-profitable technology stocks, usually one of the main drivers of stock market valuations, which has raised nearly 400% since mid-March of 2020.

Source: Bloomberg

What lies behind that surge?

A global pandemic marked the year of 2020, as well as the stock market. While markets flopped and recovered in the first half of the year, retail investors sought an opportunity to try to take advantage of the circumstances to invest. The coronavirus pandemic led to an increase in retail investing. With the majority of people working remotely and having more free time to spare, many experimented the investment world. Nowadays, retail investors dispose not only of more financial information, but also of better investment education and trading tools. Furthermore, the $1200 COVID-19-relief check the US Government issued in April 2020 helped fund the trend, as shared by many redditors, users of the online social media platform Reddit where investors gathered in the R/WallStreetBets forum to discuss investments.

Another boosting factor that allowed the rapid growth of retail investment were online brokerages, enabled by the payment per order flow, which is the form of compensation for the firms charging zero-commissions to traders. These online intermediaries enabled investors to swiftly and easily sign up and try investing, this being far more accessible when compared to traditional intermediaries. At the end of 2019, most major online brokerages eliminated commissions for online stock trades. One example in which it is clear that this cut provoked a rise in retail investing is Robinhood. This investing app offers commission-free stocks, no minimum balance and permits the acquisition of fractional shares. From the beginning of 2020, Robinhood had reported 3 million new accounts, being half of them the first accounts of the investors.

The combination of these factors supports the idea of financial democratization that was accelerated in 2020 when millions of consumers where confined.

What does it mean for the stock market?

The impact of this increased predominance of retail investors is significant for all parties.

The first outcome would be the democratization of the markets in the sense that new trading platforms eliminate some barriers that restrict access to the market, namely commissions or capital requirements. As a result, financial gains from the stock market are more equally spread over the population. On the flip side, loss of capital is more harmful for retail investors, especially considering the frequency of bet-like investing behaviour among zero-commission trading apps through high leveraging and options that some do not fully understand.

This has been a major critic from hedge funds, which argue that the lack of expertise may affect basic market assumptions, such as the efficient allocation of resources, besides overinflating prices. For instance, despite the fact that retail investors provide liquidity when institutional investors pull back, that increased activity from herd behaviour creates volatility, which may ultimately affect the liquidity of that “hot” stock, as well as lead to panic selling. Therefore, retail investors end up underestimating their own market power.

For that reason, there have been calls for the SEC to implement more regulation on trading apps, and, consequently, on retail investors. The way these apps work is also under scrutiny, owing to the gambling experience they provide, by rewarding and incentivizing purchases rather than serving as simple intermediaries, which blurs the line between investment and entertainment.  

One way of reducing the negative aspects of a broader market access is through financial literacy. If the process is accompanied by proper education on financial markets, new investors will be equipped with the tools they need to make rational investments, instead of gambling on stocks. This would not only benefit them, but also institutional investors, by solving the most prevalent argument invoked by the latter.

How does GameStop fit into all this? GameStop was one of the “meme stocks” the new wave of investors, armed with new trading technologies and funded by savings and stimulus checks, laid their eyes on. The army of traders working together in a short squeeze exerted enough strength to force a bailout on a number of hedge funds betting against the company. Without going into detail on the structural problems of payment per order flow or the technical terms behind the short squeeze, the case of GameStop shows individual investors are a force to reckon with.

There is, however, one important aspect to consider. Retail investors have flooded the market before whenever barriers to the market decreased. The phenomenon first occurred in the 70s, through discount brokers, and then in the 90s, as a result of online trading. The newest trading platforms have eliminated almost all barriers. Consequently, trading volumes are now twice as much as in 2010, whether this trend will continue is contingent on action from regulators. The scandal over the brokerage app Robinhood will likely lead to action either from Congress or the SEC, which, in turn, may affect how these apps function and access to market.     

Sources: ABC News, Business Insider, Financial Times, Market Watch, Medium, Nasdaq, National Bureau of Economic Research, Statista, University of Chicago, Wall Street Journal

Tiago Rebelo

Raquel Novo