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Kum & Go’s new downtown office opens for business
Home to the Krause families businesses, the Krause Gateway Center opens its doors after 5 years of planning and construction
Brian Powers, Des Moines Register
When Kum & Go convenience store chain owner Kyle Krause purchased an Italian soccer team, he promised patience.
“We are not here for the quick dollar,” he told the New York Times in September 2020, after buying a 90% stake in Parma Calcio 1913 and installing his son, Oliver, as director of global soccer strategy.
He has followed through on that promise. The team has not made a quick dollar. Through Krause’s first 17 months of ownership, according to the team’s financial reports, Parma has lost 110 million euros ($116 million) ― the cost of about 54 million Kum & Go pizza slices.
Given those struggles, some residents of Parma said they are intrigued by a Feb. 14 Reuters article reporting that the Des Moines-based Krause Group may sell its 400 Kum & Go convenience stores for about $2 billion. The article, which relied on unnamed sources, reported that the company also is considering a leaseback, in which the Krause Group would sell Kum & Go’s land and lease the properties back in exchange for up-front cash.
Gruppo Gentile S.r.l., the Italian subsidiary of the Krause Group, loaned the Parma team 175 million euros in 2021 to cover its losses. Parma has not released its 2022 financial report, but the team was not poised for a turnaround. In its first year under Krause’s ownership, Parma finished in last place in the top-tier Serie A, receiving a demotion to Serie B in European soccer’s relegation system.
The decline put Parma in smaller-market games. Before the pandemic, according to PricewaterhouseCoopers, the average Serie B team earned 7.8 million euros a year in ticket sales, broadcast rights and sponsorship deals ― about 106 million euros less than what a typical Serie A raked in.
Parma could return to Serie A by finishing in the top three in the 20-team Serie B. In 2021-22, it finished 12th. With two months left in the 2022-23 season, Parma is in 8th place.
Andrea Locatelli, a Parma resident who has opposed a Krause plan to build a stadium and retail businesses in downtown Parma, told the Des Moines Register in an email that the Krause investment “seems illogical and uneconomical, and also against the public interests of the citizens of Parma.”
In Europe, sports team ownership is ‘cannibalism ― tooth and claw’
The Krause Group, which declined an interview request, said through a spokesperson that “the (Kum & Go) business continues to perform exceedingly well.” The spokesperson did not comment on the Reuters report.
Asked whether the financial losses in Italy could impact other Krause projects, including the already delayed construction of a $75 million soccer stadium in downtown Des Moines for its planned U.S. pro team, the spokesperson said in an email, “The Iowa stadium is moving along well and our investment process and capital is independent of any of the other activities within the business.”
“For Parma Calcio,” the spokesperson added, “Krause Group sees tremendous potential in the club and significant value to realize from our ongoing investment. We are laying the foundations to return to Serie A. Parma has many of the components to achieve this.”
With plans to build a new stadium and surrounding retail businesses in Parma, Krause could make a lasting mark on the city. Coupled with increased spending on player salaries, he is investing like an owner hoping to position the team among Italian soccer’s marquee clubs.
But even if he succeeds, some experts doubt the team will become a profitable business. In the 2018-19 season, the average Serie A team lost 13.8 million euros, according to PwC. The average team had 216 million euros of debt.
Being the best is especially expensive, requiring hundreds of millions of euros for the world’s top talent. The only Italian teams to win Serie A championships in the last two decades ― AC Milan, Juventus and Inter Milan ― lost an average of 78 million euros in their title years.
The pandemic made the financial problems worse, according to PwC. In front of empty stands, the average Serie A team lost 50 million euros in the 2020-21 season ― Krause’s first year owning Parma. The average debt of a Serie A team increased to 244 million euros.
Stefan Szymanski, a University of Michigan sports management professor, said such figures can shock American sports fans. The Dallas Cowboys, perhaps the country’s most popular sports franchise, earned $466 million in operating income last year, according to Forbes.
Szymanski said U.S. team owners’ profits derive from the cartel-like system they run. The NFL has granted 32 franchises, and team owners approve any expansions. They negotiate TV broadcast deals together and share revenue. They negotiate a cap on salaries with the players’ union. Teams draft new players every year, with the worst franchises getting the first picks.
European owners have no such luxuries. Some leagues share broadcast revenue, but the best-performing teams get the biggest cuts. Leagues don’t hold drafts. Teams don’t cap salaries.
The best teams are in an ever-increasing arms race for the best talent, and player salaries doubled in the last decade. Middling teams, meanwhile, spend whatever they can to earn promotions to higher-tier leagues ― or avoid relegation.
“(American sports are) a bit socialist, really,” Szymanski said. “In Europe, it’s cannibalism ― tooth and claw.”
Szymanski added that owners of European soccer teams, like the Krauses, won’t make money under the promotion-and-relegation system.
The structure dates to traditions that started in the 1880s, he said. English soccer developed with loose rules, allowing teams in different leagues to play against each other in tournaments. The set-up encouraged a dense map of professional teams tied to even the smallest European cities.
In a country with a population the size of California and Michigan combined, Italy has 60 soccer teams in its top three tiers. Those two U.S. states, by contrast, have four NFL teams. In addition to having less competition for fans, those NFL teams don’t have to worry about losing their place atop American football.
“It undermines the possibility of making profits,” Szymanski said of the European soccer system. “It also is responsible for a large degree of insolvency, bankruptcy in clubs.”
More: Kum & Go exit? Is it time for the Krauses to sell their iconic convenience store chain?
Fraud, theft and Albanian oil: The Parma football story
Even by European soccer standards, Parma’s financial history is rocky.
Parma bounced among the second and third tiers of Italy’s soccer leagues for most of the team’s history. But the team ascended to Serie A in 1990 and received a boost a year later when Parmalat dairy founder Calisto Tanzi bought the club.
From 1990 to 2004, Parma finished in the top half of Serie A every year, peaking with a runner-up finish in the 1996-97 season.
But auditors discovered fraud at Parmalat in December 2003. According to the New York Times, the company racked up $17 billion in debt from 1990 to 2003 while reporting only $2 billion on the books. The company allegedly lost $2.4 billion during that period, despite reporting profits. Investigators accused Tanzi of siphoning $1.1 billion from company accounts, and an Italian jury convicted him of market rigging.
Parma bounced between various ownership groups before running into financial trouble again under Tommaso Ghirardi. The team stopped paying players in the summer of 2014. Some continued to compete, paying for their own water and doctors while driving the team bus to games. Parma canceled matches because the team couldn’t pay security or stadium staff.
In a March 6 email, Ghirardi wrote in Italian ― translated by the Register ― that “the whole football system should be reformed. … the cost of labor… players’ salaries… are too high in proportion to your revenues.”
In December 2014, Ghirardi sold Parma for 1 euro to Rezart Taci, the owner of an Albanian oil company. Taci later said the team had 240 million euros of debt, more than triple the figure he expected. (Ghirardi has denied that claim.)
Taci sold Parma for 1 euro to Italian businessman Giampietro Manenti in February 2015. Italian police arrested Manenti a month later, accusing him of receiving $4.8 million from a credit card hacking ring. A judge declared Parma bankrupt in April 2015.
After nobody bid for the club, local investors launched a new soccer entity in Parma. The Italian Football Federation allowed the team to inherit Parma’s logos and history but required Parma to begin in the fourth and lowest tier.
The team earned promotions three straight years, returning to Serie A in the 2018-19 season. Parma lost 40.7 million euros during the group’s first four years of ownership. The team accumulated 42.3 million euros of debt.
Marco Ferrari, who led the ownership group, declined to comment on Parma’s long-term business strategy. Ermir Kodra, a former Albanian oil salesman who became Parma’s president for three months in 2015, also declined to reflect on his experience with the club.
Kodra now works as a used car sales manager in New York. Asked whether turning a profit in Italian soccer is impossible, Kodra said, “Probably you are right. It is very difficult.”
No public financing for proposed new stadium, unlike in Des Moines
When Krause purchased Parma, he told ESPN that he made an offer to the team’s owners after networking and learning what clubs “may or may not be for sale.”
In particular, he said he talked to Joey Saputo, the heir to a Canadian dairy company who bought Bologna F.C. in 2014. Krause also talked to Mediacom founder Rocco Commisso, who bought A.C.F. Fiorentina in 2019.
“They shared what they thought, both of Serie A and of Parma,” Krause said at the time.
Krause is among a growing list of North American owners who have bought stakes in Italian teams. Experts say the infusion of foreign investment represents a chance for Serie A to gain ground on the English Premier League, which has distinguished itself as the most lucrative division of European soccer in the last 30 years.
To boost their teams’ profiles, Krause and other new owners are trying to build modern stadiums.
More: Downtown Des Moines soccer stadium developer says design, funding nearly complete
Historically, Italian cities have built and owned the stadiums, leasing them to teams. This has created yet another drag on Serie A, some experts believe.
According to PwC, the average Serie A stadium was 61 years old in 2020. Many cities built the stadiums to host multiple sports. Large tracks ring the fields, robbing teams of the ability to sell high-priced tickets for seats within feet of the players.
The old stadiums don’t have big food courts or team shops, unlike some of the modern European Premier League stadiums. They also don’t have coverings protecting the fields, leaving them muddy on rainy days.
“It’s not something that you can offer to viewers in Asia,” said Gianmarco Ottoviano, an economics professor at Bocconi University in Italy. “They’re used to the Premier League in England. The pitch is green. It’s perfect.”
In 2018, before the pandemic forced teams to play in empty stadiums, the average English Premier League team earned 36 million euros from tickets. The average Serie A team earned 13 million euros.
New stadiums are harder to come by in Italy than in other countries. Italian cities are denser, Ottoviano said, leaving teams with fewer areas where they can build. And when they identify an area, breaking ground brings the risk of finding culturally significant artifacts that can delay or stop construction.
Then there is the money. Governments don’t offer public funding for stadiums in Italy, Szymanski said. Public finance is more centralized in Italy than in the United States, with almost all tax collected and doled out by the federal government, rather than provinces or cities.
“States’ rights just isn’t a thing in Italy,” he said.
Plus, most Italian cities already have an established team with decades-old loyalty. Unlike American teams, they don’t play cities off against one another in the quest for the best stadium deal.
“Teams don’t move locations,” said Thomas Peeters, an applied industrial organization professor at Erasmus University in the Netherlands. “They go up and down (league tiers). But they stay in place.”
From Iowa to Italy: Kum & Go owners purchase 90% stake in Italian soccer team
In a May 2021 presentation for a new Parma stadium, the Krause Group disclosed that it expected the project to cost between 84 million and 94 million euros. The company told city officials that it would fund the stadium itself, in part with a 40 million euro loan.
The company asked the city to lease the site of the current stadium without charge for 90 years. (A Krause Group spokesperson declined to comment on the company’s most recent estimates for the development.)
In Des Moines, meanwhile, the Krause Group plans to build a $75 million stadium for its second-tier USL Championship franchise.
The Iowa Economic Development Authority has approved $23 million in public funding for the project, while Polk County has approved up to $7 million. The company is negotiating a development agreement with the city.
Racehorses, Van Goghs and soccer teams: Magnets for the wealthy
Even without public financing, some Parma residents said they oppose the steep investment.
“We just can’t understand how an entrepreneur can literally burn so much money without having an apparent possibility of return,” said Locatelli, the local critic.
He said he opposes the deal because he believes the stadium will be “the Trojan horse” for more downtown redevelopment. The Krause Group’s 2021 presentation to the city included new surrounding buildings to hold shops, restaurants, bars, a fitness center and a team museum.
Pippo Russo, an Italian sociologist who investigates soccer team management, said in an email that the redevelopment will “destroy territorial equilibrium.” He said environmentalists also oppose the construction.
Some locals are not pleased with the on-field product, either, he said. In 2021, according to the European soccer finance website Capology, Parma spent 60 million euros on personnel ― the most in Serie B and more than triple the league average. The team finished in 12th place.
“They were to be first and distant from all others, with all this money spent,” Russo said. “In general, it really doesn’t make sense.”
The team’s revenue has declined as well. Amid the pandemic, according to the team’s financial reports, Parma’s annual ticket revenue for league games dropped to 527,000 euros in 2021 from 2.1 million euros in 2019.
With relegation to Serie B, annual broadcast revenues declined to 15.1 million euros from 33.6 million euros.
Still, experts say the income statements might not need to make sense. The prospect of owning a European soccer team draws the world’s wealthiest suitors, if the Krause Group ever wants to sell.
In 2003, Russian oligarch Roman Abramovich bought a 50% stake in the English Premier League’s Chelsea for 30 million pounds. Nineteen years later, amid public pressure for Abramovich to sell the team after Russia’s invasion of Ukraine, investors bought the club for 4.5 billion pounds ― a 7,400% increase in valuation.
Chelsea is a much more valuable team than Parma, winning five league championships in the last two decades. Creating a consistent contender in Serie A could increase Parma’s net worth, though.
“There’s going to be a sustained interest in owning a European football team,” Peeters said, “just as there’s a sustained interest in owning racehorses and Van Gogh paintings.”
And if owners don’t make up their annual losses when they sell, Szymanski doesn’t think European soccer faces any kind of existential problem.
More owners will bid. More players will become generationally wealthy. More fans will watch.
“You end up with an entertaining product,” he said. “It doesn’t really matter that the people come and go.”
More: ‘Protect trans kids,’ Kum & Go says. Why other Iowa big businesses are staying silent
Tyler Jett covers jobs and the economy for the Des Moines Register. Reach him at tjett@registermedia.com, 515-284-8215, or on Twitter at @LetsJett.
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