Business school professors’ picks

Welcome to professors’ picks, offering a weekly curated selection of FT articles by and for business school faculty to connect classrooms to current events and to develop students’ critical thinking.

Read all submissions at www.ft.com/bschoolpicks. Save this link in myFT to receive emails alerting you to each new edition. Search the tags for relevant topics to illustrate teaching points. Encourage students to join the debate in the comments section beneath the article.

Comments or contributions? Get in touch at [email protected] 

Economics

Alcohol sales hit more by screen time than health fears, Asahi head says

Tags: alcohol, business environment, consumer trends, external factors, premium strategy

Summary: The CEO of Asahi, which owns beers including Peroni and Grolsch, argues that digital entertainment — like gaming and streaming — has been more responsible for reducing alcohol consumption than health concerns. While global alcohol volume declined in 2023, premium sales rose. The CEO sees opportunities in targeting influencers and promoting low- and no-alcohol options. He disputes claims that alcohol is the “new tobacco”, citing potential health benefits. Despite health warnings and competition from weight-loss drugs, Asahi remains optimistic, especially about expanding in the US.

Classroom application: This article provides an opportunity for faculty and students to analyse how developments in the broader business environment affect companies and how they can respond.

Questions:

• What are the primary factors driving global alcohol consumption? Is consumer demand entirely external to companies like Asahi or can they influence it?

• What are the specific implications of trends in the business environment like declining alcohol consumption on the industry?

• How can Asahi respond? List potential options, analyse their pros and cons and order them according to what Asahi should prioritise

• Global alcohol sales declined one per cent in volume but rose two per cent in value in 2023. What do these numbers tell you? What are the risks and opportunities in targeting premium product segments?

• Is it possible for producers of alcoholic beverages to benefit from shifting consumer preferences in favour of a healthier lifestyle?

• Which parallels and differences do you see when comparing alcoholic beverages to tobacco products? Is alcohol the “new tobacco”?

• How should Asahi deal with policymakers, if at all?

Stefan Legge, Lecturer, University of St Gallen

Accounting

Being bad at football COULD save Man United £726mn

Tags: Accounting, Financial Reporting, Debt Covenants, EBITDA, Revenue Recognition, Sports Finance

Summary: Manchester United’s poor performance on the field has coincided with significant financial distress. The club, positioned just above the relegation zone this season, faces accumulated losses of over £370mn across five years. Unusual debt covenants tied to maintaining EBITDA above a minimum threshold (£65mn) present an unconventional financial risk: qualifying for the Uefa Champions League could potentially force immediate repayment of approximately £726mn in outstanding loans and bonds. Although United’s recent EBITDA figures have stayed above this threshold, partly due to significant adjustments, the potential exists for a severe financial scenario should Champions League qualification coincide with EBITDA dropping below the required minimum. 

Classroom application: This case illustrates the practical accounting considerations linked to EBITDA-based debt covenants and revenue recognition in sports organisations. Students can analyse how accounting treatments such as player amortisation, extraordinary expense recognition and adjustments influence compliance with debt covenants. The classroom scenario is enriched by the fact that Manchester United ultimately lost the Europa League final against Tottenham Hotspur, thus failing to qualify for the Champions League. This outcome allows students to practically examine the financial reporting consequences for Manchester United while contrasting these with Tottenham Hotspur’s increased revenues resulting from their successful qualification. 

Questions: 

• How does EBITDA directly influence Manchester United’s compliance with its debt covenants? 

• Describe the immediate accounting impacts on Manchester United’s financial statements from losing the Europa League final and failing to qualify for the Champions League, specifically addressing revenue recognition, broadcasting rights, and the potential impairment of intangible assets

• How should Tottenham Hotspur account for the additional revenue resulting from Champions League qualification, including broadcasting rights, match day revenues, and commercial sponsorships? 

• Propose a practical accounting method that Manchester United could use to measure intangible impacts, such as reduced fan engagement and lower merchandise sales, resulting from poor on-field performance

Martin Mulyadi, Professor, Shenandoah University

Behavioural Science

Snickers wars reveal the enduring perversity of human behaviour

Tags: Behavioural economics, consumer behaviour, price transparency, inflation psychology, market regulation

Summary: This article delves into the concept of “shrouding,” whereby companies obscure the true cost of products, leading consumers to make suboptimal purchasing decisions. Using the debate over the shrinking size of Snickers bars, the piece illustrates how such practices contribute to inflation perceptions and market inefficiencies. Behavioural economists argue that enhancing price transparency could improve market functioning and potentially reduce prices, benefiting both consumers and the broader economy.

Classroom application: This article offers a practical example of how behavioural biases affect consumer decisions and market dynamics, highlighting the importance of transparency in pricing strategies.​ Firms often exploit consumer biases through tactics like shrouding. Consumers, limited by bounded rationality (our thinking ability is limited by the context) often rely on heuristics and surface cues like brand or packaging, making them vulnerable to such tricks. Perception biases, like unit bias, lead people to assume a product’s size hasn’t changed. Money illusion means they notice price hikes more than quantity reductions. These behaviours are shaped by choice architecture — how options are presented. Ultimately, market inefficiencies often persist not due to lack of competition, but because firms design choices to exploit predictable irrationality.

Questions:

• How does the concept of “shrouding” affect consumer trust and purchasing behaviour?​

• In what ways can increased price transparency lead to more efficient market outcomes?​

• What role do behavioural biases play in consumers’ perceptions of value and cost?​

• How might policymakers and regulators address the challenges posed by shrouding practices?​

• Can digital platforms both alleviate and exacerbate the effects of shrouding? Provide examples

 Ivo Vlaev, Professor, Warwick Business School

Private Equity

Ivy League endowments sell private equity stakes amid buyout downturn

Tags: Harvard, Private Equity, Alternatives, Endowments, Yale

Summary: The traditional 1970s model for endowments allocated 60 per cent of assets to public equities and 40 per cent to fixed income. In the 1980s and 1990s, Yale’s CIO David Swensen made a radical change by sharply reducing exposure to stocks and bonds, and shifting his portfolio into alternative assets such as private equity, venture capital and hedge funds. A quarter of a century later, it is tough to spot a large asset pool that has not mimicked the Yale “endowment model”.

Today, endowed institutions have almost 60 per cent of their portfolios in alternatives, with only about 30 per cent in public equities and 10 per cent in fixed income. About 40 per cent is allocated to PE and VC. But the companies these funds invest in tend to be much smaller, more leveraged, more expensive and have lower profits compared to public equities. Investors also have to lock their capital up for a decade or more.

Classroom application: The perceived alpha of alternative assets from the median investment consultant rose from 119 bps in 2001 to 200 bps in 2020 — a major “shift in beliefs”. It requires significant optimism to justify such a switch to expensive, niche investments. This article encourages the students to brainstorm on what motivates prestigious universities to put 40 per cent of their portfolio into highly leveraged, low-margin microcap stocks that trade at valuations in excess of the S&P 500 with 10-12 year lock-ups at “2% and 20%” fees.

Questions:

• While the endowment model may have been good for Swensen and Yale, has it been a trap for the copycats?

• These alternatives require 10 times the fees of publicly traded stocks, an expense only justified if the fund managers are remarkably talented. But what if these allocations are misguided? Is this sector the greatest current bubble in financial markets with risks to pension funds and non-profit endowments?

• It is argued that the primary reason PE and VC are considered true alternative asset classes is that they are “marked” quarterly by accountants and are less volatile. The volatility of public markets is replaced by the judgment of an accounting firm that is employed by the PE fund. Do you think this is the reason for the significantly lower volatility? 

• If PE firms adopted fair value accounting standards, will the reported volatility of PE significantly increase?

• The FT article points to growing discounts for PE secondary sales with investors seeking liquidity. Shouldn’t these asset managers be investing in liquid assets like ETFs instead of trying to beat the market and play with the ‘big boys’?

• Some observers ask why an organisation investing widely in private equity, venture capital and hedge funds needs any special tax treatment. Is this criticism justified? 

Krishnan Ranganathan, Guest faculty at Indian business schools

Negotiation

Britain and Europe are moving beyond Brexit. Now for the real trade-offs

Tags: Negotiations, Brexit, Trade, EU

Summary: The UK and EU highlighted a list of areas in which they intend to co-operate more closely after discussions at Lancaster House in London. Both sides have an interest in working with each other: Brexit has increased the cost of trade with Britain’s nearest and largest trading partner and left the UK more exposed to global insecurity. Closer collaboration with the UK on defence and trade is in the EU’s interest given the desire for self-reliance on defence and global trade challenges. These negotiations, only in their preliminary stages, imply trade-offs in the UK-EU relationship on integration, alignment and flexibility to reduce trade friction and bolster collaboration while remaining politically acceptable domestically.

Classroom application: This article provides an opportunity to discuss long-term, ongoing bilateral negotiations in a complex environment.

Questions:

• What were the main concerns that drove the UK in its decision to leave the EU? What promises were made to the voters, and how have things turned out?

• What were the EU’s main concerns in the original negotiations led by Michel Barnier? 

• What global events and issues have affected the two side’s positions since 2016, and how do these changes affect their interests in the current negotiations?

• How has the power balance shifted over the course of Brexit negotiations since the decision to leave the EU, and how does this change the way in which the two sides are pursuing their interests?

• Given that negotiations between the UK and the EU to define their trade relationship and other matters are likely to go on indefinitely, how should they proceed today?

Moshe Cohen, Senior Lecturer, Boston University Questrom School of Business

Trade

Global supply chains threatened by lack of Chinese rare earths

Disciplines: Finance, International Entrepreneurship, International Strategy

Tags: Tariffs, US-China Trade, International Supply Chain, Trump Trade Strategy, International Trade, Geopolitical risk

Summary: Global concerns about supply chain disruptions have been sparked by China’s recent export bans on permanent magnets and seven rare earth elements. These materials are essential for industries including wind turbines, electric vehicles and military applications. The sluggish pace is not meeting demand, endangering manufacturing capacity, particularly in Europe and the US, despite export licenses for shipments to Europe. The restrictions are a result of rising trade tensions following the imposition of tariffs by the US. Prominent corporations including Tesla, Ford, Lockheed Martin, and Volkswagen are affected, and executives have expressed concerns about unclear licensing processes and delays, particularly for military applications. According to the article, “It is unclear whether China has begun to approve exports to the US since the two economic superpowers agreed a tariff war ceasefire this month.”

Classroom application: For business school debates on geopolitical risk, strategic resource dependency and global supply chain management, this article serves as a valuable case study. The export limitations imposed by China emphasise the dangers of excessive dependence on a single supplier country and the significance of risk assessment, supply chain diversity and the interaction of company strategy with international trade regulations. To maintain operational resilience and strategic autonomy, governments and businesses must critically examine how they can navigate complex geopolitical environments. This article’s inclusion in the curriculum can also foster discussions about the ethics of resource allocation, the balance between globalisation and national security, and the strategic decisions that companies must make in response to shifting global dynamics.

Questions:

• What strategic factors should multinational firms prioritise in reaction to China’s export limits on rare earth elements, and how do these restrictions illustrate the relationship between geopolitics and global supply chain management?

• How can businesses reduce the dangers associated with such concentrated supply chains, and what effects does China’s hegemonic position in rare earth processing have on international industries?

• How can governments and corporations work together to diversify the supply of vital minerals, and what obstacles may they encounter when creating sources outside China?

• What effects do regulatory uncertainty and export licensing processes have on operational planning for businesses that depend on rare earth elements, especially those in the automotive and defence industries?

• How should foreign companies understand and react to China’s export regulations, and what part does strategic ambiguity play in these measures?

• Given the current situation, how can businesses strike a balance between cost-effectiveness and supply chain resilience, particularly when other sources may be more costly or less developed?

• What can be learned from this case about the significance of environmental concerns and ethical sources when acquiring rare earth elements?

Case discussion positioning: There is an ongoing debate about the sources of rare earth minerals, not just from China, but also around the world. One FT journalist recommends that the US should tackle refining directly. Other countries are now benefiting from these same Chinese export restrictions. When might the US supply chain come to a screeching halt, or is this just political melodrama? Can start-ups save the day by offering an alternative?

Gregory Stoller, Master Lecturer, Boston University Questrom School of Business

Got feedback on professors’ picks or willing to contribute? Get in touch at [email protected] or add your selected articles and questions in the comments below.