European football is not making enough money

UEFA's suits think that the main problem is the rise in operating costs, but the real problem is that European football is just not making enough money

Uefa - we care about money (Cc)

Europe’s major professional clubs continue to rack up staggering losses. Figures released by European football’s governing body revealed that clubs lost more than €1.6 billion in 2010.

UEFA’s Benchmarking Report disclosed that 56% of clubs posted losses in the 2009-10 financial year, and their total debt was €8.4 billion. Annual losses rose by 36% (to €1.6bn).

One can look at a different statistic from the same year, which shows that revenue shot up by 6.6% (€12bn to €12.8bn), and think that  the world of football economics is doing enough to raise income. However, the fact is that the income cannot catch up with operating costs.

 UEFA’s suits think that the main problem is the rise in operating costs, derived from high wages. However, the problem might just be that the European football simply does not make enough money.

 In the U.S, the National Football League’s income is more than €7 billion per year, while Major League Baseball’s income is more than €5 billion. This means that 62 professional sports teams in the United States make more money than 734 clubs from all across Europe, and that’s the despite the fact that football is a lot more popular around the world than baseball or American football.

One of the reasons America sports are more profitable than European football is the broadcasting rights for sports that have become so expensive in the US, in part, because ratings for just about everything else on TV have diminished. The proliferation of network channels has meant that each program attracts smaller and smaller audiences. Yet somehow, European football is missing out on it and keeps bleeding cash.

Sporting events draw big numbers, and advertisers pay a premium to reach those viewers — mostly men ages 18 to 34. In the USA, Sports has even proved to be resilient to technological advances roiling the rest of the TV industry. With more than one-third of American households equipped with digital video recorders, viewers are not watching nearly as much live  TV (or commercials), but they are still tuning in to the big games.

“It’s DVR-proof, it delivers consistently high ratings and it provides value to advertisers” said ESPN Executive Vice President John Wildhack to the L.A Times. He doesn’t see the cost of sports programming coming down any time soon. “The value of sports”, he said “to both advertisers and distributors — will continue to be very high.”

So how come European football has been left behind? It’s probably because there is something  wrong with the financial model or sporting format of European football. It’s not making enough money. UEFA should then try to change it.

 With that said, here is a 5 point plan that will make European football more attractive and profitable:

1. Change the Champions League

In the NFL, the richest sports league in the world, every team plays only 16 regular season games. However, less is more. Change the Champions League to a more compact format and teams in it will make more money. Here is a suggested format.

2. Make a clear distinction between the professional and amateurs 

If Germany(population: 81,702,329) need only two professional leagues, there is no need for a  small nation like Israel (population:  7,624,600) to have 3 professional leagues. The professional leagues need to be the very limited elite in each country. Solidarity payments should go to the grass-roots level clubs.

3. Smaller leagues

Remember the motto: Less is more. A professional league with 16 teams instead of 20 will give a little more meaning to every game, thus making it more attractive to viewers, sponsors and TV companies.

4. Export expertise

Football is a global sport, but most of the information about it is in Europe. European football can sell this information in many ways: Exporting coaches and players is great, but collaborations between top European clubs and clubs from the rest of the world can do wonders for the game.

Another thing that the NFL does is have one regular season game played in Wembley Stadium every season. Having cup games and league games played in Asia, the U.S, Africa or even South America should be considered. It will raise an amazing amount of money, and increase the popularity of  these leagues in new markets.

5. Invest in infrastructure

Jean-Michel Aulas, President of Lyon, said it loud and clear. “There is a difference between easy money and money for investment. Tomorrow’s paradigm must be built on building stadiums and  youth academies – tangible assets that can benefit football in general”.

UEFA should force private investors to be smart with their money. The investment in infrastructure usually pays off.

2 Comments

  1. Dobs added these pithy words on January 29, 2012 | Permalink

    This article, although well-intentioned shows a shockingly poor understanding of the subjects it covers. First, your thesis is that European football clubs are losing a lot of money and the solution is to raise revenue. Your thesis may or may not be correct, but your proof is lacking. Nor do you seem to have much knowledge about finance or North American sports.

    You begin by comparing revenue between all 650 European football clubs and the 62 teams in the NFL and MLB. You automatically conclude that the North American model is superior because they have generated more money with a fewer number of teams. On your numbers it is, but you’re comparing apples to oranges. If you are going to include a host of small European football clubs, you also need to include the smaller professional baseball and football teams in North America. By ignoring the other 200+ professional baseball teams and hundreds of college football programs you’ve skewed the numbers dramatically in your favour. Yes, including these teams would increase the amount of total revenue, but the amount this increase in revenue would pale in comparison to the number of teams added.

    Second, you cite the NFL as an example in which decreasing the number of games will increase revenue and presumably profitability. You might be right, but you’re completely ignoring your superior North American example: MLB. MLB plays 162 regular season games a year. They seem to be able to generate a lot of revenue, but playing a lot of games. The solution to more revenue might be to decrease the number of games, or it might just as well be to have a dramatic increase the number of games played too.

    Third, you seem to lack understanding of finance. You consistently confuse the words profit and revenue. Profit depends on revenue and expenses. Increased revenue does not necessarily mean an increase in profit. You site MLB and the NFL as good financial models but you’ve included no information about the profitability of either league. They may generate over $12 billion in revenue, but they may also be incurring huge losses just like European football.

    Admittedly, everything I’ve read about the NFL and MLB indicates that both leagues are profitable. Certainly, this is partly due to with their ability to generate massive amounts of revenue. However, both sports have also managed to control operating costs. The NFL has a strict salary cap and MLB has a luxury tax. These measures seem to suggest that control of operating costs may lead to profitability. A possibility that UEFA certainly believes and you have dismissed out of hand.

  2. sander added these pithy words on February 13, 2012 | Permalink

    Germany has three professional leagues, as from next year, factually four. But the numbers to compare are not population-numbers (say, 1:10 in favour of Germany), but number of players (1:250 in favour of Germany). That is why Israel is example for nothing.
    What people should separate once and for all, is between Football as Show (TV-entertainement)and sport (to be played in local clubs or in the park). As long as both try to live under one roof, it’s not going to function properly.

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