Economics

Bundesliga’s Financial Success Continues to Set Examples Across European Football

March 28, 2019 By Greg Leave a Comment

When looking at leagues across Europe, the financial might of the English Premier League is impressive. However, while the Premier League itself is rich, the clubs that play within it are pushing themselves to financial breaking point. In Germany, measures taken by the Bundesliga over recent years have created a financial model that benefits the league and its clubs.
Perhaps we can look at the two leagues like this:

The Premier League made 5.2 billion euros in revenue during 2018, making it the fourth richest sports league in the world. It’s paid the most in TV rights and is the most watched sports league in the world. Some clubs are growing rich in the Premier League, but below in the Football League clubs are at the financial limit. Even top Premier League clubs have banked their success on huge debt.

The Bundesliga cannot match the TV rights or revenue of the Premier League. However, the recent 2019 DFL Economic Report shows the league recorded revenue of 4.42 billion euros in 2018. Less than the Premier League, but still impressive considering the differences in global reach. This relatively small league (ranked fourth most prestigious in Europe) is the sixth richest sports league in the world. Serie A and La Liga may be more prestigious, but they cannot compete with the Bundesliga financially.

In its annual DFL Economic Report (for the 2017/2018 season), the organization says the Bundesliga and Bundesliga 2 increased revenue by around 10 percent compared to 2016/2017. This is no one off success as it is the fourteenth consecutive year of revenue growth.

Bundesliga is the top-flight league and managed to pull in €3.81 billion during last season. 17 out of its 19 clubs boasted revenue that passed €100 million. It’s a similar story of success in the Bundesliga 2, where the 18 clubs surpassed revenue of €600 million for the third consecutive year.

50+1 Rule

A big part of the financial success of German football over the last 15 years as been the 50+1 rule. This clause in the regulations of the Bundesliga states that a club must own at least 51% of its business to be allowed into the league. It is designed to allow club members to retain control of operations and protect themselves from external investors.

While the Bundesliga has built its success on growth based on the 50+1 rule, the English Premier League went another route. The league is far more open to external investment and outright ownership. In fact, only six of the twenty clubs are outright owned by British owners. Foreign ownership in of itself is not the problem, but the investment from outside sources potentially could be.

An example is Manchester City. Since being bought by the kingdom of Abu Dhabi, the club has received billions of pounds in investment. While the infrastructure is lasting no matter what happens, if City’s rich owners decided to leave one day, the club’s wage bill would likely be crippling. Man City is far from the only English club in this situation.

English clubs are content to gamble their finances on success, and admittedly it is a strategy that has worked so far. However, compared to the steadier German model, it feels like a bubble that could one day burst.

Do Football Teams really Have to Spend Hundreds of Millions to be at the Top?

March 12, 2019 By Greg Leave a Comment

Most football fans remember the Galactico era of Real Madrid, where the club pursued a bold strategy of purchasing the players considered the best in the world at the time no matter the cost. The Galactico era saw Zinedine Zidane, Ronaldo, Figo, David Beckham, and Roberto Carlos join Madrid, which yielded two La Liga titles and two Champions League victories.

Manchester City and Paris Saint Germain have largely followed the Galactico approach. Neither club was considered a giant a decade ago, until both were purchased by states (Abu Dhabi and Qatar respectively). With little winning history, both clubs were forced to spend big to buy the best players. Over the years, City and PSG bought (among others):

Man City: David Silva, Sergio Aguero, Vincent Kompany, Kevin De Bruyne, Fernandinho, Carlos Tevez, Raheem Sterling.

PSG: Zlatan Ibrahimovic, Neymar, Kylian Mbappe, Thiago Silva, Marco Veratti, Angel Di Maria, Buffon.

Like Real Madrid, the “buy the best at all cost” strategy worked for City and PSG. Since receiving their riches, Man City won the Premier League 3 times (ending a 43-year gap) and the FA Cup. PSG have dominated French football since Qatar bought the club, winning five of the last six Ligue 1 titles and four Coupe de France’s.

But is this the only way to be at the top? do football clubs really have to spend hundreds of millions to get there? we think not!

Financial Fair Play (FFP)

It is worth noting that Financial Fair Play (FFP) has possibly ended the concept of the Galactico strategy. Under FFP rules, clubs are only able to spend money they generate in revenue. Yes, all clubs named above generate a lot of money, but are limited considering the world’s best players are now valued north of 120 million euros.

Build Around Homegrown

Some clubs have developed a strategy of promoting youth talents and building around them with important buys.

For example, Manchester United had the Class of 92, a group of players (Ryan Giggs, Paul Scholes, Nicky Butt, Gary Neville, and David Beckham) that played for the club for years during its most successful period. Their manager Sir Alex Ferguson would spend big to supplement his young players with the likes of Roy Keane, Eric Cantona, Rio Ferdinand, Wayne Rooney, and Cristiano Ronaldo.

Barcelona followed a similar approach a decade later and crafted possibly the greatest team ever. La Masia youth products like Xavi, Iniesta, Lionel Messi, Sergio Busquets, Gerard Pique, and Cesc Fabregas were the star performers of a team that won 7 La Liga titles, 6 Copa del Rey’s, and 3 Champions League’s in the last 10 years. Like Manchester United, Barca supplemented these homegrown talents with excellent signings, such as David Villa, Zlatan Imbrahimovic, Luis Suarez, and Coutinho, Neymar, and others.

Identifying Undervalued Players

Around a decade ago, legendary Manchester United manager Alex Ferguson stopped buying players at the rate he previously had, arguing there was no value in the transfer market. Whether that was right or wrong (it was wrong, by the way), many clubs have built a transfer strategy on identifying players who are currently undervalued.

Whether this is a youngster who has not been hotly tipped but has quality or taking a chance on an established player who is waiting for the right environment to flourish. There are some fantastic examples of bargains who have gone on to become world class stars. Recently, N’Golo Kante has personified the idea of picking up a bargain and watching him flourish.

The Frenchman was largely considered a journeyman of the future when playing for French Ligue 2 side Caen. English club Leicester City bought Kante for £5.6 million without ever thinking he would help to define their greatest ever season. In his first season, Kante provided a consistent base in midfield that propelled Leicester to the Premier League title, widely considered one of sport’s all-time great achievements.

A season later he joined Chelsea for £32 million and performed the same role as the club won the Premier League, with Kante being named the league’s Player of the Year. It is worth noting that even the £32 million Chelsea paid is a bargain as Kante is considered the best defensive midfielder in the world and has since also bagged the 2018 World Cup with France.

Kante is just one example of a value-first transfer market strategy paying off.

Learn from Baseball – Billy Beane’s Success Story

Another interesting success story of undervalued players strategy comes from the world of American baseball. Billy Beane has been the general manager of Oakland Athletics for 18 seasons. In his years as a general manager he used research and analysis to find value in players that other teams did not see. He managed to turn the Athletics into one of the most successful and efficient teams in baseball. The movie Moneyball, starring Brad Pit, brought Billy Beane’s amazing success story to the big screen and made Beane and his system a legend in his life. His story is proof that the size of your budget doesn’t necessarily determine the quality of your team.

The World’s Most Lucrative Sports Leagues, Ranked 1-10

February 15, 2019 By Greg Leave a Comment

The world of sports is one of the most lucrative industries worldwide, generating billions upon billions in revenues across every continent on the planet. But there are a few sports leagues that stand head and shoulders above the rest. Through merchandising, ticket sales, illustrious ad campaigns, and players that pique fan interest to generate more buying power, these leagues are a hot commodity and their stock continues to rise.

1. National Football League (NFL)

Revenue (2017): $11.3B

The most popular sport in America is also the biggest earner of all leagues worldwide. The NFL generated in 2017 more than $11 Billion through ticket sales and lucrative deals of broadcast rights, merchandising and licensing rights. The Superbowl is the most watched television event in the US and generates tens of millions to the league and the teams participating in it in just one night.

2. Major League Baseball (MLB)

Revenue (2018): $8.9B

Noted for being one of the most diverse and inclusive leagues in the world, the biggest sports stars in the world come from this league, and they have generated interest that spans generations and continents.

3. National Basketball Association (NBA)

Revenue (2017-2018): $6.3B

Basketball is quickly gaining traction as one of the bigger and most popular sports worldwide and the reason for this is because of the history of the sport with players from all around the world representing their countries in the American based league.

4. Premier League

Revenue (2016-2017): $5.3B

Football (soccer) is still the biggest sport in the world, so it is only natural that the Premier League, one of the most popular European football leagues, make one the top spots. As Manchester United, Liverpool, Arsenal, and Chelsea remain popular within the country and abroad, the league generates billions upon billion of dollars internationally for their owners.

5. National Hockey League (NHL)

Revenue (2017-2018): $4.1B

As the biggest hockey league in the world, the United States based hockey league boasts some of the biggest players in the world, and includes a few Canadian teams thrown into the mix too for added measure. The league makes its income from broadcasting rights, merchandising and various sponsorships.

6. Bundesliga

Revenue (2017-2018): $3.8B

The second European football league on this list, the German league includes Bayern Munich as one of the most famous teams worldwide. Popular players include Thomas Mueller, Marco Reus, Robert Lewandoswki, and Manuel Neuer, who have made names internationally for their playing and lucrative sports contracts and commercials.

7. La Liga

Revenue (2016-2017): $3.4B

Another lucrative football league is the Spanish La Liga, which has three of the biggest teams in the world in Real Madrid, Atletico Madrid, and Barcelona. Popular players playing in La Liga include Lionel Messi, Iniesta, Marcelo, Modric and many others.

8. Serie A

Revenue (2016-2017): $2.3B

Another financial giant is the Italian football league. Serie A is huge in Italy and also has many fans worldwide. Juventus, Milan and Internazionale are the leading teams in the league. After landing Christiano Ronaldo the revenue of the popular league are only expected to grow.

9. Formula One

Revenue (2017): $1.8B

That Formula One made the list may shock many that are unfamiliar with the league, but for those that are in the know, it doesn’t because it is popular within certain circles, and the money it generates outshines NASCAR in America in several ways.

10. Nippon Professional Baseball

Revenue (2012): $1.3B

As one of the most closely followed sports in the world it is only fitting that the Japanese league make the list, with several Major League Baseball players claiming roots in Japan, including Ichiro Suzuki, Shohei Ohtani, and Hideki Matsui.

Breaking Down the Deloitte Football Money League

January 24, 2019 By Greg Leave a Comment

Spanish and English Dominance, Record Revenues, and FFP Failure

The 22nd edition of the Deloitte Football Money League (DFML) was just published, detailing the financial state of the world’s top football (European football) clubs. As usual, DFML details the highest revenue generating clubs and the story of the 22nd edition is Real Madrid’s return to the top of the table after a two-year absence.

Los Blancos capitalized on a third consecutive Champions League title by generating €750.9m in revenue, a new record amount. This places Real Madrid atop the Money League for the first time since 2016 and for a record 12th time. Madrid’s growth was at the expense of Manchester United, which topped the DFML in 2017 and 2018.

The Premier League club dropped to third with €666m, perhaps an ironic number for a club known as “The Red Devils”. Barcelona also topped United by securing revenue of €690.4m following another La Liga winning season during 2017/2018.

Rounding out the rest of the top 10 were:
Bayern Munich (€629.2m), Manchester City (€568.4m), Paris Saint Germain (€514.7m), Liverpool (€513.7m), Chelsea (€505.7m), Arsenal (€439.2), and Tottenham (€428.3).

Aside from Real Madrid’s record revenue, other records tumbled through the 22nd edition of the Football Money League. For example, total revenue across the top 20 highest earning clubs was a record €8.3bn and six English clubs arrived in the top 10, a record amount from a single country.

League representatives match the financial states of individual competitions. The Premier League, notable as football’s richest league, had 13 representatives in the top 30, 8 more than the next highest (Italy with 5 teams). Real Madrid and Barcelona hold the top 2 spots, but the situation in La Liga is highlighted as only four clubs are in the top 30.

Barcelona and Real Madrid take the lion’s share of TV revenue in Spain and that dominance is reflected in the DFML, with Atletico Madrid the nearest competitor in 13th place.

Financial Fair Play

One thing the Deloitte Football Money League makes clear is that Financial Fair Play (FFP) is not working, or at least not in the way it was supposed to. FFP was set up in an effort to limit the amount of money clubs could spend by permitting them to only spend money generated through revenue. It was viewed by UEFA as a system to give smaller clubs a better chance of competing.

However, critics argued it would instead cement elite clubs in place. And so it has proved, as giants like Real Madrid and Manchester United have grown revenue and smaller clubs in their leagues while getting richer are still tiers below in terms of generating money.

The only clubs that have managed to infiltrate the traditional elite clubs are Manchester City, Paris Saint Germain, and Chelsea. All those clubs are firmly in the top 10 revenue generators over the last five years. Each of those clubs is also notable because they are owned by mega-rich owners, Russian billionaire Roman Abramovich owns Chelsea, while Man City and PSG are state owned by Abu Dhabi and Qatar respectively.

PSG and Man City are particularly interesting cases because while they generate huge sums, both are accused of breaking FFP rules. The clubs have been accused of creating false revenue streams and financial doping. While investigations into Manchester City and PSG are ongoing, both highlight that FFP has largely been a failed concept and the only way to truly muscle into the elite group of clubs is to buy your way in.

A Lesson UEFA can Learn from the NFL

September 9, 2011 By Greg Leave a Comment

The NFL kicked off the 2011-2012 season announcing two major long-term deals that will keep the highly rated Monday Night Football through to 2021 on ESPN, and a lucrative 10-year deal with Pepsi. The combined value of these deals is $17.5 billion, and the NFL stands to reap revenues of more than $9.5 billion this season alone, a stark contrast to the UEFA Champions league, which pales in comparison. With revenue just over the billion dollar mark at $1.097 billion, many reason that the ECA and UEFA should consider that perhaps the NFL is simply more exciting than the Champions league and think long and hard on how they can upgrade the league to be more appealing to fans and of course more profitable.