How do football clubs make money?

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The football industry has become one of the most lucrative and competitive industries in the financial world. The value of football clubs have soared over the last 30 years and entrepreneurs from around the world are now desperate to try and get involved within a market that is still yet to reach its ceiling. With huge costs and a need for results on the pitch, budgeting is crucial to the success of any football club. In this blog, we will look into both the revenue streams and the cost measures that the modern-day football club looks to utilise.

WHAT ARE THE MAIN REVENUE SOURCES FOR A CLUB?

Football clubs that aim to win, probably need to look at the players’ salaries which in most cases explain the clubs’ success. But is it football just this? Who puts more money on the table can secure success? This is partially true, especially in this new football Era, but we can all agree that success can be measured in different ways. If a small or mid-size club is able to achieve good results, it will generate enough revenues to be able to sign talents. Talents (if well managed) are supposed to bring success, success generates money and so more talent, and the club establishes a virtuous cycle that keeps going. Of course, it’s not easy to perform always good but if we look at the overall performance, achieving a sustainable management process can be certainly defined as a success. Now, let’s have a look at how football clubs actually make money so which are the key element to achieve sustainability.

It depends on the level of the league and the country, but generally, football revenues are divided into four categories:

  • Broadcasting rights
  • Matchday & Ticketing
  • Commercial activities
  • Transfer market

Broadcasting rights

The commercialization of TV rights represents the highest value of the profit and loss account for the top European football clubs and leagues. Through a complex tender process, broadcasters compete to acquire the rights to broadcast the European football league games and become the official rights-holder of the competition. The clubs get a portion of the broadcasting revenue due to their participation in domestic and international competitions.

The value of the best European football leagues has skyrocketed as fans worldwide increasingly follow their favourite football clubs, players and competitions. Let’s take as an example the Premier League which at the moment is leading the ranking. The formation of the Premier League in 1992 marked the starting point for a new era of broadcasting rights. The launch of the Premier League on Sky Sports saw the introduction of subscription-based broadcasting, a structure that would be duplicated across football leagues across the world. The Premier League’s headstart played a key role in the league becoming the most-watched and therefore most valuable league worldwide.

International broadcasting rights for the Premier League were valued at £40m in 1992, they are now worth an estimated £3.83bn. Domestic rights for the Premier League are put up for auction every three years and are sold in six different packages; the most expensive costing Sky Sports £9.3m per game. 50% of the UK Broadcast Revenue is split equally between the 20 Premier League sides, 25% is paid in ‘Merit Payments’ (prize money based on final position in the league table) and the final 25% is paid in ‘Facility Fees’ (fee per game broadcasted).

Top 10 for broadcasting revenue (Deloitte Football Money League 2021):

Matchday & ticketing

In 1992, matchday income on average represented 43% of Premier League’s total revenues, despite matchday incomes tripling since then, the matchday share is now on average just 13%. However, a combination of capacity differences, participation in European and Cup competitions and corporate facilities can see the matchday shares differ from club to club. Tottenham Hotspur is believed to generate around £800,000 per game just on food and drinks sold at their new stadium, whilst Arsenal generates nearly a quarter of their total income from matchdays. Eight teams within the Premier League makeover £1m on a matchday.

Top 10 for matchday & ticketing revenue (Deloitte Football Money League 2021):

Commercial & Marketing

It’s represented by the income that the clubs receive from their sponsors, merchandising, also other commercial activities such as tours and friendly matches. Commercial revenue includes retail, merchandising and any income generated from third party brands. They have been introduced in the 2000s and they were pivotal for the football clubs’ business model, especially the most successful teams with a large fan base are able to make +30-50% of their revenues from marketing and literally transforming themselves into global entertainment businesses.

Top 10 for commercial revenue (Deloitte Football Money League 2021):

Transfer Market

Probably the most public indicator of the insane amounts of money in football is the reported transfer values paid for elite players. Transfer fees continue to soar as the years go on, which is a key reason why there have been calls for stricter financial measures to stop the market from ‘exploding’. In 1975, Giuseppe Savoldi’s move from Bologna to Napoli was the first £1m+ signing, 17 years later Jean-Pierre Papin’s move from Marseille to AC Milan was the first 7 figure transfer. As more money was coming into the game in the 90s, transfer fees started to rocket, Newcastle broke the transfer record in 1996 to bring in Alan Shearer for £15m, only for the transfer record to be over double that figure just 3 years later, as Christian Vieri moved from Lazio to Inter Milan for £32m. Zinedine Zidane’s £46.6m move to Real Madrid in 2001 stood as the record for 8 years, only for Real Madrid to beat that record twice in the Summer of 2009, with the signings of Kaká and Cristiano Ronaldo. Fast forward to just 8 years later, the transfer fee record was over double once again, with Neymar’s £198m transfer from Barcelona to PSG. As transfer values increase so do the value of clubs as their assets are becoming more valuable.

FIFA global transfer market report 2020:

DO FOOTBALL CLUBS MAKE A PROFIT?

Most European sides are integrated into the financial market systems across the continent. When a club is doing well and qualifying for significant competitions like the Champions League, the stock prices of such a club are likely to go high. A lot of football owners are businessmen in their own right, managing various organisations. In order to grow their other investments, chairmen can leverage the popularity and large numbers their club will attract to market their business, which guarantees more exposure and profit for their main business. In the last two years, in the Premier League, only four teams were able to make a profit (Chelsea, Liverpool, Newcastle and Norwich), with a further two breaking even (Aston Villa and Burnley), which means 80% of teams in the league made a loss. Despite receiving far less broadcasting revenue than the Top Five European Leagues, Dutch Eredivisie sides AZ Alkmaar and Ajax remarkably ranked within the top 10 most profitable clubs. However, the reality for most of the clubs is very different, since they are barely profitable despite growing revenues. Since everything depends on results and players are the clubs most valuable asset able to make the difference, all money that clubs make basically got directly transferred to players and agents’ inflated wages and transfer expenses.

Net Profit (2019-2021):

HOW DOES A CLUB HAVE TO BEHAVE IN ORDER TO MEET ITS BUDGET?

To establish the budget a club starts with their on the field targets that they want to achieve. The answer on how to behave is by defining all the parameters (potential revenues and costs) and isolating and controlling the payroll and the balance of the football market (between sales and purchases). This process is often done by putting the sporting director and the CFO at the club in communication. A 2009 UEFA review showed that more than half of European clubs incurred a loss over the previous year, and although a small proportion was able to sustain heavy losses year-on-year as a result of the wealth of their owners, at least 20% of clubs surveyed were believed to be in actual financial peril, this led to the introduction of Financial Fair Play regulations. Only a club’s outgoings in transfers, wages, amortisation of transfers, financial costs and dividends will be counted over income from gate receipts, TV revenue, advertising, merchandising, disposal of tangible fixed assets, finance, sales of players and prize money. Any money spent on infrastructure, training facilities or youth development is not included in the FFP regulations, allowing teams to have the licence to budget as much as they want on those three sectors without the worry of any sanctions. Clubs will either receive a warning, fines, points deduction, withholding of revenue from a UEFA competition, a transfer embargo, or be disqualified from UEFA competitions, depending on the severity of the regulations that a club has broken.

CONCLUSION

The football financial world is incredibly complex and competitive, with the landscape changing regularly. Football clubs are over-reliant on broadcasting revenues, but this isn’t enough anymore.

Many clubs have embraced a strategy of investing in smart scouting operations and the club academy to break the dependence on star players and start to build their talent or scouting them earlier. In this way, they can preserve the financial health and longevity of the club by resisting an urge for short-term sportive success. On the other hand, the risk of failure on the pitch is too high, and relegation or missing qualification for a competition, therefore losing fan engagement on a long term basis could financially harm the club even more than expensive players, so a balanced solution between star players and smart recruitment is necessary.

On the marketing and commercial side, most football clubs solely know the name and age of their fans while social media owns all the key information of their fan base, leaving the breadcrumbs to the clubs. Nowadays, a forward-thinking club should engage with fans leveraging both online and offline touchpoints, collecting and analyzing data in a more smart way to build their own CRM and better understand their target.

However, the overall landscape is not negative because the true potential of the football industry is not been unlocked yet. Investor interest in football clubs keeps increasing and the reason is that the revenue of most football clubs has been limited beyond ticketing and TV broadcasting but the potential is much bigger than that. Football clubs looking to gain a competitive advantage need to step up their commercial and sport management efforts to finally reach the next step of the industry development. Embracing technology in building an ecosystem made of effective management processes and best practices, digital enhanced, unlocking the value of their data, creating, distributing, and monetizing their content will be the real game-changer for clubs to build better teams on the pitch and achieve sustainability.

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