Amidst the uncertain global economic scenario, there is one sector which seems to be completely insulated and almost in a state of perpetual boom — European football.
Brazilian star Neymar’s jaw-dropping transfer from FC Barcelona to Paris Saint Germain (PSG) for a record-breaking transfer fee of €222 million seemed to completely defy any financial logic. Yet the transfer, which seemed impossible just two weeks ago, did take place. It seems no price was too high for PSG’s Qatari owners who came swooping down on Neymar.
Barcelona had injected a buyout clause of €222 million just last year while renegotiating Neymar’s contract which was supposed to keep him in the Catalan club till 2021. The money that PSG will pay Barcelona for Neymar’s services is more than double the sum that Manchester United paid Italian club Juventus last year to acquire French player Paul Pogba.
Neymar will reportedly earn €5,50,000 per week! As Ed Malyon wrote in The Independent newspaper, “We are already well along the path to financial absurdity.”
This brings us to the important question — how does the football business work?
Sources of income
Football clubs make their money through TV broadcast deals, gate tickets sold every week at stadiums and sponsorship deals. Of late, merchandising — sales of official football jerseys, scarves and other goods — has also become an important source of revenue for clubs.
Top global consultancy firms such as KPMG and Deloitte have dedicated desks for football, which analyse the financial aspects of the game.
According to KPMG’s report — ‘Football Clubs’ Valuation — The European Elite 2017’ — the 32 elite European clubs’ enterprise valuation was at €29.9 billion and had risen by 14 per cent over last season.
Manchester United topped the list with a valuation of over €3 billion followed by the two Spanish giants — Real Madrid and FC Barcelona. There are six English clubs in the top 10 of the valuation list as they enjoy higher broadcast revenues — proving that the English Premier League (EPL) remains the most popular football league the world over.
Increase in viewership
According to Deloitte’s ‘Annual Review of Football Finance — 2017’, the revenues of the EPL rose to a record £3.6 billion in 2015-16. The big five European leagues’ (England, Spain, Italy, Germany and France) collective revenues had risen by 12 per cent in 2015-16 to €1.4 billion. Of this, 59 per cent was due to increased broadcast revenues and 31 per cent increased sponsorship. This clearly shows that the appetite for football viewership seems insatiable.
Another interesting nugget thrown up by the Deloitte report shows how insulated the business of football is — over a three-year broadcast period of 2013-14 to 2015-16, the EPL clubs earned operating profits of over £1.6 billion, which is higher than the combined sum earned in the previous 16 seasons!
Football clubs, long seen as billionaires’ play things with high cash-burn, have now turned profitable with 17 of the 20 EPL clubs reporting operating profits in 2015-16 and net debt falling for the third consecutive season. Spanish clubs saw their operating profits rising by 53 per cent (Deloitte report).
Rough patch
Of course, it’s not all hunky-dory for all the leagues. The Italian league, Serie A — which in the 1990s and the noughties was the top league in Europe and boasted of top stars such as Roberto Baggio, Zinedine Zidane and Ronaldo — has fallen on bad times recently. Top Serie A clubs have changed ownership, the latest one being AC Milan, once the toast of European football. AC Milan long-owned by the controversial and flamboyant former Italy President Silvio Berlusconi is now in Chinese hands and so is their cross-town rival FC Internazionale Milano (Inter Milan).
It is sometimes confounding to see the amount of money football is raking in, in a continent where countries have endured serious debt crises (Greece) and high youth unemployment (Spain).
So, whether the sum PSG paid for Neymar was worth it will be known by May 2018, as anything less than the UEFA Champion’s League Trophy will be seen as a failure.