REVENUE GROWTH at Europe’s top clubs is not only making them more attractive to investors and would-be owners, but it is also leading to a more robust football landscape, according to a recent report by UEFA. At first glance, this suggests an industry on the rise, but beneath the surface, European football has problems that need addressing.
UEFA’s Financial Fair Play (FFP) regulation, introduced in 2009, was meant to rein-in some of the irresponsible behaviour in the game, a set of rules aimed at preventing professional football clubs from spending more than they earn in the dogged pursuit of success.
According to UEFA’s Financial Sustainability & Research Division, FFP has started to have a significant impact and in 2017, the 718 clubs from Europe’s first tier made a combined profit of € 600 million, compared to a € 1.7 billion loss in 2011.
UEFA’s report revealed that 29 of the 54 leagues surveyed were profitable, a dramatic increase on 2011 when just eight were in the black. Over the past 20 years, European club revenues have increased seven fold. Encouragingly, they are currently growing faster than wages are rising. Europe’s football leagues have a turnover of around € 20 billion, 75% of which is generated by the top five leagues (EFGIS). The Premier League leads the way with € 5.34 billion, followed by Spain (€ 2.89bn), Germany (€ 2.8bn), Italy (€ 2.2bn) and France (€ 1.64bn).
Aleksander Čeferin, UEFA president, commented: “This success, this new stability, is a result of the work done by UEFA and its member associations in introducing licensing systems including cost control mechanisms which have yielded much improved financial discipline. Financial Fair Play has provided the platform for clubs to control their costs and pay their debts.”
While the overall picture looks rosier for Europe’s top clubs, some big names are still breaching regulations. AC Milan were banned from European competition early in the summer, but the ban was overturned, and Paris Saint-Germain are still waiting to see if they are in trouble over Neymar. Other clubs, such as England’s Manchester City and Galatasaray of Turkey, have suffered penalties owing to breaking FFP rules. Other English clubs, including Aston Villa, Birmingham City and QPR, among others, have run into difficulties in the past. Birmingham are presently staring at a potential 12-point deduction over their own breach.
But not everyone thinks FFP is tough enough, though – Arsene Wenger, in 2017, said it was too weak to be respected and his old adversary, José Mourinho, has been critical in the past of FFP’s lack of clout. Moreover, when QPR reached a £ 42 million settlement with the Football League for breaking FFP rules, commentators said the amount was hardly a deterrent to other clubs who wanted to spend their way to success.
Some industry figures believe it is a theoretical regulatory structure aimed at ensuring clubs are managed in a sustainable way. In practice, it is a loosely-enforced regime that theoretically ensures clubs remain economically viable and avoid failure through financial mismanagement – not a million miles from how the financial services industry is being regulated in the post-crisis environment. The really important tool in UEFA’s FFP arsenal is the annual club audit that ensures compliance with the “break-even” formula.
UEFA continues to strengthen its regulatory framework, however, and is pushing for more transparency and harmonisation of financial accounting practices.
The growth in revenues across Europe’s top clubs has made them a more attractive proposition for investors, hence the rumours around Chelsea and a number of willing buyers of Roman Abramovich’s stake in the club. The Financial Timesreported in August 2018 that football has exceeded the growth curve of the wider stock market over the past five years, a far cry from the past when clubs were seen as poor and foolhardy indulgences.
Manchester United’s share price recently rose to record levels after talk of another £ 500 million-plus year of revenues was circulating. Furthermore, both Real Madrid and Barcelona have already announced preliminary figures for 2017-18, with both enjoying jaw-dropping levels of income. Even Scotland’s Celtic, who failed to make the Champions League group stages this season, saw their share price go up to its highest level in 18 years.
This may be good news all round for the behemoths of Europe, but the ongoing competitive imbalances across football continue to worry officials at UEFA, among others. So serious is the prospect of an even more concentrated game that the distorted environment, along with the future of the transfer market, are being discussed at the European Parliament. Čeferin rode to power with these issues in his back pocket. He recently said: “The gap between the big and small clubs is bigger and bigger and we would be naïve to think we can stop it. So let’s try and slow it down.” Among the UEFA President’s ideas are salary caps, a luxury tax, squad limits and the reform of the transfer system.
Although CIES Football Observatoryreported that transfer expenditure among Europe’s top five leagues dropped by 2.4% to € 5.82 billion, the first fall since 2012, there are no indications that the market is cooling down. Perhaps more worrying is that 43.5% of activity is conducted among clubs from the big five leagues, while 26.4% takes place intra-league. In effect, just 20% of transfers are with clubs outside the EFGIS group, and just 4.1% is with non-UEFA nations. The effect of this dynamic is that the high amount of big five moves means transfer fees continue to climb and therefore, competitive imbalances will continue to accelerate.
While UEFA’s proclamation of progress appears to endorse the effectiveness of FFP, it seems unlikely the regulatory landscape will have a profound impact on the shape of European football, at least in the short-term. And while UEFA wants to do something about making more level playing fields, the Champions League’s new format, for example, with more places going to the big leagues, all but fuels the problem. Perhaps it is time to float-off a super league of rich kids to allow more broad-based growth among the hordes of clubs that currently only have a cameo role in sport’s greatest theatre?