Like it or not, football has to be more aligned to finance
Posted on September 22, 2019
SINCE THE launch of both the FA Premier League and UEFA Champions League, the football industry has undergone significant change, characterised by unprecedented revenue growth, bloated competitions, globalisation and expanded franchises. Football has become a business that attracts new owners and new sponsors as the world’s most popular sport becomes a compelling proposition for investors and finance providers. The top level clubs have never been richer than they are at present.
And from a spectator perspective, football has never been more popular. In the English Premier League, attendances are at their highest level since the late-1940s. Major clubs have waiting lists for season tickets and stadium utilisation is close to 100%. While this is a headline story, it should also be remembered that the modern game has also created a class structure that is even more divided than it was in the past, hence for every Manchester City, there is a Bury or Bolton story waiting to break the hearts of loyal fans.
While developed football markets continue to attract more spectators and business partners, other countries, such as China, India and the United States, are experiencing growing interest, both domestically and internationally.
Europe’s top clubs are now capable of generating huge levels of income compared to the past. The business community, realising the opportunity to align itself to high-profile clubs with a strong media presence and growing social media audience, has changed its perception of football and sees it as a sector offering multiple benefits. Banks and other financial institutions also acknowledge the stable revenue streams and the positive trajectory of the major industry players.
This environment has attracted a wide range of investors, many of whom are taking over clubs outside their home countries. Hence, new wealthy owners have emerged from Asia, the United States, the Middle East and Russia. The global game has benefactors with diverse business interests, another key reason why financial institutions now find football an attractive asset class. This has effectively moved clubs that once represented the neighbourhood into stateless teams of multi-national hired hands. Tottenham, for example, is no longer a North London club, but a corporation with a team that happens to be domiciled in that part of the UK capital. The same can be applied to many clubs.
At the same time, the sport’s governing bodies, FIFA and UEFA among others, are increasing regulation, trying to bring greater credibility to football. A good example of this is UEFA’s Financial Fair Play, which has not only improved clubs’ financial discipline, but has proved to be the catalyst for greater profitability in European football.
Financial requirements have changed in the past 10 years. Income has certainly increased substantially, but so too have players’ wages and transfer fees, which are at an all-time high. Stadium development is also prevalent across the game, with new football grounds being designed and built and existing facilities being expanded and improved.
Bigger, more versatile grounds can generate higher matchday and commercial revenues, but one of the main drivers of football’s startling growth story has been rising broadcasting fees, notably in Europe’s top five leagues – England, Germany, Spain, Italy and France.
Ultimately, for most clubs, the biggest outlay of cash is connected to player transfers and wages, and with the figures growing almost annually, football is starting to embrace capital market instruments and corporate finance expertise in order to further professionalise the industry. As revenue streams have increased and diversified, alternative sources of financing have also started to be introduced to the football market.
The need for sophisticated financing creates opportunities for the financial industry, particularly in providing structured solutions. For the banking sector, its reawakened interest in football is firm recognition the sport has matured into a global industry with a high degree of creditworthiness among its major players.
In the past, banks have lent relatively small amounts on an ad-hoc basis, but the changing football landscape demands clubs have more certainty about the availability of funding. At the same time, banks – especially since the global financial crisis of a decade ago – have to ensure their reputation is kept intact, so football clubs must be clear they can meet the requirements of finance providers.
As football finance becomes more complex and innovative and clubs explore ways to benefit from the value of their assets – players, stadium, intangible value of their brands and intellectual property – the prospect of securitising the value of the playing squad becomes a possibility. Football has a history of using securitisation to generate cash, but mostly these programmes have anticipated income and often produced disappointing results. Squad valuation, for example, could be one way to leverage the value of a club’s key assets.
Like it or not – and many purists and fans from football’s traditional client base despise it – the game has become big business. But it’s all relative – the esteemed historian and academic David Goldblatt noted in his book, The Game of our Lives, that most clubs only generate the turnover of a local supermarket chain. However, the game can no longer be run on a cap-in-hand approach that asks benefactors to stump-up cash. At the top level, financial management and clarity and strict controls around money, ownership and reporting, have to be front and centre. Sometimes, this may reveal information that supporters, for one, won’t like to hear, but if it’s a big, global business that keeps evolving, it has to managed like any other major sector.