Football’s bubble is slowly bursting

THE long era of growth enjoyed by football looks to be coming to an end judging by the recently published Deloitte Review of Football Finance for 2021. With broadcasting revenues possibly peaking, wages flat-lining, lost revenues due to the covid-19 pandemic, not to mention other concerns around club stability and the moral obligations of the game, the sport may have passed what could be looked at as a golden age.

The European football market contracted by 13% in 2019-20 with overall revenues falling by € 3.7 billion to € 25.2 billion. This was the first decline in income since 2009. All football leagues were affected by the pandemic, but the big five European leagues saw their income decline by 11%.

Furthermore, the disruption to world football has, at long last, slowed-up the growth in player wages, which have been on a dramatic upward spiral for the past 20 years. In the Premier, total wage bills for 2019-20 were £ 3.3 billion, compared to £ 3.2 billion in 2018-19. But with revenues declining, the wage-to-income ratio rose by 12 percentage points to 73%, higher than UEFA’s recommendation. A total of 14 clubs from the Premier exceeded this limit.

How long can clubs continue to pay wages at such a level? Not only is the Premier League, for all its wealth, treading a dangerous tightrope, but it also encourages clubs below the Premier to spend way too much. In 2019-20, the Championship paid out £120 for every £100 earned, while League One and Two have ratios above 70%.

With the exception of Germany’s Bundesliga, which has a ratio of 56%, all of Europe’s major leagues are paying out far too much. France’s Ligue 1 is in the midst of a serious economic crisis and has a ratio of 89%. France’s situation also highlights the over-reliance on broadcasting revenues. Ligue 1’s deal with MediaPro was cancelled in December 2020 and they have struggled to fill a big gap, losing more than 40% of revenues from this stream. Similarly, new broadcasting deals are generally lower than the previous cycles, suggesting the days of wine and roses may be coming to an end.

Football has shown it can be vulnerable to market downturns and unexpected setbacks. Many clubs have very little put aside for a rainy day and have been exposed. The Premier League made a combined pre-tax loss of £ 966 million, attributable to a £ 648 million drop in revenues and a £ 126 million increase in wages. Two clubs – Everton and Manchester City – generated losses of well over £ 100 million. Even before the pandemic, profitability was in decline in football and has since proved to be the catalyst for greater cost controls and concepts aimed at creating a more exclusive environment. The transfer market certainly saw the effect of a diminished appetite, with gross expenditure dropping by 40%.

Falling profits obviously had a negative impact on some owners and their business models. While few clubs have changed hands in the Premier – Burnley was one such club that was sold to new owners – the current climate suggests there could be spate of acquisitions in the coming year or two.

All the major European leagues saw their operating profits eroded while some saw their losses increased. Germany saw combined profits reduce by 45% to € 215 million, their lowest level since 2012. Spain also experienced a 60% fall to € 183 million. Italy’s operating losses worsened, from € 17 million to € 274 million, while France’s position worsened by almost £ 270 million to € 575 million.

Deloitte highlighted the growing presence of private investment in football. Between January 2020 and February 2021, the investment flow into US and European sport properties totalled € 7.8 billion, a 50% increase on 2019. As well as long-term commercial partnerships with leagues and federations, private equity and institutional investors have been buying clubs and creating portfolios. Companies like ALK Capital, Silverlake and Elliot Management have all made forays into club ownership. There remains a good deal of suspicion about the motives and practices of investors such as private equity and their involvement has been met with resistance in Germany and Italy, to name but two leagues. The concept of multi-club ownership is also frowned upon, fans believing that it goes against the spirit of the game.

Clubs clearly need cash and in the Premier League eight increased their bank borrowings in 2019-20, including Tottenham and Liverpool, who have borrowed £ 173 million and £ 147 million respectively. No surprise that Premier clubs’ net debt has risen during the pandemic to £ 4 billion, some £ 500 million higher than 2018-19. 

There is a great deal of uncertainty around the finances of football and its clubs and the coming season will surely reveal more hurdles to be encountered. The full cost of covid-19 has yet to emerge and there may still be seismic events that demand innovative solutions. The biggest challenge will be around cutting expenses, including player wages, which represent the biggest outlay at almost every club.

The European Super League, which was a reaction to the crisis as much as a deep-rooted desire by some clubs to squeeze a great share of the spoils for themselves, may rear its head once more as it is an idea that has been rolling around for the best part of 20 years. This ill-judged and ill-timed announcement created a huge rift in the game which may take time to heal, but the manner in which it collapsed suggested a lack of conviction and confidence in the project and in the fragile character of the clubs involved. 

One thing is certain, the football world is a far less stable place than it was two years ago and we may yet see some more serious casualties if clubs lurch into trouble and fall into the abyss. The post-pandemic football world has to learn from the unprecedented events of the past 18 months and must present a united front rather than clandestine schemes that are less inclusive and somewhat self-serving. This may be easier said than done. 


Photo: dom fellowes CC-BY-2.0

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