Football is growing and will continue to grow, that is not the problem. European football has seen about 10% y-o-y growth (top tier football leagues, UEFA Benchmarking) since the rebound post-pandemic. The unsustainability part comes from the financial problem caused mainly by a lack of cost control. Measures like the profitability and sustainability rules (PSR, discussed in our earlier blog) implemented by Premier League, in line with UEFA’s measures brings a level of control. Of course, much more needs to be done
In this blog, we will discuss state of European football finance
Wage Cost
Wages – the single biggest component in operating expenditure of a football club. While the revenues of the top leagues across Europe (730+ teams) have increased at a rate of 8.5% CAGR from 2012-2021, in the similar period wage costs too have grown at the rate of 9.1% CAGR (source: UEFA European Football Landscape Report)
As per the Premier League PSR and UEFA recommendations, wage/revenue (W/R) ratio, a key performance indicator used in measuring the financial sustainability of the club, should be kept below 70% of revenue. The 22/23 season revenue data across the big five leagues gives an insight
The top 15 teams combined aggregates 43% of the total revenue of the big five leagues. Except PSG, all the top teams have W/R ratio well below the stipulated mark of 70%, problem comes for the remaining teams. A comparison between the averages of top teams and rest of the league teams gives a clearer picture
- In Premier League, W/R ratio of top 6 teams is substantially lower than the remaining 14
- Similar situation in LALIGA (top 2) and Serie A (Top 4)
In Premier League alone, 50% of the of the clubs have recorded over the recommended 70% w/r ratio. Four of the top 20 revenue generating teams have the same issue
Operating Profitability
A sustained emphasis on controlling wages/revenue ratio in the big five leagues led to an aggregated operating profitability of €470mn after a continued loss in the last five years, as per Deloitte Annual Review of Finance report. This was particularly led by Bundesliga clubs who maintained their financial discipline, both on low wages/revenue ratio as well transfer spends to record a healthy aggregate operating profit of €384mn, growing by 39% over 2021/22
Serie A is the only league amongst the big five who could do achieve the double of increasing revenues at the same time reducing wages over 2021/22. This led to significantly reducing their W/R ratio to 66% in 22/23 (from 83% in 21/22) and achieve €74mn aggregate operating profit after five years. Ligue 1, continues to be in the red although it could achieve a significant reduction in loss over 21/22. In spite of generating highest revenue, net debt for premier league clubs in 2022/23 increased to £3.1bn, an increase of £473m largely driven by funding for clubs’ infrastructure projects
Financial Sustainability
A research paper from Keiran Maguire and Dr. Christina Philippou published in 2023 states unequivocally that “There is an issue of financial stress in football and it is wide-reaching, across all of the top five tiers of English football. There are therefore serious concerns around the financial sustainability and fragility of football finances. Football clubs tend to be more reliant on owner funding and underwriting of losses than companies in other industries that have been trading for a similar length of time. This increases the reliance of clubs on owners and, if their personal circumstances change, increases insolvency risk”
The same statement can be extended to most of the European football leagues. UEFA’s financial sustainability goals echoes the concern:
Food for Thought
We can see sincere attempts at creating a financially sustainable future for the game at multiple levels, from individual clubs to leagues to the governing body. One of the primary concerns is better cost control
With the increasing influence of American ownerships in European football, there has been a repeated call for the introduction of salary caps much like the NFL and MLS. Would this be a valid step in European football?
We would like to know your opinions
