Building Football’s Financial Fitness
An article in the FT last week reported that Premier League football clubs are projected to achieve record revenues in the season ahead. This driven primarily by burgeoning international broadcast deals, ticket price increases and increased stadium capacities. Premier League clubs are expected to generate circa £6.4b between them, though the profit figures are less attractive. Last year the Premier League’s 20 clubs posted pre-tax losses of £685m between them! Only three clubs made a profit. See below the recent figures from a BBC source.
This highlights the unique challenge in running football clubs as successful businesses in ‘traditional’ terms. Many clubs / owners have made handsome returns building value and cashing in after several years by selling the club, but that is a long-term game. Running a successful football business is a particular challenge season by season, especially with the introduction of the latest financial fair play rules.
In financial terms, what’s unusual in professional football as a business is that player and manager wages take up such a high percentage of revenues. Around 60% for the biggest clubs and closer to 70% for those below the top six.
A look at the mix of revenues is also particularly telling. For the clubs outside the top six, broadcast revenues dominate income. The three major revenue drivers are broadcast income, match day sales and commercial revenues. For the smaller clubs, broadcast revenues make up to 80-90% of total income. This clearly unbalanced income stream leaves them extremely vulnerable to a downward shift in TV revenues or relegation. The key to financial sustainability is to drive COMMERCIAL income, since stadium capacity is by its nature ultimately limited. The top clubs have been successful in doing this over the last five years. For example, Liverpool FC now generate 46% of their income this way, with broadcast income lower at 41%. The result is a more balanced and healthy income mix.
Strategically, driving commercial revenues is key to delivering financial stability and achieving a more balanced income stream.
Growing revenues from international markets and fans, many of whom may never attend a match, is an important factor in this and is something that clubs are increasingly focused on but find difficult to achieve. It’s an area where we have worked to support some clubs already. The irony is that as brands, Premier League football clubs have global reach and awareness far ahead of their current ability to leverage that awareness commercially. Herein lies the challenge. I suspect Nike and Manchester United FC in international markets like China share similar levels of awareness. But Nike’s market capitalisation is currently around £110b whereas Manchester Untied FC has been valued at circa £5b, which suggests that there is a way to go in creating long-term value from the brand, but clearly also a great deal of potential, which is why wealthy owners / investors seem drawn to buying football clubs, notwithstanding the financial operating challenges.
The key is to find successful ways to engage successfully with international fans in particular, and also convince commercial partners of the true value of a brand association. At the moment, finding that value equation is something of an inexact science, but with broadcast exposure consistently growing globally the right association represents a great way for brands to build their profile and prestige.
Sources:
https://www.ft.com/content/984e7347-77fa-42a3-9bbe-d223ce11bd86