Why Football Clubs Struggle To Make Money
Uncertainty of outcome is what makes a football match entertaining. Competition is what makes it attractive. In the world of professional team sport, teams and leagues require competition between rivals to generate their product as it does not pay for one team to establish a position of dom- inance given the joint nature of production.
Despite being one of the most popular spectator sports on planet, the incomes of top football clubs is not very encouraging. Some scholars argue that financially healthy clubs might not necessarily be the best performing clubs, with Brighton & Hove Albion F.C. registering a profit of £123 Mn while Manchester United registering a loss of £23 Mn for 2023 season. We will try to understand why this could be by analysing three of the most successful teams in respective top tier national football leagues, Manchester United (England), Bayern Munich (Germany) and FC Barcelona (Spain)
Manchester United
The club has operated for over 146 years but rose to eminence post 1986 when the club appointed Sir Alex Ferguson as manager. In total the club has won 20 English league titles, with 18 of them coming post 1997. As of Aug 2024, the club was majority owned by Ariel Investments (a Chicago based investment management firm), Lindsell Train (a British investment management firm) and Sir Jim Ratcliffe (CEO of INEOS chemicals group).
Bayern Munich
Founded in 1900, Bayern Munich is one of the most successful European clubs having won six UEFA champions league titles. As of 2024, it was ranked third in UEFA club coefficients and operates as a members-owned club with registered members owning 75% of equity with the rest owned by Adidas, Audi and Allianz (all are major german corporations)
FC Barcelona
Founded in 1909, is among the most valued and highest earning sports team in the world. It holds a record 77 trophies in domestic leagues and 22 international league titles. The club’s youth academy ‘La Masia’ has produced Messi, Iniesta and Xavi. Unlike a limited company, the club is organised as an association owned by club members.
Sources of Revenue
- Commercial (~50% of Revenue)
This comprises revenue receivable from the exploitation of the club as a brand through sponsorship and other commercial agreements. Example, Man Utd’s 10 year deal in 2015 with Adidas for being the club’s kit sponsor was worth £750 Mn.
2. Broadcasting (~30% of Revenue)
This represents revenue from national league broadcasting contracts and centrally negotiated contracts from UEFA competitions. Example, for the 2018/19 season, when Barcelona reached the semifinals, they earned €117 Mn from UEFA Champions League broadcasting rights.
3. Matchday (~20% of Revenue)
This is the revenue from all matches played at the club’s stadium. Including conferences and other events organised on the premises. Example, in a typical Bundesliga season, Bayern Munich plays 17 home games. If they sell out every game, ticket revenue can reach €80–90 Mn.
Sources of Expense
- Employee Benefits (~50% of Expense)
Player and staff compensation comprises the majority. Competition for talent from other clubs forces clubs to spend increasing sums on player and manager salaries. Example, Manchester United’s Bruno Fernandes earns £240K per week, which totals about £12.5Mn annually. Full squad costs amount to ~£350Mn annually.
2. Amortisation (~30% of Expense)
Clubs amortise costs associated with acquisition of players and key staff personnel. The transfer fee is expensed over the length of the player’s contract. Example, Philippe Coutinho’s 5.5 year contract in 2018 with Barcelona cost €30Mn annually.
3. Other Operating Expense (~20% of Expense)
These include variable costs associated with match day operations, property maintenance, marketing and advertising, travel and accommodation for team and staff and other administrative costs. Further, depreciation of non player assets like stadium equipment is also recorded under operating expense.
Lets take a look at how these numbers stack up for Manchester United for 2023/24 season.
Even in its best years, a club like Manchester United delivers a net profit margins of 5–7% and struggles being profitable in most years. The most consistently profitable club of the three, Bayern Munich has delivered net margins of only ~4% over the last 10 seasons.
A quick glance at any top club’s financial statements shows employee expense exceeding any other line item. This is expected with top players demanding enormous salaries. It is a financial baggage to retain a top squad. Running a top football club involves more than just a top notch squad, but that is perhaps the most important piece to ensure league performance and championship wins. A bidding system with no salary caps ensures most clubs end up overpaying for top talent.
On the revenue side, clubs have little control over contractual broadcasting revenue and match day revenue is constrained by stadium seats. This leaves them with opportunities to expand commercial revenue, which is limited by on field performance which is interlinked with employee costs. In essence running a football club provides little cost leverage. However, a big opportunity is to engage the fanbase beyond just the matchday, like generating social media content, launching docuseries on OTT platforms or giving access to beyond the scenes events to harness fan lifetime value.
While, why football clubs struggle to make money also seems to have a lot to do with the ownership model. Foreign wealthy owners run the clubs in a ‘trophy asset model’, where competitive pressure to win outweighs any collective desire to limit costs. Instead of profit maximisation, the goal is utility (win) maximisation where utility is the prestige associated with winning the trophy. Recent stock market listing of some major clubs is expected to deliver better results with focus returning to profit maximisation.
References
Wilson, Robert, Daniel Plumley, and Girish Ramchandani. “The relationship between ownership structure and club performance in the English Premier League.” Sport, Business and Management: An International Journal 3.1 (2013): 19–36.
