Trends in Cost Management

According to the latest analysis released by UEFA under their Fair Financial Game programme, the average cost split in Europe (734 clubs consulted) is as follows:

• Staff costs:               58%
• Operational Costs:   35%
• Transfer Costs:          4%
• Other Costs:               3% 

Staff costs include in this case salaries, wages, Boni, Social charges, Pension contributions, etc. Under "Operational Costs" we will find a compendium of several cost families of diverse nature, such as stadion costs, materials, depreciations, marketing costs, football schools.... Transfer is here defined as the losses derived from transfer operations. We may believe that inflation is high as far as transfers are concerned, but the truth is that clubs handle that part of the business quite poorly, thus generating losses and not gains. Last season almost one billion € were spent in these operations, a value worth taking into account. Finally, most financial costs and taxes, etc are included in Other costs.

When you have a look at the total picture, UEFA clubs spent in the last season more than 14,4 billion €. Big numbers, particularly when you take into account that they only generated 12,7 billion in revenues, resulting in a total loss of 1,6 billion €.

In light of these catastrophic figures we may think that clubs have been working hard in cutting their losses in recent periods, since you may figure out that these trends do not generate overnight affecting 734 clubs in more than fifty countries at the same time. The answer to that thought is "No, the cost structure of the clubs remains the same at least for the last three seasons, and their expenses grow over after year in a higher amount that their revenues do".

In colloquial terms, we may well speak that the real state bubble we are still suffering from was just a joke.

Income strategies

When you talk football income, you talk match-day revenues, broadcasting rights and commercial operations. They all look independent and indeed they are, not just in the way you approach your customers, but also in the products in offering, the prices you negotiate and how they are to be paid for, and the way you market them. However they all have their roots in the same core activity: whatever is happening on the pitch.

Clubs are better at one or two of these fronts than at the other for different reasons. For instance matchday revenues are somehow capped by the fact that a stadium has a certain capacity which is not easy to expand from one day to the next. Indeed demand may be elastic depending on the quality of the match ahead, but maybe only 10% or 20% of the matches in a full season raise such levels of attention. TV rights are in some cases negotiated not by the clubs themselves, but by their associations, such as UEFA for the Champions League or the national leagues, which leaves them little space for negotiation of ability to influence the income to receive from those sources. That is a fact, among others, in the Premier League or in the Bundesliga, and indeed is the competitiveness of those clubs jeopardized by the fact that they cannot negotiate independently as Real Madrid or FC Barcelona do.

These environmental conditions do affect the strategies football clubs follow in order to maximise their revenues, and that's made visible overtime. The charts attached show how the UEFA Top 5 clubs stick to their strategies as long as those surrounding constraints do not change.

Real Madrid and FC Barcelona have a 33-33-33 strategy. While their match day revenues have increased in recent years, it is remarkable to observe how the raise of TV income and merchandising have managed to reach the levels of the traditional income sources: daily and seasonal tickets.

It is my belief we are at a tipping point at this sense, since match day revenues will hardly follow the pace of the other two business activities in the years to come. While big stadia awarded a competitive advantage in the past, the future will be led by those clubs who are able to understand and gain the hearts of their worldwide fans, who will pay for watching their matches online or on TV, and buy their branded products from all remote locations of the planet.

The charts also show how little Bayern München is making out of broadcasting rights. but how well do they traditionally handle their commercial efforts. Whether that customer base holds a worldwide nature or is mainly formed up by extremely loyal local fans is a matter of discussion; in any case the potential for growth is huge, and this club is one of the leaders in this chapter. The opposite case is Arsenal, whose income appears to have stagnated in recent seasons, and strongly depends on the traditional sources filling up their brand new emirates stadium every other weekend. In the mean time and in this same chapter Real Madrid and lately FC Barcelona are undoubtedly the big winners of merchandising coming from below, after more than a century of brand-building activities on and off the pitch it looks like they found the right way and for the first time ever they managed to cash more money than Bayern München last season.