Deloitte’s Sports Business Group examines the financial performance and characteristics of Europe’s top leagues. By Austin Houlihan and Andy Shaffer, with extracts from the Deloitte Annual Review of Football Finance 2015.
The upper echelons of European football have continued to achieve strong revenue growth over the last few years, seemingly unaffected by the challenges faced by the wider economy.
In 2013-14, the cumulative revenue of the ‘big five’ European leagues grew 15 per cent to €11.3bn ($12.7bn), representing over one half of the overall size of the European football market of €21.3bn. The circa 50-percent growth in English Premier League clubs’ broadcast revenues meant that in 2013-14 England’s top 20 clubs alone accounted for almost 20 per cent of the European football market. In this article we assess revenue performance and profitability across each league.
The compelling content and universal appeal offered by the top leagues in the world’s most popular sport has ensured a remarkable track record of revenue growth.
The big five leagues – Premier League (England), Bundesliga (Germany), La Liga (Spain), Serie A (Italy) and Ligue 1 (France) – have more than quadrupled their cumulative revenues since 1996-97. All five leagues’ revenues reached record levels for the third successive year in 2013-14. The growth attributable to the Premier League clubs puts the league more than €1.6bn ahead of its closest rival, despite the Bundesliga recording its own impressive revenue growth of 13 per cent. Figure 1 shows the revenue growth for the big five leagues since 1996-97, including the period 2003-04 to 2013-14 and our projections for 2014-15.
These headline figures mask the underlying revenue profile of the leagues, which is ever more polarised. Bigger clubs are growing at a faster pace, contributing a larger proportion of a league’s total revenue. Smaller clubs are finding it difficult to achieve any growth at all.
The perception of some has been that as the financial inequality between clubs increases, so onpitch competitive balance decreases and ‘leagues within leagues’ are created. We analyse the extent of such financial polarisation – measured in terms of the proportion of total league revenue generated by the highest revenue-generating clubs – within each of the big five in Figure 2.
As a result of Paris Saint-Germain’s financial superiority, Ligue 1 is the league with the largest proportion of revenue contributed by a single club. It also has by far the largest gap between the top two revenue generators, followed by the Bundesliga. Paris Saint-Germain and Bayern Munich generated €344m and €226m more than Olympique de Marseille and Borussia Dortmund respectively. La Liga has the most financially dominant top two when compared with the rest of the teams in their league.
Importance of media
Unsurprisingly given the new Premier League and Bundesliga broadcast deals, the largest component of the big five leagues’ collective revenues continues to be from broadcasting, accounting for 48 per cent of the
total; up from 46 per cent in 2012-13.
There was also an 18-per-cent growth in sponsorship and other commercial revenue to €4bn, the second largest element of aggregate revenues at 35 per cent of the total. Matchday revenue rose by a more reserved 4 per cent in 2013-14, generating €1.9bn across the big five, equal to 17 per cent of the collective revenues.
The Premier League remains the world leader in revenue terms. In 2013-14, Premier League clubs generated combined revenues of €3.9bn, around €1.6bn higher than the Bundesliga’s revenues of €2.3bn. Furthermore,
all 20 Premier League clubs were amongst the top 40 revenue generating clubs in the world in 2013-14.
Revenue increased by £735m (€1bn/$1.2bn) (29 per cent) to £3.26bn, with 77 per cent of the growth due to increases in broadcast revenue. This represented by far the largest absolute growth among the big five –
270-per-cent more than the Bundesliga. The Premier League’s three-year media rights deals commencing in 2013-14 are worth an average of almost £1.9bn per season. Looking ahead, its domestic live media rights deals for 2016-17 to 2018-19 have been sold for £5.136bn, representing a further 70-per-cent increase from the current cycle for domestic live rights alone.
The increase has been driven by telco BT emerging as a competitor to pay-television broadcaster Sky, and reinforces the league’s competitive advantage over its peers in revenue terms.
Negotiations for the league’s overseas rights for 2016- 17 to 2018-19 are yet to begin, but with further increases anticipated thanks to the huge appeal of the league globally, the gap to the Bundesliga is likely to widen to comfortably over €2bn in 2016-17.
In the Bundesliga commercial revenue, which accounts for 47 per cent of the total, is the largest revenue source. The €147m (16 per cent) increase in sponsorship and commercial revenue in 2013-14 represented almost 60 per cent of total revenue growth, demonstrating the strength of the country’s corporate market.
Four-year domestic media rights deals for the Bundesliga 1 and Bundesliga 2, beginning in 2013-14, are collectively worth an average of €628m per season, a 52-per-cent increase on the previous rights deals. Yet the value of Bundesliga 1 domestic media rights remains the lowest across the big five.
La Liga’s revenue grew by €65m (3 per cent) in 2013-14. The season was notable for Atlético Madrid’s emergence as serious on-pitch challengers for the big two, both domestically and in Europe, and generated a €50m revenue increase, over three-quarters of the total. That Atlético typically generated less than one quarter of the revenue of Real Madrid or Barcelona prior to 2013-14 demonstrates that financial superiority does not guarantee success. The test will be whether they are able to sustain this performance in the future.
Spanish football is returning to collective selling of media rights, which will ensure a more equal distribution of broadcast revenues between clubs. The aim is to bring the ratio between the highest and lowest-earning clubs, which was 7.4:1 in 2013-14, to at most 4.5:1. By comparison, in 2013-14 the ratio in Serie A was 5.3:1, in Ligue 1 was 3.4:1, in the Bundesliga was 2:1, and was 1.6:1 in the Premier League.
Media rights revenue continues to dominate Italian clubs’ revenue profile, contributing 59 per cent (€1bn) of their total, the largest contribution by a single revenue stream across the big five. A marginal €22m increase in total revenue masked significant movements in the financial performance of Italy’s more illustrious clubs, which were all greatly impacted by the extent of their participation in European competition.
A €9m (5 per cent) increase in matchday revenue was largely driven by the most successful Serie A clubs, notably those participating in European competitions.
Substandard facilities at the largely municipally-owned stadia and a challenging domestic economic climate have contributed over recent years to low matchday revenues.
Total revenue for Ligue 1 grew by €201m (15 per cent) to almost €1.5bn, led by Paris Saint-Germain’s revenue growth of €75m. Total revenue from sponsorship and other commercial sources rose by €223m (42 per cent) driven by the commercial revenues of PSG and Monaco.
Turning revenue into profit
The growing emphasis on cost control across football is beginning to manifest itself in clubs’ financial results, although considerable variation remains between leagues, and between clubs within leagues.
Revenue growth across the big five leagues far outstripped wage cost growth (8 per cent) in 2013-14, With the exception of La Liga, the other four leagues
demonstrated financial restraint in 2013-14. On average just 27 per cent of revenue increases flowed through to wages across the others, leading to improved or static wages/revenue ratios, as illustrated by Figure 3.
The Premier League set a new record operating profit (before player trading and finance costs) of £614m in 2013-14, a more than seven-fold increase on the previous year as the combined impact of new media rights deals and cost restraint led to an unprecedented transformation in clubs’ profitability. It was also nearly treble the €264m record set by the Bundesliga in 2012- 13. The Premier League’s wages/revenue ratio also fell from its highest ever level of 71 per cent in 2012-13, to 58 per cent, its lowest for 15 years.
The Bundesliga was the only other big five league to generate an operating profit in 2013-14, of €250m. This was, however, a €14m decline from its record profit in2012-13. The Bundesliga remains by some margin the league with the strongest cost control, with a wages/ revenue ratio of 49 per cent. This was the first time it has fallen below 50 per cent since 2006-07, and it remains the only league to have done so since the Premier League and La Liga in 1996-97.
La Liga’s wages/revenue ratio rose by three percentage points to 60 per cent, as a 9-per-cent (€98m) increase in wage costs outstripped the 3-percent (€65m) rise in total revenue. One sixth of this growth was attributable to Real Madrid and Barcelona, whose average wages/revenue ratio was 50 per cent. This compared to 66 per cent for Atlético Madrid and 73 per cent for the other 17 La Liga clubs.
Serie A’s wages/revenue ratio remains unsurpassed amongst the big five for the sixth successive year, despite a fall of one percentage point to 70 per cent. Wage costs for the top 20 Italian clubs were virtually unchanged in 2013-14 but this masks significant movements in a handful of clubs. Continuing the trend of recent years, the financial rebalancing at the big two Milan clubs saw them once again reduce their wages from the prior year. By contrast there were wage increases at Roma, Juventus and Napoli, perhaps in part due to performance-related payments.
Despite the growth in total revenue and improvement in the wages/revenue profile at Ligue 1, collectively the clubs moved further into the red in 2013-14 as operating losses increased from €3m to €140m, the highest ever recorded for the French top flight. Ligue 1’s wages/ revenue ratio fell to 64 per cent, its lowest level since 2006-07, although wage costs increased by €97m (11 per cent) to €959m.
Growth in wages was entirely driven by two clubs. PSG recorded a €20m increase in total wages and Monaco’s promotion contributed the rest. Combined, these two accounted for over one third of the league’s wage costs.
The broadcast rights deals that began in 2013 have raised the Premier League far above the other leagues in revenue terms, and the much publicised 70-per-cent increase in the value of live domestic rights from 2016-17 will stretch this lead still further.
This begs the question, given the context of the financial regulations introduced at domestic and European levels, what does the Premier League’s financial pre-eminence mean for the other leagues?
Indeed, is it still a ‘big five’ or is English football’s top flight in a league of its own?
A huge revenue advantage and restrained spending across Europe should translate to a greater ability to attract and retain the most talented players, through transfer fees and wage payments, which will have been helped further in the last year by sterling’s appreciation against the euro. Whilst the Premier League’s enhanced financial regulations limit the amount of broadcast distributions that can be used to increase player wages, and there is a risk that other clubs raise their asking prices for players to English clubs, there seems no doubt the Premier League has the strongest hand in the market for playing talent.
Nonetheless, one only need look at the performance of English clubs in European competitions in recent years for evidence that increased spending does not necessarily translate to on-pitch success. In the Champions League, Europe’s larger clubs have shown they can successfully compete with Premier League clubs and in the Europa League clubs with a fraction of the budget regularly beat their English counterparts.
For all leagues in Europe investment in youth academies and stadium facilities, both of which are promoted by Uefa’s Financial Fair Play regulations, is likely to be beneficial in the long-run in developing talent and increasing revenue through improved matchday experience.
Beyond the Premier League, the financial performance of clubs in the other big five leagues continues to be heavily influenced by participation in Uefa competitions.
The next Uefa media rights cycle, beginning in 2015- 16, will increase the importance of these competitions to those clubs still further. Uefa recently announced that the distributions during this period will be substantially higher than the current cycle, with a notable increase in the rewards from, and hence the status of, the second tier Europa League tournament. Nonetheless, th difference between competing in the Champions League and the Europa League will remain substantial.
Last season, 2014-15, once again provided compelling on-pitch action in each of the big five leagues, a demonstration of why football is so loved by fans, broadcasters and commercial partners. Economically, all these leagues are likely to show revenue growth in 2014- 15. Yet despite some positive signals, caution remains with regard to the financial stability of clubs which remains a work in progress.
Over the last 20 years Deloitte has developed a unique focus on the business of sport. Our specialist Sports Business Group offers a multi-disciplined expert service with dedicated people and skills capable of adding significant value to the business of sport. Whether it is benchmarking or strategic business reviews, operational turnarounds, revenue enhancement strategies or stadium/venue development plans, business planning, market and demand analysis, acquisitions, due diligence, expert witness, audits or tax planning; we have worked with more clubs, leagues, governing bodies, stadia
developers, event organisers, commercial partners, financiers and investors than any other adviser.
For further information on our services you can access our website at www.deloitte.co.uk/sportsbusinessgroup. Sports Business Group at Deloitte