The tenth UEFA Club Licensing Benchmarking Report is, like the previous editions, an amazing treasury of useful financial information from which the intelligent reader can gain some remarkable insights into the state of European football. Since the introduction of Financial Fair Play (FFP), UEFA has been at pains to portray a narrative of an improving trend in financial performance. Revenues have risen consistently, at an average rate of 6.6% per year (page 48), and profitability has also risen; “bottom line” profitability across Europe equalled €615 million in 2017, the first year it has been positive since 2008 (page 94).
Reading between the lines, however, there are reasons for concern. Most of the financial improvement is to be found in the Premier League. For the 700 or so European clubs in the Report, profits in 2008 were -€636, implying an increase of €1.2 billion by 2017. The 2008 Benchmarking report stated that average Premier league losses in that year were 12% of revenues (page 64) and that average revenues were €122 million (page 44), which amounts to a total loss for the EPL of €293m. Deduct that loss from total European losses in 2008 then you have a net loss for that year of €343m. The 2017 Report states that the EPL profits for that year were €549m (page 96), implying that profits for the other 680 or so clubs in 2017 were a mere €66 million in total. Over the decade, therefore, the improvement in profitability at clubs excluding the EPL is only €409 million, or about €600,000 per club.
The improvement in the EPL finances is largely due to the staggering increases in broadcast rights fees over the last two contracts, from around €1 billion per season in 2007 to €3 billion in 2017, coinciding with the implementation of FFP. I’m more inclined to attribute the improvement in financial performance to the former than the latter. But setting that aside, UEFA also warn that times may be about to get tougher. The 2017 Report documents a dramatic expansion of transfer spending since 2015. Until then , annual spending had been steady at around €3 billion; by 2017 it had risen to over €6 billion (page 80). The warning is hidden on page 86:
“Accounting for transfer activity is somewhat counterintuitive. When transfer spending goes up, the net cost of transfer activity, and therefore the level of aggregate club losses, is likely to go down. This is because of a difference in timing: profits, which increase if transfer activity goes up, are triggered immediately on sale, while costs, which also increase if transfer activity goes up, are spread out over the duration of players’ contracts (typically three to five years).”
If so, we might expect to see a return to reported losses in the coming years as the impact of the transfer fee spending boom unwinds. If the growth of broadcast revenues were also to slow against the backdrop of a general economic slowdown in Europe, the crunch could be severe. The impact of any economic crisis always falls most heavily on those who are economically weakest. Over one quarter of revenues in the European top divisions are generated by the EPL, and two thirds by the four largest leagues (EPL, La Liga, Bundesliga and Serie A) leaving the remaining 600 or so top division clubs to share one third of the pie (page 48). These are where the most vulnerable clubs are likely to be found. In 2008 there were 22 “profitable leagues”, and in 2017 there were still only 28, leaving 27 unprofitable leagues. In 2008 there were 55 clubs declaring annual losses in excess of €10 million, in 2017 there were 59 (page 95).
2008 was, of course, the year of the financial crisis, and it’s not unreasonable the think that the deterioration in financial performance visible in the UEFA data until between 2008 and 2011 (109 clubs with losses in excess of €10 million, only 9 profitable leagues) followed by a fairly consistent recovery until 2017, simply reflects the underlying economic cycle. Economic output and employment followed a similar pattern across Europe. If you accept that argument, you should also be worried about what might happen in the next few years, as it looks likely that the European economy is heading for a downturn.
