“With the glamour and opportunity also comes responsibility.” Michel Platini
Those were the words with which UEFA’s president introduced its interim club-licensing benchmarking report. It is a study that makes for fascinating reading and, to a certain extent, Europe’s top clubs have demonstrated they recognise the Platini creed.
Despite the ongoing economic crisis that has seized the global financial system since 2008, club revenues grew almost 7% year on year between 2011 and 2012, to €8.1 billion. It means that the combined incomes of the 237 UEFA-licensed clubs studied in the report have, on a compound basis, risen almost exactly a third – by 33.28% – since the financial crisis struck five years ago.
Probably more importantly, though, the increase in spending on player salaries was for the first time marginally lower than the rise in turnover (6.5% versus 6.9%). All of this contributed to a significant decrease in accounting losses, which were down by more than €600 million, or 36%. This fact cannot be accidental in the new realm of Financial Fair Play.
Such highlights are worthy of the big letters and bold graphics UEFA gives them at the front end of their report. But there is deeper detail lower down. Such as how €3.9 billion (48%) of the €8.1 billion revenues went on player wages, with a further €1 billion (13%) going on wages to administrative and coaching staff.
Almost one in eight clubs were nothing short of reckless in how much they gave their players, as nearly 30 of the 237 spent more on wages than every euro cent they raised in income. And after the recent headlines about Lionel Messi’s €40m-a-year gross salary, you might think the big spenders at Barcelona, Real Madrid and Bayern Munich would also hold titles for Europe’s most profligate. But UEFA’s figures suggest that it is they who have done most to push down Europe’s overall wages-to-turnover ratio to little more than 60%.
It follows that since they are among the biggest earners too, they can afford to lavish big money on their prize assets. (Although whether some clubs’ revenues were derived from related parties is not a matter UEFA investigates in this report.)
Percentage of revenue spent on wages
Rank Club Wages to turnover
1 Borussia Dortmund 40-50%
2 Napoli 40-50%
3 Bayern Munich 40-50%
4 Real Madrid 40-50%
5 Barcelona 40-50%
6 Schalke 40-50%
7 Manchester United 50-60%
8 Paris Saint-Germain 50-60%
9 Arsenal 50-60%
10 Zenit St Petersburg 50-60%
11 Bayer Leverkusen 60-70%
12 Olympique de Marseille 60-70%
13 Tottenham Hotspur 60-70%
14 Galatasary 60-70%
15 Stuttgart 60-70%
16 Valencia 60-70%
17 Rubin Kazan 60-70%
18 AC Milan 60-70%
19 Atlético Madrid 60-70%
20 Chelsea 60-70%
Source: Licensed to Thrill; Benchmarking report on the clubs qualified and licensed to compete in the UEFA competition season 2013/14
UEFA is too modest to mention that big salary expenditures are a good thing for European tax authorities, which generally take between 42% and 50% of top-rate payers’ salaries. On a conservatively estimated average 45% income tax, those 237 European clubs’ employees would have paid an aggregate €2.2 billion to their respective exchequers.
So: good news on revenues, good news on wage deflation and good news for the taxman. But UEFA’s findings do not depict an unalloyed success for the business model. For it is in fact questionable whether what is left over after all the wages have been committed has generally been put to good use for the long-term benefit of the clubs.
One section of UEFA’s report relates to “long-term asset investments”: the value of clubs’ stadium-and-buildings infrastructure. The top end of the list features the grand old names of Arsenal, Real Madrid, Manchester United, Valencia and Bayern. But there are many notable absentees from the roll call of those whose fixed assets are worth in excess of only €35 million.
Having missed out on the infrastructure impetus of hosting a World Cup or a European Championships for more than two decades, there is a paucity of Italian clubs with valuable infrastructure. Among them, only Juventus, with the new 41,000-seat Juventus Stadium worth more than €100 millon, and Lazio, whose Stadio Olimpico has a balance-sheet value of more than €50 million, make the list. European grandees like Internazionale and AC Milan miss out, as does almost every club in France.
Only Olympique Lyonnais, whose €24.40-a-share flotation in 2007 was with a view to “diversifying revenues” (shares that were trading at €2 each at time of writing) scrapes in with a stadium worth between €35 million and €50 million. Attempts to build a new one have been frustrated by planning authorities and the club is now seeking to raise €65 million of fresh capital from the markets for its “Grand Stade” project.
So for all the cash sloshing around in the game, this lack of investment infrastructure is a serious problem for football, particularly in France and Italy. Such assets can give security to bank loans, and in the long run should make them cheaper to service.
UEFA’s benchmarking report does not mention clubs’ debts, but, for instance, Lyon’s financial report to 31 December 2012 declares “financial debts”, to banks and other lenders, of €51.011 million. Milan, meanwhile, had bank loans due for repayment within 12 months of filing their annual report of €105.871 million.
These are two random instances in a Europe-wide industry that even at the very elite end is showing signs of distress, although UEFA gives no sight of one telling metric: operating cash flow. This is what a club has left after paying wages and other cash costs but before spending on infrastructure, transfers and debt-interest payments. Yet there was precious little spare cash to play with for such investments.
Insideworldfootball can reveal that despite clubs’ €8.1 billion total revenues, operating cash flow amounted to only €300 million across the 237 clubs. It meant that for every euro earned almost 96.3¢ were already committed. This did not prevent overspending, as discretionary expenditure on transfers and other investing activities amounted to €1.4 billion of cash outflows.
The resultant €1 billion hole was plugged by owners, related parties or third parties such as banks. When these new loans have been secured against fixed assets, there is some degree of a cushion for both sides of the financing arrangement. In recent times, though, even those relatively high-credit-risk clubs who have no such assets have not had too much difficulty securing credit lines during the economic crisis. This is because yield-hungry lenders labouring under the central banks’ Zero Interest Rate Policies have freely advanced loans to all high-risk sectors of business.
But this gives a false security, since loose macroeconomic policies cannot endure forever, and the spike in debt costs might not be far away. Clubs would be wise to take advantage of current low-cost loans by fixing a rate for the long term and build a new stadium: a genuinely productive asset.
That might mean missing out on the opportunity to sign a glamorous new striker. But then with the glamour and opportunity also comes responsibility.
Journalist and broadcaster Matt Scott wrote the Digger column for The Guardian newspaper for five years and is now a columnist for Insideworldfootball. Contact firstname.lastname@example.org.