How do soccer clubs make money? A very simple question that many fans of the game often wonder and postulate but seldom fully understand. Most first answers to this question would be matchday sales, but there are those with a deeper understanding of the industry that know that this is not quite the full story.
Deloitte’s Football Money League provides an in-depth business synopsis of the top 20 clubs in the world. The report buckets all streams of revenue into 3 main segments: Matchday Revenue (gate receipts), Broadcasting Revenue (domestic and international), and Commercial Revenue (sponsorship and merchandise). Deloitte breaks the revenue stream down for each of the top 20 clubs into these 3 categories, creating a very interesting comparison of how the richest clubs in the world rake in the cash.
Though this may appear to be a simple comparison, there are many important take-aways that tell us about the differences between various teams and leagues around the world in how they make their money. When you look at the absolute dollar figures for the top 20 clubs, the major difference between to top of the list and bottom shows in the area of commercial revenue, with over a €171 million delta between Real Madrid atop the table and Atlético Madrid at the bottom. The fact that the largest discrepancy amongst the clubs listed is in the commercial revenue category, which includes merchandise and sponsorship sales, indicates that the globalization of the sport in regards to the notoriety and reach of the individual club plays a massive role in the organization’s overall financial prosperity.
This should come as no surprise and actually is somewhat of a “no brainer” when you think about it. The more popular a club is throughout the world, the more point of sale opportunities it will have for fans to purchase merchandise, thus the higher revenues in this area for the clubs with the higher household penetration on a global scale. But the merchandise sales are only a part of why the more notable clubs do so much better in this area. The other component is sponsorship revenue, which follows the same logic as merchandise sales. The elite clubs that are known around the world are a golden marketing vehicle for regional brands around the globe. As clubs extend their presence into regions of the world like Asia and Africa, we not only see their merchandise pop up in retail outlets, but we also see regional sponsorship deals popping up with businesses looking to tie themselves to a relevant and meaningful brand that their target audiences will identify with culturally and emotionally.
What is interesting is that when we look at the contribution to total revenue that each category represents historically for the top 20 wealthiest clubs, we see that commercial revenue only took the top spot in the last year, and that as the globalization of these teams and their brands have really started to pick up over the last several years, their go to market strategy in these new regions represents perhaps the largest area of opportunity for these clubs.
Over the last ten seasons, commercial revenues have increased in contribution to total revenue by +10.9 points, while matchday and broadcasting revenues have decreased by -4.3 and -6.6 points respectively. This shift in finances also represents a potential necessity for a shift in organizational strategy for soccer clubs. In general, the commercial market represents the largest opportunity, or risk, for clubs as a means to generate revenue. The commercial globalization of these top clubs has really picked up in the last several years, meaning that these markets are still fairly underdeveloped and hold a lot more potential. If clubs focus their resources on capitalizing on this opportunity in key markets throughout the world, we could see the commercial segment jump another several points in contribution percentage.
Another key point to make here is that as brands extend their global reach, the price tag of a spot on their shirt or supplying their kits goes up as well. This is in part why we have seen the rise in “record-breaking” deals in the area of sponsorship for the total team, and not just in the regional space. Deals like Manchester United’s Chevrolet shirt sponsorship and Arsenal’s new kit sponsorship deal with Puma both generated record price tags, driven in part by the club’s expanded global presence and thus, value.
There is also a downside to this trend. As much as it represents an opportunity for soccer, clubs need to be careful not to become too reliant on any one source of revenue. Part of financial success and stability comes from being able to weather storms along the way, and if a storm happens to occur in a sector of your business where a majority of your total income is derived, it could be potentially crippling if its contribution rate is too high. For example, in Spain the broadcasting rights are not distributed equitably amongst all of the teams as in other leagues. Real Madrid and Barcelona claimed about 47% of the total broadcasting revenue in the 2012-13 season in the Spanish top flight, whereas in the Premier League, the top two clubs only accounted for about 12%.
The other clubs have spoken up about the discrepancy and a new law was just announced to make broadcasting revenue gains more equitable in the future. Under this new law, Real Madrid and Barcelona may not earn more than 4 times the lowest club’s earnings in broadcast revenue. If we were to apply these terms to the 2013-12 season, this would mean that these two clubs would have earned €48 million instead of €140 million, which is a decrease of €92 million or -65.7%. Luckily, these two clubs are some of those most well positioned and poised to capitalize on the globalization of their brands in emerging markets, which hopefully will enable them to counteract the losses in broadcasting revenues.
What do you think about the source of revenue for the world’s richest clubs and how the globalization of their brands has changed the business landscape? Let us know in the comments section below or via Facebook or Twitter.