FIFA 2013 Financial Results: Impact of World Cup Revealed

FIFA, the global football governing body, has seen its fair share of controversy in recent years, brought to the forefront of the public mind in the past couple of weeks with the break of the news that the Qatar 2022 FIFA World Cup bid win was reportedly bought. As a result of the apparent lack of transparency from FIFA, many fans of the beautiful game wonder how the organization makes its money, where and on what it spends its money, and what are its financial plans are for the future? FIFA’s recently released financial report for 2013 gives us the ability to answer these questions and gain further insight into the broader organization.

FIFA reported total revenues of $1,386 million for their fiscal year 2013 (+18.9% vs. 2012), total expenses of $1,314 million (+22.0% vs. 2012), which yielded a net result of $72 million (-19.1% vs. 2012). Blatter offered the following comments about the 2013 financial results in his note at the front of the report:

2013 was a busy year with many milestone achievements for FIFA. These ranged from the successful staging of seven FIFA competitions around the globe to the completion of practically all elements of the FIFA governance reform process, leading to higher levels of accountability, transparency and financial control.

2013 FIFA source of revenue. data source: FIFA 2013 financial report. Analysis by Business of Soccer.

FIFA 2013 source of revenue. data source: FIFA 2013 financial report. Analysis by Business of Soccer.

FIFA’s largest source of income in 2013 was Event Related revenues, reported at $1,220 million, or 88% of total income. Of that $1,220 million, $630 million came from the sale of television broadcasting rights, which almost entirely came from the 2014 FIFA World Cup ($601 million). $413 million of the Event Related revenues came from marketing rights sales, which again almost entirely came from the 2014 FIFA World Cup ($404 million). Operating income represented $83 million, or 6% of total revenue, and was sourced mostly from brand licensing sales ($58 million). The final major bucket for revenue was Financial Income, which was reported at $83 million, or 6% of total income, which was reported as sourced from foreign currency gains ($61 million) and investments ($22 million).

2013 FIFA source of expense. Data source: FIFA 2013 financial report. Analysis by Business of Soccer.

FIFA 2013 source of expense. Data source: FIFA 2013 financial report. Analysis by Business of Soccer.

In terms of Expenses, FIFA reported that 72% of all investments, or approximately $946 million of the total $1314 million, was invested directly into football. Like revenue, the largest source of expenses came from the “Event Related” bucket,┬áreported at $757 million, or 58% of total expenses, which again was due mostly to the 2014 FIFA World Cup ($560 million). 7 other FIFA events accounted for another $161 million of the Event Related expenses: 2013 FIFA Confederations Cup in Brazil, 2013 FIFA U-20 World Cup in Turkey, 2013 FIFA U-17 World Cup in UAE, FIFA Club World Cup in Morocco, FIFA Beach Soccer World Cup in Tahiti, Blue Stars/FIFA Youth World Cup, and the FIFA Interactive World Cup. Other major expenditure categories included Development Projects ($183 million), Football Governance ($60 million), Exploitation of Rights ($20 million), Financial Expenses ($78 million), and Other Operating Expenses ($216 million).

Though it is positive that FIFA’s revenues are showing growth year over year, it’s important to note that the organization’s expenses increased at a higher rate. If we take a historical view for perspective with regard to the overall trend over time, it gives us insight into the relative health of the organization concerning the relationship between these two metrics:

Data source: FIFA 2013 financial report. Analysis by Business of Soccer.

Data source: FIFA 2013 financial report. Analysis by Business of Soccer.

When you look at the relationship between revenue and cost growth in 2013, income only grew at 85% of the rate that expenditures did for FIFA – not something any organization wants to see as a recurring trend. Unfortunately for FIFA, in 4 out of the last 6 years expenses have outpaced the growth of revenue. What could be driving this negative trend? The answer to a question like this is always a combination of several factors. But, if we look at FIFA’s largest source of both revenue and cost, the FIFA World Cup, we get an idea of what has happened/is happening.

When you dig into the data, FIFA’s costs for the World Cup are increasing at a faster rate than its revenues from the event. As an example, FIFA reported that it would experience a 37% increase in compensation for participating member associations, a major portion of its overall expenses for the event. Revenues have not followed the same rate of increase over the same time period, leading to a total organization revenue increase of only 7% for the 2010-2013 period versus a 21% increase in total expenses for the same time period. This throws into perspective how important the World Cup is to FIFA financially, and shows how your biggest “cash cow” can also be your biggest weakness. The issue is not that the World Cup is not making a profit for FIFA; it is a matter of the event not yielding enough of a return that would cause total revenues to grow at the same rate as total expenses.

FIFA World Cup costs. Courtesy FIFA 2013 financial report.

FIFA World Cup costs. Courtesy FIFA 2013 financial report.

The key take away and implication for FIFA, is that costs are not going down, particularly relative to the World Cup. In order to post a positive result, the organization needs to be able to better leverage the world’s largest sporting event and really “milk it” to compensate for these cost increases. A relatively simple concept – to spend more, you need to make more – but much easier said than done. Using the 2010 World Cup as an example and a benchmark, FIFA recognizes this fact and even calls out in its forecasted budget for 2015-2018 that they may even experience a negative result in the years immediately following Brazil 2014:

2015-18 FIFA Budget. Courtesy FIFA 2013 financial report.

FIFA 2015-18 Budget. Courtesy FIFA 2013 financial report.

If we look at what happened to revenue growth following the 2010 World Cup in South Africa, this is not off trend for FIFA. The question will be to what extent FIFA can mitigate their losses following Brazil 2014, because importantly, they project Russia 2018 to cost just as much if not more than Brazil.

 

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Reporting on the business side of the world's game.