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Around the world in 90 minutes

Deloitte Football Money League 2012

The last club from outside one of the ‘big five’ European leagues to earn a place in the Money League was Fenerbahçe in 2009, off the back of a record performance in the 2007/08 UEFA Champions League which saw the club reach the quarter-final.

Here we take the opportunity to analyse the position and prospects of five leagues from around the globe which have made the news in the past months, each for different reasons.

No country for old men

Supported by a growing economy and able to generate more revenue than clubs elsewhere in Latin America, the clubs of Brazil’s Série A are nevertheless unable to match the strongest of their European counterparts. We estimate that the Brazilian clubs with the highest reported revenues, Corinthians and São Paulo, would rank amongst the top 50 Money League clubs, with revenues of c.€70m-€80m.

Supported by the national passion for football and large urban populations, top Brazilian clubs have the chance to benefit from significant local fan bases. However, large numbers of followers do not translate directly into high attendances. The average attendance for the 2011 season in Brazil’s Série A was slightly below 15,000; some way behind top European leagues, or indeed the 64,000 who turned out to see São Paulo take on Flamengo in the best attended Brazilian league match.

That attendances of this magnitude can be achieved for domestic games shows the potential for Brazilian clubs. Brazil’s hosting of the 2014 FIFA World Cup, and the investment in stadia that will accompany it, will provide an excellent opportunity for clubs to improve the matchday experience for spectators thus allowing them to achieve both high attendances with greater regularity and increased ticket prices, which we estimate to be lower than €10 on average.

Broadcast rights for Brazil’s Série A are driven by domestic value and are not as readily exportable as those of top European leagues. The perceived relative weakness of the league and late kick-off times, which when coupled with the time zone do not make for convenient viewing in Europe and Asia, put Brazilian clubs at a disadvantage. Rights values for the Copa Libertadores are similarly constrained.

With sizeable followings, Flamengo and Corinthians among the largest, top clubs are attractive to commercial partners who wish to market to the fan base. The appeal becomes even stronger for brands who can associate themselves with signings of players who have represented Brazil at the highest level in what has in recent decades been an export-led market.

Of the players set out in Table 2, all except Deco and Juninho Pernambucano returned to their homeland aged 30 or younger, suggesting they could continue to play at a high standard for several seasons to come. The local pride and global publicity that surrounds the signings of such players can bring significant exposure for shirt sponsors, sportswear manufacturers and club partners.

The commercial strength of Brazil’s biggest clubs and their star players means they can generate c.€20m from sponsorships and advertising, a sum that the majority of clubs in the ‘big five’ leagues would envy. Nevertheless, cost control remains critical for clubs’ long term financial stability.

Whilst Brazilian clubs are not currently able to match the revenues of the Money League clubs, the World Cup in 2014 and related stadium development could prove a catalyst for growth in attendances and values of already strong commercial deals, helping Série A clubs better compete with their European rivals to retain the best young talent and bring back established stars.

Shanghai knights

The transfer of Nicolas Anelka to Shanghai Shenhua has thrown the Chinese Super League (CSL) into the Western European spotlight. His signing comes less than six months after that of Dario Conca for whom Guangzhou Evergrande reportedly paid Fluminese €7.5m. Both players are reported to have annual wages in excess of €10m.

The CSL consists of 16 teams, with both private and state businesses having ownership interests. The league’s low profile, until recently, is representative of the lack of high profile signings and limited engagement of the Chinese domestic market.

The broadcast market for football in China is significant, and growing. However, the market is very competitive with European leagues more widely followed than the CSL. The challenge facing Chinese football is that of growing the profile and appeal of the league, which is in turn heavily dependent on the growth of interest in football as a whole in the country.
The national team has qualified for only one FIFA World Cup (2002) and has already been eliminated from the qualifiers for the 2014 tournament. China is yet to find its footballing Yao Ming, a figurehead who can galvanise the nation and foster the belief that it can produce players to compete with the best in the world in the way Hidetoshi Nakata did for Japan in the late 1990s.

Not only are players of such quality pivotal in engaging the nation, they are also fundamental to the quality of football for a league that limits a team’s foreigners to four on the pitch at any one time.

Revenue generation for Chinese clubs will evolve hand-in-hand with the wider growth of the sport in the country; the growth of matchday revenues, broadcast rights and commercial values is a factor of the quality of the product, the improvement of which is dependent on the quality of foreign signings, the production of internationally competitive Chinese footballers and the strong governance of the game.

Whilst there is no doubt that China has inherent advantages, by way of population and a growing economy, such that its clubs should be able to generate significant revenues in the long term, a lengthy period of growth will be required before it can rival the J-League as the biggest league in Asia. During this time clubs will require substantial benefactor funding if they are to continue to attract players of the calibre and profile of Anelka and Conca.

From Russia with love

UEFA’s Club Licensing Benchmarking Report indicates that in the 2009/10 season clubs in Russia’s top flight had average revenues of €38m, more than twice the average of €15m for their Ukrainian counterparts.

We estimate that the highest-earning Russian and Ukrainian clubs would rank in the top hundred worldwide in terms of revenue generation, generating significantly greater revenues than the smaller clubs in the two countries.

Clubs from both countries have enjoyed success in the UEFA Cup in recent years, with CSKA Moscow, Zenit St Petersburg and Shakhtar Donetsk all lifting the UEFA Cup within the space of five seasons to 2008/09. In 2004/05 CSKA Moscow became the first club from either country to lift a major European trophy since Dynamo Kyiv in 1986.

However, as shown by the chart, the Eastern European clubs still have some way to go if their performance in UEFA competitions is to consistently match the continent’s biggest leagues.

In leagues where total revenues are lower, the comparative advantage provided by distributions from the Europa League and, in particular, the Champions League is accentuated. CSKA Moscow and Shakhtar Donetsk each received central distributions totalling €21m for their runs to the quarter-finals of the Champions League in 2009/10 and 2010/11 respectively, more than the average annual turnover of a Ukrainian top flight club.
In 2009 Shakhtar Donetsk moved to a new stadium, the Donbass Arena, with a capacity in excess of 50,000. It reportedly cost €320m to build and was funded by the club’s owner, Rinat Akhmetov.

The move to the new stadium was the catalyst for a significant jump in attendances, as we have regularly seen to be the case in Western Europe. The Donbass Arena includes a conference centre and multiple restaurants which will equally allow the club to increase commercial income on non-matchdays.

Poland and the Ukraine’s successful bid to host UEFA Euro 2012 triggered investment in stadia in the Ukraine across the other three host cities. With the 2018 World Cup on the horizon, Russia too has a great opportunity to redevelop or build new stadia with the aim of generating levels of stadium-related income that narrow the gap to their competitors in the West.

The signing of Samuel Eto’o by Anzhi Makhachkala of Dagestan has brought into the spotlight the ability of certain Russian clubs to afford and attract world class players. However, deals of this magnitude for clubs with such limited revenue are reliant on benefactor funding – a business model typical of a number of Russian clubs.

Paying wages sufficient to attract players of the ability that will allow Russian and Ukrainian clubs to be increasingly competitive against the established Money League clubs must be balanced with revenue generation, excluding benefactor funding, sufficient to absorb the costs to ensure the long term financial health of the clubs and avoid falling foul of UEFA’s financial fair play (FFP) regulations.

American beauty

Since its inaugural season in 1996 Major League Soccer (MLS) has expanded from ten teams to 18. Whilst the signing of David Beckham in 2007 stands out, steady growth has been founded on a strong domestic economy with experience of sound sports business management, a centrally controlled league and investment in the infrastructure of the game. Nine different teams have lifted the MLS Cup in 16 seasons, testament to the competitive balance of the competition.

The strength of the market in the USA is reflected by the fact that in 2005 FIFA signed a deal worth US$425m for the rights to broadcast its competitions from 2007-2014; one of FIFA’s most valuable deals on an individual territory basis.

Even before the inception of the MLS, the size of the US sports market was not in question; the challenge was for soccer to find its place in a highly competitive sports landscape amongst American Football, Baseball, Basketball and Ice Hockey.

In 2011, the average attendance at MLS regular season games was close to 18,000. This compares favourably to the National Basketball Association (NBA) and the National Hockey League (NHL), who both had regular season attendances below 17,500. That the MLS can regularly attract more fans per match than these two established leagues is testament to the growth of both the league itself and soccer as a whole over the past two decades.

Table 4 demonstrates MLS’ ability to attract paying spectators, compared to selected global peers.

The USA men’s national soccer team has become stronger since the country hosted the 1994 World Cup; its best World Cup performance of modern times being a run to the quarter-finals in 2002. The increasing number of American players able to compete on the same stage as the best players in the world has supported not only the national team but also the MLS. This strong home-grown base has been supplemented with high profile signings of players who have played at the top level in Europe, including David Beckham, Rafael Marquez and Thierry Henry.

That some players such as Beckham (AC Milan), Henry (Arsenal), Robbie Keane (Aston Villa) and Landon Donovan (Everton) have used the MLS’ winter break to represent European clubs not only shows that they can compete in the strongest leagues in the world, but also serves to ensure that Major League Soccer maintains a high profile in Europe.

Up

The growth and sustained success of domestic leagues is dependent on the size of the market they are able to reach. The large populations of the countries discussed above and growing or already strong economies present opportunities for the growth of football.

Success is also dependent on the quality of football on show. Whilst clubs in some less well established football regions are able to sign top players, and pay them well, providing them with a team and quality of football that matches their aspirations will be fundamental to retaining them. For the time being, the biggest European leagues remain the destination for the very best playing talent.

Robust and transparent governance is fundamental to the quality, integrity and credibility of any competition.
If leagues can achieve this alongside competitive balance and maintaining a core of talented domestic players, they will become more attractive to commercial partners and fans both at home and abroad.

This offers the opportunity to develop a ‘virtuous circle’ where the quality of the league drives increased revenues which can then be re-invested in further improving the league.

In any territory, for clubs to be viable in the long term they must generate revenues sufficient to cover their costs. Whilst benefactor funding can provide an impetus, it is unsustainable for clubs with significantly inferior revenue to the Money League clubs to compete with them in the long term on wages for top players. The arrival of FFP makes this particularly pertinent for clubs who wish to participate in UEFA competitions.

Deloitte Football Money League 2012

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