COVID-19 squeezes bottom of soccer pyramids; accelerates brand consolidation

The COVID-19 pandemic has produced profoundly negative effects on the global economy over the past several months and soccer has not escaped unscathed. Beginning in March soccer leagues across the world were shuttered to avoid potential contagion risk to supporters and players alike from the large, densely packed live events. While public safety was correctly prioritized the financial impact to leagues and clubs is still being assessed and the future is still uncertain as clubs adapt to a world where COVID-19 is still a threat.

Deloitte‘s initial estimate of the revenue lost to Premier League clubs in the 2019/20 season is 1bn, while half is likely to be recovered due to a shifting of TV revenue into the 2020/21 fiscal year more than half is unrecoverable from loss of matchday and related income.

The impact for the Football League similarly estimated to be 200m by English Football League Chairman Rick Parry, stating the 71 lower league clubs could realize those losses by September of this year.

While the pandemic has impacted the experience of all supporters it is being felt in starkly different ways across leagues and clubs. In general, clubs playing in top leagues have weathered the crisis in better shape as they have benefit from a larger cushion of diversified revenue with television and other media sources producing the biggest wedge in outcomes. In contrast, lower league clubs are disproportionately dependent on revenue derived from matchday sources (or owner financing in lieu) which necessitates an in stadium experience.

The concentration on matchday revenue becomes starker the further down pyramids as TV interest is primarily concentrated on the top with lower levels benefiting primarily from transfer payments. In England, the EPL derives almost 60% of its already substantial revenue from Broadcast sources while only 14% from Matchday revenues. By contrast the average Championship club revenue mix between Broadcast/Matchday is 50/20%, this becomes even more dramatic when moving down the pyramid where League One and League Two clubs on average are even more dependent on matchday revenue with 30% deriving from ‘live’ experiences. It is unsurprising then that the COVID pandemic has caused a devastating loss of revenue for smaller clubs with extreme examples of 50% or more drop in income for the smallest.

There are many parallels to be drawn with the rest of the economy where the pandemic is largely accelerating economic and social trends that were already in motion prior to its appearance. Specifically for soccer three major trends were already operating:

  • Brand Consolidation: The “Big Five” European leagues continue to cannibalize lower league club participation as interest in “premium” brands continues to grow. (good article here on trend already in place prior to 2020)
  • Digitization of Experience : Consumption of the game was already bifurcating into “live, in-person” vs “digital remote” with the latter notably fragmented across diverse media (tv, streaming, mobile, delayed replay, etc). Clubs and leagues require new capabilities to produce the new digital engagement that younger viewers are accustomed to.
  • Increasing Financial Disparity: The economic position of lower leagues is increasingly stressed as club financial viability outside of the top division (absent wage controls) is squeezed and leverage is used to roll the dice on promotion as the sole avenue for profitability.

With the acceleration of these trends you would expect to see reactions from both government and the leagues/clubs to mitigate the effects:

  • Downward pressure on player wages as club’s prioritize strengthening balances sheets
  • More stringent financial controls on club spending and owner financing of non-infrastructure investment (i.e. player fees)
  • Increased demand for transfer payments from top divisions to maintain player development infrastructure

These are in addition to lower leagues trying to raise their marketability in general to compete with the dominance of the top divisions or at least finding an alternative path toward sustainability. We will have to see what happens as COVID plays out over the next 2-3 years.

COVID-19 squeezes bottom of soccer pyramids; accelerates brand consolidation

Real Madrid Revenue Hits $831m


Spanish soccer giants Real Madrid have announced an increase in net profits to $42m for the 2018/19 season excluding player transfers, representing an increase of 23% over the previous year. The club also reported a cash balance of $170.8m.

Non-transfer revenues have remained near level at $830.6 million, with the club attributing the low growth to an early exit from the UEFA Champions League, having been eliminated by Ajax in the round of 16. Excluded from the figures is the impact of the sale of Cristiano Ronaldo to Juventus for ~$110m. Transfer revenue is typically accounted for separately because of its non-recurring nature.

Real Madrid forecasts that 2019/20 revenue will climb to $901.6m (excluding player transfers) in anticipation of LaLiga’s new rights sales and the activation of new sponsorship contracts.

Real Madrid Revenue Hits $831m

Madrid, Juve, Barca tap credit markets for €1b+ in financing

There’s been a burst of activity in the It’s been a busy winter for soccer financing the major European clubs

Real Madrid has secured financing for the long awaited redevelopment of the Santiago Bernabeu with a syndicate of banks taking on a €575 million issue. US lenders Bank of America and JP Morgan led the deal with local banks Santander and CaixaBank also participating. El Confidencial says the financing is for a period of 30 years, with interest capped at a maximum of 2.5%.

Juventus has been busy issuing €200 million in non-convertible bonds to qualified investors across Europe just last week. Use of proceeds is stated by the club as “to provide the Company with financial resources for its general corporate purposes, streamlining the structure and the maturity of the debt.” With the purchase of Cristiano Ronaldo and recruitment of other high-wage stars the emphasis is likely to be on the latter and using the funds to clean up the capital structure. Juventus is also exploring plans to redevelop their Turin home.

And finally, Barcelona also announced €140 million in financing from two US funds, according to El Pais. Pricoa Capital Group and Barings have extended €90 million and €50 million respectively for use in normal operations and transfer funds. El Pais says the club do not have to repay the loans for five years and have agreed an interest rate of 1.8% subject to periodic adjustment. While most reporting is treating this as long-term debt it appears that this is actually a revolving credit facility that Barca will draw on for short-term financing.

Madrid, Juve, Barca tap credit markets for €1b+ in financing

FC Stumbras: Tollbooth to Europe?

An excellent piece by the New York Times details the setup at FC Stumbras Kaunas, a Lithuanian club intently focused on being a transfer waystation to the clubs of Europe. It is a rare glimpse into the for-profit soccer industry and the costs, for both players and owners, involved in chasing part of the transfer market payday.

The story follows Ibrahima Sory Soumah, a player tapped by AS Monaco but who finds himself at Stumbras instead because of visa issues:

[Soumah], signed to a contract that pays him a minimum-wage salary of $470 a month but, bizarrely, includes a multimillion-dollar buyout, he was sharing a bedroom with a teammate in a house owned by F.C. Stumbras,

Similar stories abound throughout the squad, with many players arriving in the past two years hoping to make the step up to a larger club.

Stumbras has been co-owned by Irish financier Richard Walsh and Portuguese coach Mariano Barreto since 2016 with the strategy of using Lithuania’s EU membership as an gateway for free agents to enter the European market. So far the strategy has yielded no high profile transfer coups and met with resistance from players and agents who claim the contracts are unenforceable. Walsh himself has expressed frustration about working with the industry:

“I can’t say I have found more difficult people than people in the football industry,” he said. “I find them anything but truthful and straightforward.”

It is unclear if an experiment like Stumbras can succeed, particularly with an adversarial stance towards agents who hold serious power in the soccer ecosystem.

Full article: New York Times

FC Stumbras: Tollbooth to Europe?