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.
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.
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.
On August 3rd 2017, Neymar da Silva Santos Júnior joined Paris St. Germain from Barcelona in a $263 million deal that makes him the most expensive player in soccer history. The fee smashes a record set only one year earlier by Paul Pogba’s $116 million transfer to Manchester United.
The Neymar saga proved to be just the tip of the iceberg with players moving throughout the summer of 2017 at valuations which seemed unthinkable just a few years ago. Romelu Lukaku, Alvaro Morata, Alexander Lacazette, Gylfi Sigurdsson, and Leonardo Bonucci are just a few examples of large fee transfers completed this summer. Many are quick to point to PSG owner Qatar Sports Investments, an investment fund directly backed by the Qatari government, as the inflationary spark saying that investment coming from the sovereign fund is distorting the entire market. But did PSG’s big ticket purchase really set everything off?
This is where it’s helpful to have some perspective. Here’s a visualization of the net transfer spending of the top European leagues (Premier League, La Liga, Serie A, Bundesliga, Ligue 1) with the five biggest English clubs + PSG highlighted:
Note that in thepast five years these six clubs have accounted for at least 30% (most years the figure is closer to 50%) of total net spending within the European leagues.
If we include all Premier League clubs the gap becomes even more pronounced, with English clubs spending the vast majority of transfer fees in the past decade barring two years in which Ronaldo and Fabregas respectively were sold outside the league.
Maybe PSG is just catching up to the party that the Premier League started?
Foreign exchange risk is an ever present concern for global businesses with large financial commitments outside their home borders. Whether paying suppliers or bringing back overseas earnings the risk of changes to the final price changes because of currency fluctuation is a risk of operating overseas.
Managing FX risk has not traditionally been a concern for soccer clubs who, despite their global audiences, conduct the majority of operations in their home currencies. This has begun to change as clubs reach further abroad for licensing opportunities with global partners and international player transfers. With the latter presenting the risk of obligations in a foreign currency.
English Premier League clubs have been able to control this risk thanks to strong bargaining power that stems from two factors: being members of the world’s most marketable league and doing business in a stable international reserve currency. Unfortunately, last year’s Brexit vote seems to have thrown at least some doubt about the latter with Cliff Baty, Manchester United CFO saying that the uncertainty added in complexity for player contracting.
“It was a bit difficult last year when we were trying to make signings and you had players questioning the value of being paid in sterling,” he said.
“A lot of European players will want to be paid in euros, understandably to a degree. But we are a sterling company . . . [and] managing that is quite tricky.”
The biggest clubs are hedged against currency movements, earning euros from playing in European competition and dollars from international sponsorship deals. Even so, Mr Baty said his club does not have enough euros in hand to accede to the request, insisting players be paid in pounds instead.
Players looking to be paid in euro rather than sterling is not an earth-shattering change but still a reminder that the industry is subject to the same concerns as normal business.
The English Premier League has locked up a distribution deal with PPTV which allows the digital broadcaster to show matches in the Chinese market for three years starting with the 2019-20 season. The deal reportedly has PPTV paying $700m over the course of three seasons, an amount which absolutely dwarfs the $60m cost of the current Chinese rights package held by Super Sport Media Group.
The Chinese deal pushes the Premier League’s booked revenue for the 2019-22 rights period up to $1.2b with US rights already sold to NBC in a six year deal worth $167m annually. International revenue has been a major source of commercial expansion for the English top flight with American and Asian markets in particular seeing strong growth; for comparison the total value of all international rights in the 2013-16 period was ~$2.7b, while the league has been able to realize nearly 50% of that with its growing dominance of just two markets.
On the other side of the deal PPTV has guaranteed itself a spot in a Chinese pay-TV market hungry for sports content. The jump in rights value is likely influenced by two factors in the Chinese market, a shift in focus away from share towards revenue and a rapidly developing market for paid content. Chinese rights have been heavily discounted over the past several years as Scudamore and the Premier League have pursued a strategy of spreading the league’s reach in the country, with eyes and ears properly piqued they now seem ready to begin monetizing that foothold.
Similarly PPTV, a subsidiary of Suning Holdings the retail group which owns Italian club Inter Milan, has made a significant bet on the value of the Chinese market that brings the world’s favorite soccer content to one of the world’s largest markets for sports media. PPTV’s landmark deal continues a trend of frenetic Chinese investment in the soccer world, this time with another player entering the media portion of the supply chain.
The Premier League has got a whole new look and the changes are much more than just a fresh coat of paint. The 2016-17 season debuts the league’s first new logo in a decade as well as a bold new visual identity to be used in all other branding. The changes are a massive revamp of the EPL brand and are clearly aimed at modernizing an iconic presence for the demands of a digital age.
Out with the old…
The Premier League has only held two sponsors in its 24 year history, Carling and Barclays Bank, with the latter in place from 2001 – 04 as the Barclaycard Premiership and since then as the Barclays Premiership. After the 2005 redesign the Premier League branding remained unchanged through the spread of global EPL mania. Despite the growing popularity the limitations of the visual style could be clearly felt as new viewing formats and different digital media sprang up.
The English Football Association announced that the league had begun work on the rebranding after ending its partnership with Barclays in the 2014-15 season with the league planning to forgo any name sponsorship indefinitely. Additionally the FA stated that it would no longer be offering title sponsorship as a branding opportunity, preferring to keep the competition only as “The Premier League” for the forseeable future. Bringing it in line with the other major leagues Bundesliga and Ligue 1 who also eschew title sponsors, La Liga remains the only competition with an official title sponsor, the Spanish bank BBVA.
In with the (digital) new…
In their new design DesignStudio retained the iconic crowned lion while discarding the outmoded badge elements to update the logo for the world of flat design. The rest of the visual style has also been upgraded with a duotone claw/stripe pattern being featured prominently in other marketing collateral.
The changes are more than just a visual refresh, they are the league’s solution for a sports market that is pioneering new digital experiences alongside its traditional broadcast formats. Whether mobile/tablet streaming, highlights embedded in digital content or just an enhanced TV experience the flexibility required of the brand has changed remarkably over just the past 5 years.
With color, size, and placement more easily modified the new style logo is more easily adjustable to different contexts regardless if that is on a 30ft screen in a digital theater or a mobile app with just inches of screen available. It’s a sure thing that we’ll be seeing more of the Premier League’s new look as the league continues spread around the world.