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

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