Football aka soccer is the most played and watched sport in the world, with an estimated 3.5 billion viewers or fans. The sport is played by nearly 250 million players, in over 200 countries, in numerous domestic and international matches, making it the world's most popular game. Soccer players are treated as celebrities and statistically, they are the richest sportspersons on globe owing to huge salaries, lucrative deals provided by the respective clubs and the phenomenal endorsement income they command.
Additionally, among the top ten richest clubs in the world, more than five were part of the English Premier League (EPL) in 2016. EPL is an English national football sports tournament played between the top 20 football clubs in England. The below chart shows the top 5 clubs of EPL.
Generally, large capital is required to operate a soccer club, most of this is spent on the salaries of players or to bid for leading players from other clubs. A healthy and consistent win rate (% of total matches won) is necessary for the club to increase its fan following and in turn, expand viewership of their matches. This is usually done through buying or retaining the top performing players in the club.
The brand value for all the top 5 clubs increased in the past 5 years, this was on the back of greater valuation of clubs owing to improved revenue stream and profitability.
A soccer club primarily earns revenue from multiple sources namely, commercial revenue, broadcasting revenue and match day revenue. In the last 5 years, there has been a shift in the composition of revenue for the top 5 clubs. While match day revenue saw a decline, commercial revenue increased as a percentage of total revenue in the same period.
The commercial revenue comprises mainly of sponsorship revenue and forms a major part of the total revenues of the clubs. The commercial revenue increased at a healthy CAGR of 17.2% in the last 5 years, mainly due to the increased fan following of the clubs as was evident through the growth of followers on social media (Facebook and Twitter). Thus, with increased fan following, average sponsors per club grew during the period and brought more sponsorship revenue.
The broadcasting revenue which forms the second major component of revenue of the clubs saw a 220-basis point increase as a percentage of overall revenue in the past five years. The broadcasting rights (the UK and global) are sold by the EPL and the body then makes payment to all the 20 clubs. Moreover, half of the payments are split equally among the clubs, while the rest is distributed based on the merit (this depends on the club’s table rankings) and facility fees (each time a club’s match is broadcasted). The broadcasting revenues saw an increase because of higher revenue generation from auctions held in the recent time.
The match day revenue is obtained by clubs from the sale of tickets, merchandise and other services during home matches played at a club owned stadium. The average audiences for all the EPL matches are over 96% on a given day in a stadium. Hence, there is a direct correlation between the number of home matches played during the season and the match day revenue.
In addition, the performance of a football club is largely dependent on the performance of players. Therefore, the top performing players are sought after by clubs. There is a provision for player trading which allows the clubs to bid for the top performing players from different clubs. Thus, the clubs must make regular capital expenditures in order to get the top performing players on board to improve their winning rate.
The salaries and wages of players form a major cost component for the soccer club operators. These witnessed an increase in the past 5 years, this was in-line with the rise in capital expenditure on acquiring players from other clubs.
The EBITDA margins increased for clubs primarily due to higher broadcasting and commercial revenues which entail marginal costs. Likewise, the wages and salaries reduced as a percentage of revenue, resulting in improved margins for the clubs.
The financial health improved for the clubs as their gross debt to EBITDA and DSCR ratios improved in the last 5-year period, this was due to improved profitability resulting in the higher availability of cash for debt servicing of clubs.
In conclusion, the professional soccer clubs improved their revenues and financial health in past few years This was due to increased fan following and sponsorship resulting in higher commercial revenues as well as through favourable broadcasting deals. The major challenge for clubs has been the maintenance of healthy winning rate for which these need to continuously invest in retaining or adding top performing players. However, there are risks associated with top players not performing up to their mark, this may bring down the rate of winning.
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