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Monday, October 02, 2006

SOCCER - A CURIOUS BUSINESS

A curious business

May 16th 2006

From The Economist Global Agenda

Football is as popular as ever and continues to generate a great deal of cash, though most clubs still struggle to make profits. But the biggest sides are hoping to grab a bigger share of the pot

MILLIONS of fans will switch on their sets to see Arsenal take on Barcelona in the final of Europe’s top club competition on Wednesday May 17th. Millions also tuned in to watch Liverpool beat West Ham United in the English FA cup final on Saturday. And even more will follow the World Cup next month. But while football generates huge TV audiences and draws big revenues for clubs, profits and financial stability remain all too rare.
Where clubs once relied on gate receipts, crowd numbers are mainly falling across Europe. Instead revenue is rising from other sources. Merchandise is increasingly valuable. Real Madrid gets nearly half of its revenues from selling strips and other team goodies. Manchester United, lauded for commercial triumphs, recently struck a shirt sponsorship deal for a record £57m ($87m) over four years. On May 15th Tottenham Hotspur, another English side, signed a four-year shirt-sponsorship deal worth £34m.
The sale of broadcast rights is another big earner. The rights to show the best English football recently sold for £1.7 billion over three years, a sharp increase over the previous deal. Italy’s Juventus negotiated individual broadcasting rights that provide over half that club’s annual revenues. International football is also prospering. UEFA, European football’s governing body, reckons that revenues from the 2008 European Championship in Switzerland and Austria will be ten times bigger than those in England, in 1996.
Yet, aside from a few top clubs, profits are scarce and financial woes abound. Juventus’s juicy broadcasting deal could be under threat as the club is implicated in a match-fixing scandal now sweeping Italian football. Despite securing the Italian league title on Saturday the club could be relegated, a move that would devastate its finances. Italy's Football Federation was placed under emergency administration on Tuesday.
The main problem is that costs are rising as fast as revenues. The problem—for everyone—is that attracting top players is pricey but is essential to ensure continuing success. Rising transfer fees and wage inflation put pressure on even the richest. The involvement of benefactors, such as Roman Abramovich, a Russian billionaire who has pumped over £400m of his own money into Chelsea, also skews the economics of the game by pushing up the price of players.

Risking their assets
Few other industries would survive unchanged if even the top performers struggled to make decent returns. But football is unlike other businesses. National and international bodies disperse some of the cash coming into the game to the lower echelons. Keeping alive lower leagues is deemed essential for the vitality of football.
The best clubs face another problem. The top players, the key assets of the leading sides, play for national teams too. Europe’s top sides are backing a case that was referred to the European Court of Justice in Luxembourg on May 15th that could change matters. Charleroi, a small Belgian club, is suing FIFA, world football’s governing body, over its rules for releasing foreign players for international competition. Charleroi blames an injury to Abdelmajid Oulmers, the club’s top player, for its subsequent poor league performance. He suffered his injury while on international duty.
The G14, which represents Europe’s leading club sides, is backing the Belgian minnow. It has long wanted compensation in the form of insurance and the payment of wages while a player is on international duty. It hopes the court case will promote this. It could mean that some poorer nations may struggle to field a full side without financial help from international football’s governing bodies.
The top clubs, through the G14, are keen to have a bargaining chip in negotiations with the football authorities to get more say in the running of the game. Europe’s leading clubs want to extend competition between the top teams, perhaps creating a lucrative continental super-league at the expense of domestic competitions. But most football fans would decry a shift in power further towards the big clubs if that hurt either the international game or smaller teams.






Copyright © 2006 The Economist Newspaper and The Economist Group. All rights reserved.

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