Tuesday, May 11, 2010

What Is The Champions League Worth To Arsenal?

As Manchester City faced Spurs last week in what was virtually a play-off for the final Champions League place, the media’s hyperbole machine went into overdrive about how much qualification would be worth to the winners. However, if you looked at a variety of newspapers, you would end up very confused about the size of the prize. The Times and the Telegraph were relatively sober, talking about possible extra revenue of £20m, while the tabloids were more aggressive with the Sun describing the match as a “£50m clash” and the Mirror labeling it “the £60m showdown”. The headiest estimate actually came from the Independent, which provided a detailed break-down that apparently added up to “£70m for winning the Champions League”.

Rather than attempting to work out exactly how much revenue Spurs will earn from their unaccustomed foray into Europe, I thought it would be more appropriate to calculate how much the Champions League is worth to Arsenal for a number of reasons. First, as Arsenal have been in the Champions League for more than a couple of days, we actually have some genuine financial data to review for the Gunners.

Second, it is far from certain that Spurs will reach the Champions League. In fact, they have only qualified for the right to play a Champions League qualifying match. In years gone by, this would have effectively been a walk-over against a team from somewhere like Slovenia, but UEFA has recently modified the qualification format in order to help teams from the smaller nations reach the lucrative group phase. This has the added effect of making it more difficult for teams from the more established nations to progress and Spurs could find themselves facing tricky opponents like Lyon, Sevilla, Werder Bremen or Sampdoria. For Spurs fans, this could be horribly reminiscent of when Everton broke into the top four in 2005, only to fall at the first fence, crashing out to Villareal in the third qualifying round.

Third, Arsenal are my team, so there.

"Crouch's £50m header"

Before we try to quantify the value of getting into the Champions League, we need to think about what is relevant to this discussion. To my mind, there are five revenue streams: (a) participation and performance; (b) television; (c) match day; (d) sponsorship; (e) increase in value of the squad.

The first two of those areas come from revenue distributed by UEFA. Since the birth of the Champions League, the amount of revenue that UEFA generates from broadcast and sponsorship deals has increased exponentially from €45m in 1992/93 to €1.1 bln this season. Despite the difficult economic market, this growth shows little sign of slowing down. In fact, 2009/10 is the first season of a new, improved three year deal, which will deliver a 29% increase in the amount of revenue available for distribution to participating clubs. Net of costs and payments to national associations, this has gone up from €583m in 2008/09 to a jaw-dropping €751m in 2009/10. This pot is divided into two parts: (a) fixed sums based on participation and results (rising from €308m in 2008/09 to €413m in 2009/10); (b) variable amounts dependent on the value of the TV market of the associations represented in the Champions League (from €275m to €338m).

The above table lists the fixed sums payable to the 32 teams that qualify for the Champions League and highlights the significant increases this season. Right off the bat, each team is awarded €3.8m for participation plus another €550,000 per match played in the group phase, regardless of the result. Assuming that a club fulfills its six group fixtures (a fairly safe assumption), that’s worth €3.3m. This means that each team is guaranteed €7.1m for qualifying for the group stage, even if it loses every single game.

There is also a performance bonus of €800,000 for each victory in the group stage plus €400,000 for a draw. So, if a team really puts its pedal to the metal and manages to win all six of their group matches, they will get €4.8m. If a team qualifies for the first knock-out round (the last 16), they are awarded a further €3m. In other words, if a team gets through the group phase and wins all six group matches, it would receive the princely sum of €14.9m.

There are additional performance prizes for each further stage reached: quarter-final €3.3m, semi-final €4m, final €5.2m and winners €9m. So if you go all the way and win the damn thing, you would earn a total of €31.2m, which is serious money in anybody’s book(s).

In addition to these fixed sums, the clubs receive a share of the television money from the so-called market pool. This is a variable amount, which is allocated depending on a number of factors: (a) the size/value of a country’s TV market, so the amount allocated to teams in England is more than that given to, say, Spain, as English television generates more revenue; (b) the number of representatives from your country, so an English team (with four representatives) might receive less than a German team (with only two representatives); (c) the position of a club in its domestic championship in the previous season, so if two teams from England both reach the quarter-final, the one that finished ahead of the other in the Premier League would get more money; (d) the number of matches played in the current season’s Champions League.

This complicated, but logical system, throws up some interesting anomalies. If we examine the table above, which lists the revenue distributed by UEFA in 2008/09 for the top ten teams, we can see that Manchester United (€38.3m) actually earned more than Barcelona (€31m), even though they were absolutely hammered by the Catalans in the final, purely because they were allocated €10.6m more TV money. Similarly, Bayern Munich, who were eliminated in the quarter-finals, also earned more than Barcelona with €34.6m, as they secured the biggest slice of the TV pie with €21.5m. This is because the German TV market is among the most valuable and the revenue for the German association only had to be shared between two clubs, In comparison, the English revenue had to be split between four clubs. This factor also explains the presence of PSV Eindhoven in eighth position in the money table, even though they did not make it out of their group, as they were given all €19.6m of the Dutch revenue, being that country’s only representative.

This opens up an intriguing possibility for the red and white half of North London. If Spurs are beaten in their qualifying match, there would be a double whammy for Arsenal fans, as they would not only have another opportunity to laugh at their North London neighbours, but there would also be more money heading Arsenal’s way, as England’s TV pool would only have to be shared between three teams instead of the four usual suspects. That pot was worth €55.5m in season 2008/09, but is likely to increase to at least €70m for next season, so this would be very handy.

"Robin Reliant"

Enough of these general facts, how much have Arsenal actually earned from the Champions League? The UEFA analysis for 2008/09 lists Arsenal at sixth place with €26.8m, comprising €15.5m for participation and performance and €11.3m from the TV pool. For the current season, we don’t yet have the figures for television, but we can already work out the fixed fees, as we know the results. Arsenal will be given €3.8m for Champions League participation, €3.3m for group stage participation (six matches at €550,000), €3.6m for group performance (four wins, one draw, one loss), €3.0m for reaching the knockout stage and €3.3m for reaching the quarter-final. That adds up to €17.0m, which is more than the €15.5m earned the previous season, even though the team went out a round earlier (quarter-final vs. semi-final), which highlights the revenue growth.

Assuming that Arsenal’s share of the TV pool rises in line with the total TV revenue (€275m to €338m), ceteris paribus they would get an additional 23%, increasing their variable revenue from €11.3m to €13.9m. Therefore, a reasonable estimate of Arsenal’s revenue distributed from UEFA would be €17.0m fixed fees plus €13.9m variable fees, giving a total of €30.9m.

As anybody who has opened a newspaper recently will know, the exchange rate can also have an impact. In particular, the weakening of the Pound against the Euro over the last two years has significantly increased the UEFA revenue in Sterling terms. If we take our estimate of €30.9m, this is worth £26.9m to Arsenal at the current exchange rate of 1.15, compared to just £20.6m when the rate was 1.50. That’s a notable difference of £6.3m.

"Two greats for the price of one"

In addition to centrally generated revenue, clubs directly benefit from match day revenue. Arsenal do not separately analyse this between different tournaments, but we can still come up with a sensible guess. In the past, directors have stated that the Emirates brings in more than £3m a match, while Deloittes Football Money League estimated €25.7m for Arsenal’s 2008/09 season. We know that Arsenal played six home games that year (three group matches, last 16, quarter-final and semi-final), so that implies an average of €4.3m. At the exchange rates used by Deloittes, that suggests that each match is worth £3.6m. This is a little more than we might expect, but this figure also includes merchandise plus food and drink, so is not completely out of court. Let’s call it £3.5m a match, which would produce £17.5m match day revenue this season, based on the five matches played (three in the group, last 16 and quarter-final).

That would mean a total so far of £44.4m Champions League revenue for Arsenal this season (£26.9m distributed from UEFA plus £17.5m match day directly generated by the club).

Importantly, most of this money goes directly to the bottom line, which is why some clubs are so desperate for Champions League qualification, as it can make an enormous difference to their business model. In Arsenal’s case, Deloittes calculated that Arsenal’s Champions League revenue accounted for 20% of the club’s total revenue, which was second only to Werder Bremen (23%). In other words, although this might not be critical to Arsenal’s financials, it’s still pretty important, especially when you consider that Real Madrid’s direct revenue from the Champions League is less than 10% of its overall total.

"From Russia with love"

In addition to this tangible revenue, other revenue is also likely to increase, but is very difficult to quantify unless you’re a football club insider. Indirectly, Arsenal’s participation in the Champions League should boost their sponsorship and other commercial revenues, both in the short term through contractual bonuses, and longer term by strengthening the club’s brand attractiveness through increased exposure and profile. However, a former Barcelona vice-president admitted, “What is harder to put into figures is the impact it has on your brand. That is very difficult to discern. There is no doubt we got a massive boost from winning the competition. We were on television and on the front of all newspapers all around the world, but that increased exposure and interest doesn’t lead to an immediate increase in the value of your sponsorship deals.”

I would be surprised if Arsenal’s sponsorship contracts did not included some sort of incentive clauses rewarding the club for reaching the later stages of the Champions League, but my guess is that they’re not overly lucrative, given that Arsenal’s commercial deals were negotiated primarily to secure front-loaded funds to help pay for the construction of the Emirates. However, going forward, this could easily be worth another £5-7m.

"In the Nick of time"

Finally, the value of Arsenal’s players should have increased as a result of competing among Europe’s best and placing themselves in the shop window. As an example, Nicklas Bendtner is officially the fourth highest scorer in this season’s Champions League with five goals, only behind Barcelona’s Lionel Messi, Real Madrid’s Cristiano Ronaldo and Bayern Munich’s Ivica Olic. That must have added a few million to his transfer fee. Of course, this will only generate additional revenue if the player is actually sold, which Arsenal may not want, but I think you understand my point. On a related theme, taking part in the Champions League helps the club to attract and retain players, hence so much interest in what will happen to Fernando Torres and other “stars” at Liverpool now they have failed to achieve the qualification “guaranteed” by their manager.

A study commissioned by MasterCard suggested that the winners of the Champions League could make up to €110m, though this included €30m from sponsorship bonus payments, €14m commercial revenues and €15m increased squad value, all of which seem highly speculative to me. This heady estimate does makes sense when you appreciate that MasterCard is an official sponsor of the Champions League, so clearly has a vested interest in calculating as high a figure as possible. Having said that, it is difficult to argue with the man who conducted the research, Professor Simon Chadwick of the Sport Business Strategy department at Coventry University, when he said, “The competition continues to be an important source of revenue and commercial activity for clubs, especially for those that qualify for the knockout phase of the competition. This inevitably makes a significant contribution to the annual turnover of the clubs involved.”

"It's worth this much"

What about if Arsenal just missed qualification to the Champions League? Surely the Europa League would compensate the revenue shortfall to some extent? Not really. If you manage to battle your way through that interminable competition and end up with the trophy, you would still only receive €6m, compared to the €31m awarded to the winners of the Champions League. Or, to put it another way, the prize money at the Champions League is more than five times as much as the Europa League. Given the paltry attendances “enjoyed” by Europe’s secondary tournament, it is hardly surprising that some teams effectively sabotage their own chances in this competition by playing their reserves. From a financial perspective, it’s obviously much better to focus your limited resources on trying to qualify for the Champions League.

Furthermore, the revenue gap between the Premier League and the Champions League is also closing. In the Premier League all clubs receive £14.6m for participating, £10.1m for overseas rights plus another £2m from sponsorship and licensing deals. On top of that, the winners receive £16m for winning the competition plus £500,000 for every match of theirs shown live on TV (a guaranteed minimum of ten appearances, but let’s assume there were 15, giving £7.5m). That produces a grand total of just over £50m for winning the Premier League.

How about the Champions League? First we have the €31.2m participation and performance fees we listed above. To that, we need to add an estimate for the TV pool. As a proxy, let’s take the €18.8m earned by previous Premier League champions Manchester United in 2008/09 and uplift it by the 23% projected increase in total TV money in 2009/10 to give us €23.1m. That produces a total of €54m for winning the Champions League, which is equivalent to £47m. That’s only a whisker away from the £50m for winning the Premiership. The difference is that one takes 38 games to win, while the other one only requires a “lucky” 13.

"Not so super?"

There is little sign of this gravy train being derailed. According to a report by Futures Sport + Entertainment, the Champions League final overtook the Super Bowl as the most-watched sports event last year with a “reach” of 206m people compared to 162m, even though that was the best ever figure for the NFL’s flagship. The analysts said that the Super Bowl “is still growing, but, extraordinarily, the Champions League is growing faster with room for significant expansion.” That probably refers to UEFA’s decision to move the final from its traditional Wednesday evening to Saturday, which makes it more convenient for Asian and American viewers. Indeed, this year’s final between Inter and Bayern Munich will be televised live in China on CCTV-5 and Fox Television in the US, virtually guaranteeing an increase in the viewing figures.

We can now understand why the economically savvy Arsene Wenger is so proud of Arsenal’s record in Europe’s premier competition. After the comprehensive defeat of Fulham on Sunday, he argued, “I believe there are two big trophies in England. The Premiership and to qualify for Champions League, and that’s what we have done. For me it’s not enough but it is the minimum requested, and we’ve done that 13 years on the trot now which is not too bad.” Many fans would prefer the team to win an actual trophy, but you can see where Wenger is coming from.

"We've qualified again"

Arsenal’s chief executive, Ivan Gazidis, says of the Champions League, “It is hugely prestigious, one of the competitions you have to win if you want to be thought of as a great club. Financially it is important over time, but it is not life or death.” That may be true, but we have seen that with a reasonable run, the competition delivers at least £44.4m revenue to Arsenal – and that does not include any additional sponsorship revenue, which could bring in a further £5-7m, or any increase in the value of the squad. Therefore, anybody suggesting that the Champions League is worth around £50m to Arsenal will get little argument from me or, indeed, Arsenal’s board.


  1. "Lyon, Sevilla, Werder Bremen or Sampdoria"

    Spurs are seeded, so the only one out of that lot they could play in the play-off round is Sampdoria.

  2. Tom,

    I listed those teams as examples of the tricky opponents that Spurs could face, so they might not be exactly right (some of the national leagues have not yet finished), but the point is still valid.

    However, I suggest that you read how the qualifying process works on UEFA's website. For the Non-Champions Path, this states:

    "The third-placed side from the sixth-ranked member association, plus the runners-up from the associations ranked 7 to 15, start the competition in the third qualifying round. The winners of these five ties progress to the play-off round, where they are joined by the fourth-placed sides from the associations ranked 1 to 3 and the third-placed teams from the associations ranked 4 and 5. The victorious teams from the five play-off ties qualify for the UEFA Champions League group stage."

    Hideously complex, but let's take the likely qualifiers from the top 5 associations:

    1 England - Spurs (certain)
    2 Spain - Sevilla or Mallorca
    3 Italy - Sampdoria or Palermo
    4 Germany - Werder Bremen (certain)
    5 France - Lille, Auxerre, Lyon or Montpellier

    There is no mention of any seeding in the UEFA regulations, so it looks like any of the teams that I mentioned are still possible opponents for Spurs, though I wouldn't stake my pension on it.

  3. "though I wouldn't stake my pension on it."

    Surely you shouldn't: with that kind of financial understanding, you will have plenty of it saved. :)

    So I finally found a site that's good in sports finance. Thank you!

    (Got the link here from A Cultured Left Foot.)

  4. Tom,

    TSR is right in his assumption that Spurs could be drawn against any of the listed teams. The reason behind this is that UEFA changed their rule for 3rd qualyfing round last season where no teams are seeded for the 3rd round play-off hence Arsenal playing Celtic last year. We could've been drawn against any teams in that draw but it were Celtic's bad luck that they were drawn against Mighty Arsenal...

  5. Superb article, meticulously researched, and timely in its message. We should not underestimate the achievement of the side in securing CL qualification yet again. Of course we want more, we are one of four (maybe five now) teams who are realistically capable of challenging for the major honours, and genuinely believe they can. But we should still pat the team on the back for getting us into Europe's premier competition again.

  6. Recently found your blog and find the posts really interesting.

    So Arsenal might get £44m revenue but what about the costs to get it. At 45% wages to revenue you could guess it costs 19.8m in wages and it must cost to open the stadium on CL match days.

    For the fan we get the benefit of playing our expensive squad in the league and it is the only way we can have a chance of winning that.

    Perhaps this is compensation for the many dull CL group matches we have to endure till we get to the real competition.

    Problem is if Arsenal loose the revenue can they cut the costs or do they invest to get back in. Having been in for 11 years Arsenal probably think it will last for ever but a club can end up paying the money and not getting the return.

    With more challengers Arsenal have to make it safe with a strong squad that will keep the CL place. AW needs to make sure he spends his wage pot on players that can be useful on the pitch. We have a lot of duds at present and I think most of us are rather puzzled as to how we are third. I did not see anyone celebrating on Sunday, very flat at the Grove.

  7. Top class research and writing. Many thanks.

  8. Another great piece and I always enjoy the accompanying pictures/captions =)

    Do you think the elite clubs around Europe base their budgets around certain expectations that they'll receive ECL participation fees each year or treat them as a surplus from their "normal" operations?

    I think it's dangerous to assume a steady £20~30+ million from the ECL each year seeing how top clubs like Juventus and Liverpool performed miserably in the competition this season.

    Also, what is your opinion about the proposed notion of a European "super league"? I am against it but I think even Arsene Wenger acknowledged that it would only be a matter of time for it to happen.

  9. This is the above Anon posting again for another question.

    Is it harder to find out about the business side of the World Cup?

    It's clearly more pride than money for the participants but it's still an essential event for FIFA and its partners.

    I'm also sad to notify that Samir Nasri missed out on the French provisional World Cup spot :<

    How did Diaby get in? xD


  10. @Alister,

    Yes, there will absolutely be some additional costs associated with the revenue from the Champions League, but I think that these will be more along the lines of bonus payments. The largest element of the wage bill is the players' salaries, which are predominantly fixed, whatever happens in Europe. Similarly, there will obviously be stadium costs associated with each home game. Nevertheless, I think that most of the CL revenue will be "jam" for Arsenal.

    Gazidis has said that Arsenal can cope with not qualifying for the CL, which is almost certainly correct, given the solid financial husbandry, but there is no doubt that it would be a blow. As you suggest, it really is a vicious circle, as this would also make it more difficult to retain and attract players, which, in turn, would make it harder to qualify. This is the awful situation that Liverpool now find themselves in.

  11. @desigunner,

    Thanks, I appreciate your comments even more, given the consistently high quality of your own blog.

  12. @anonymous (4:00)

    The only parts of my blog that my wife reads are the pictures/captions, so your in extremely good company :-)

    Most clubs claim that their budgets don't really include Champions League revenue, but I'm not sure that is true. My guess is that a club like Arsenal would make a reasonable assumption that they would reach the last 16. Anything beyond that would be a surplus.

    Some might argue that the Champions League is a super league in all but name. My own view is that all the time that clubs receive big money from the CL (and indeed the Premier League), they will happily avoid the aggravation of trying to set up a super league. However, if the money ever shows signs of drying up ...

    I guess my only caveat to that would be if some of the bigger clubs consistently failed to qualify for the CL, then they would have more incentive to form a super league with no relegation (and potentially salary caps), which would look a lot like the NFL.

  13. @anonymous (4:16),

    At some stage, I would like to take a closer look at World Cup financials, but it's a daunting prospect, as FIFA is not completely transparent with its figures. English clubs are easier to review, as I can always get hold of their accounts, which is essential for my research, as the figures quoted by newspapers are often misleading (or plain wrong).

  14. @hairbrush,

    Great handle! Sorry, could not resist :-)

    I agree that CL qualification for so many years in a row is indeed a notable achievement. Problem is that some Arsenal fans have become so used to this that they take it for granted now. As I often used to say in my day job, it's about managing expectations. Just look at the disproportionate response to Spurs finishing 4th, which I believe is still one place behind 3rd.

  15. @Darius,

    Thanks. Coming from the man behind the excellent Stone Cold Arsenal blog, that is praise indeed.

  16. Thanks TSR. Since there was some talk about seeding in the qualification games I looked this up,


    This was an article that talked about Arsenal's potential opponents in the qualifying round and it does talk of seeding and co-efficient. So I think Spuds might not face some of the top teams but it can still get tricky for them and I'm really hoping they get dumped at this stage.

    Not sure if the rules have changed again this season because the text you quoted certainly doesn't talk about this.

  17. @desigunner,

    I simply went to the Champions League Format section on the UEFA website:


    This does not mention anything about seeding and only refers to the coefficient rankings of the national associations (not the clubs).

    However, it would not surprise me if there are further regulations hidden away somewhere, so I'm not sure that this is the whole story.

    Nevertheless, I do think that Spurs will face a reasonably tough team in the qualifying round, unless they are very fortunate.

  18. Excellent analysis, as usual.

  19. man,not long ago came across ya blog and am always so impressed,at-least you have a niche--finances so i can always come here for this stuff! Excellently enough,u a a gunner like me,mwaaa!!!

  20. Swiss rambler said in the post May 12, 2010 9:31 AM: (Most clubs claim that their budgets don't really include Champions League revenue, but I'm not sure that is true. My guess is that a club like Arsenal would make a reasonable assumption that they would reach the last 16. Anything beyond that would be a surplus).

    I have read somewhere in the past that Man Utd assume in their accounts they will reach the group stage each year - anything beyond that is a bonus.


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