Atletico Madrid - It's A Mad World

Atlético Madrid ended last season in some style, just missing out on a Champions League place after surging up the La Liga table and then winning a terrific Europa League final 3-0 against Athletic Bilbao with two goals from their prolific Colombian forward Radamel Falcao, the man known as “El Tigre”. This was particularly impressive after their faltering start following the sale of many leading players last summer, including their South American strikers, Sergio Aguero to Manchester City and Diego Forlán to Inter.

This European success was the second time that Atlético had triumphed in Europe’s “second” competition in three seasons, as they also secured the trophy in 2010, when they dashed English hopes by beating Fulham (after overcoming Liverpool in the semi-final). That was Atlético’s first European silverware for nearly 50 years and their first trophy of any kind since 1996, when they memorably won the domestic double.

Although Atlético can legitimately claim to be Spain’s third biggest club historically, the fact remains that it is many years since they won most of their nine league titles (and nine Copa del Rey trophies), leading to their reputation as the great under-achievers, which is especially poignant for a club with such passionate, committed support. Their numerous fans have become accustomed to failure, not least compared to their illustrious neighbours Real Madrid, whom they have not defeated since 1999. Indeed, Atlético were actually relegated to the Segunda División in 2000, returning to the top flight two years later under the guidance of the legendary Luis Aragonés.

"Adrián López - one way or another"

As well as managing Atlético in four different spells, Aragonés was also a long-serving player, scoring the goal in the 1974 European Cup final against Bayern Munich that so nearly brought the trophy back to the Vicente Calderón before a last-minute equaliser forced a replay that the Germans won 4-0.

Fans will hope that the current manager Diego Simeone, also a much-loved former player, goes on to emulate Aragonés’ feats and rediscovers the club’s glory days. He certainly made a good start, coming in to replace the hapless Gregorio Manzano last December, and inspiring a recovery in the second half of the season. The football may not have been the most attractive to watch, but there is no doubting the results achieved.

He has established a solid base on which the club can build, always assuming that they can hang on to their key players, notably Falcao, but also including the likes of strike partner Adrián, Turkish international Arda Turan, the uncompromising Uruguayan defender Diego Godin, and Spaniards Gabi, Juanfran and Mario Suárez.

"Diego Simeone - when the going gets tough..."

That is by no means a given, as nobody can ever be sure of the direction that Atlético will take, due to their numerous issues off the pitch. A highly dysfunctional board has taken some bizarre decisions in the past, leading to some desperate financial problems. Indeed, it is arguable that one of the main drivers for Simeone’s appointment was the belief that his popularity with the fans would cause them to stop their protests against the club’s directors.

Atlético supporters certainly have much to complain about, as they have suffered from years of poor management (to say the least) ever since the infamous Jesús Gil became club president in 1987. A man for whom the description “colourful character” could have been invented, Gil was a controversial property magnate and politician, who ran the club in his own inimitable style. In his day job, he was given a five-year prison sentence for his company’s role in the collapse of a building that resulted in 58 deaths, though the dictator Franco later pardoned him.

He was also suspended by both UEFA (for calling a referee a homosexual) and the Spanish FA (for punching another club president), while he spent millions on bringing star names such as Paolo Futre to Atlético without much tangible return on the pitch. Even more scandalously, the courts found his consortium guilty of fraudulently acquiring Atlético Madrid during the club’s 1992 flotation, though they were rescued by a statute of limitations.

"There's only Juanfran"

Things have not improved since Gil’s death in 2004, with control now residing with his son, Miguel Ángel Gil Marín, who is the majority shareholder and chief executive, and Enrique Cerezo, the club president. The mutual antipathy between these two individuals is apparent at every turn with each taking decisions to deliberately contradict the other.

The club’s shambolic strategy is reflected in the vast number of managers that have been hired and fired during the Gil era. It is difficult to keep track of the exact number, but most estimates suggest that the club has gone through nearly 50 managers in this period, featuring names like César Luis Menotti, Javier Clemente and Ron Atkinson, including 16 since 1996, the year of their last domestic success. The lack of continuity is further emphasised by the confused activity in the transfer market with an average of 14 new players arriving each season.

There is a price to pay for being one of the worst run clubs in Europe, as evidenced by Atlético’s massive debts, which stood at a barely credible €514 million in June 2011, around €62 million higher than the previous year. Notable items included €215 million owed to tax authorities (net €167 million after deducting tax debtors), €77 million to financial institutions, €55 million for transfer fees and €52 million to staff. Importantly, much of this debt (€278 million) is short-term in nature, placing even more pressure on Atlético’s finances.

This is the third highest debt in La Liga, only surpassed by Real Madrid €590 million and Barcelona €578 million, though both those clubs enjoy significantly higher revenue. This can be seen by looking at debt coverage, i.e. how much of the total debt is covered by annual revenue, which is around 80% in the case of the two Spanish giants, but a feeble 19% for Atlético.

Debt is a generic problem for Spanish football clubs, but the comments from José María Gay de Liébana, a specialist in football finance from the University of Barcelona, seem particularly pertinent for Atlético: “Football is a mirror of the general economy in Spain. For years we have been spending beyond our means, getting deeper and deeper into debt.”

Of course, the most worrying aspect of Atlético’s indebtedness is the vast amount owed to the taxman, which AS newspaper estimated towards the end of last year as €155 million, lower than the figure in the club accounts after the proceeds from the Aguero sale went straight to the tax authorities to reduce the debt. Even after this payment, Atlético’s tax debt is substantially higher than the rest of La Liga with Barcelona the next highest at €48 million and accounts for more than a third of the total owed by La Liga clubs – and their accounts for the last four years have still not been signed-off by the tax authorities.

This unhappy, some might say immoral, state of affairs has not escaped the attention of Uli Hoeness, Bayern Munich’s inimitable club president, who boomed, “This is unthinkable. We pay them hundreds of millions to get them out the shit and then the clubs don’t pay their debts.”

Like many other Spanish clubs, Atlético have agreed a repayment schedule with the tax authorities. It had been mistakenly believed that the agreement was to pay the taxman half of any revenue received from player sales, but the club has to actually pay €15 million every September, regardless of any transfer activity, which helps explain the annual summer outgoings.

Even this arrangement may come under pressure after recent comments from the European Commission, which has suggested that delayed tax payments might represent a form of improper state aid. Indeed, in April the Spanish government and football league (LFP) agreed new rules for clubs to settle tax debts, including clubs being obliged to set aside 35% of TV revenue as a guarantee against tax debts from the 2014/15 season and maybe even being forced to sell players to raise funds. Ultimately, clubs could even be barred from competitions.

Gil Marin provided a spirited defence of Atlético’s position, “This arrangement has been going on for years. Other teams have bank debt, we have tax debt.” He continued, “It can’t be seen as an advantage to pay 5% interest and meet all payment deadlines. It would only be an advantage if they gave us a discount or we didn’t pay any interest.”

"Gabi says"

At first glance, Atlético’s balance sheet does not look too bad with €31 million of net assets, but if you poke around a little under the bonnet, a few problems emerge. First, the club has negative working capital of €113 million, meaning that it could face severe liquidity issues, unless it can reach agreement with its principal creditors. This was recognised by director Fernando García Abásolo last year, “The club is not bankrupt, but it no longer has the room to increase the debt because it could reach a situation where there is a lack of liquidity, and that could lead to bankruptcy.”

The club states that this is due to their investments in players in order to secure European qualification and is a “situation common to the vast majority of football clubs.” While it is true that few clubs are shining examples of financial probity, not many are in such a bad position as Atlético, even though the directors have given their commitment to cover any cash shortfalls that may arise in future (as they have done in the past).

Furthermore, the balance sheet is inflated by €240 million of debtors that relate to the new stadium project, whereby Atlético’s sale of the land around the Calderón will fund the development. The accounting for this is complex and fairly opaque, so much so that the auditors make no fewer than four “exception” comments about these transactions, though they did ultimately sign-off the accounts.

"Diego Godin - please don't go"

There have been a couple of incidents of late payments reported recently which may be indicative of some wider issues. First, Diego the midfielder on loan from Wolfsburg last season filed a claim for unpaid wages. Although the amount he claimed was relatively small, the €52 million of debt owed to staff represents 81% of the annual wage bill of €64 million, which is far from trivial.

Similarly, Marca have written that Atlético are behind in their payment schedule to Porto for Falcao’s transfer. This cost €40 million (plus €7 million in incentives) and included €18 million to be paid in two annual instalments of €9 million with the newspaper claiming that only €6.5 million had been paid this year, which could lead to Atlético being reported to FIFA (and a potential transfer ban).

So how did Atlético find themselves in such an awful financial predicament?

Obviously the lack of sporting success has not helped, e.g. Gil Marin revealed that €46 million of the tax debt arose from their time in the second division, when they stopped paying tax, while a further €50 million was charged following tax reviews, largely due to profits booked for property sales.

However, much of the debt is down to rank poor management, in particular some highly questionable purchases in the transfer market, where they splashed out €165 million (net) in the seven years up to 2008/09, even after selling the fans’ idol Fernando Torres to Liverpool for €38 million in 2007. Since those heady days, the cold wind of reality has blown through the club’s corridors, as they have generated net sales proceeds of €21 million in the last four years.

Last season they received an incredible €88 million from selling players, largely Aguero €45 million, David De Gea (to Manchester United) €20 million, Elias (to Sporting Lisbon) €8.8 million and Forlán €5 million. However, they were still spending with Falcao representing one of the most expensive purchases of the summer, though half of this was funded by a an investment fund with super agent Jorge Mendes playing a key role (as he did with a couple of other buys: Elias and Silvio).

So far this summer the club has been even more frugal with the only outlay being the €1 million paid to Getafe for Cata Diaz with the other arrivals coming in on a free transfer, including Emre from Fenerbahce. On the other hand, there have already been two big money sales with Argentine midfielder Eduardo Salvio moving to Benfica for €11 million and promising young midfielder Álvaro Domínguez joining Borussia Mönchengladbach for €7 million. This new austere approach is also evidenced by greater use of the loan system with the aforementioned Diego and Belgian goalkeeper Thibaut Courtois from Chelsea.

It is also highlighted by looking at the net transfer spend of the leading La Liga clubs in the last four years, where the only club spending less (i.e. selling more) than Atlético was Valencia, also beset with debt problems. In stark contrast to Atlético’s net sales of €21 million, Barcelona’s net spend was €160 million, while Real Madrid indulged themselves to the extent of a hefty €285 million.

Looking at the profit and loss account, it is not surprising that Atlético have not been so active in the transfer market, as they have reported losses in each of the past three seasons, including €6 million in 2010/11 on revenue of almost exactly €100 million. That said, on paper the losses do not look overly dramatic with the largest being €10.8 million in 2008/09 and just €75,000 in 2009/10. Furthermore, small profits were made in the preceding three seasons.

However, the impact of tax credits has been significant with €5.9 million in 2010/11 and €17.7 million in 2008/09. Excluding these, the club’s pre-tax losses become much larger, e.g. €11.8 million in 2010/11 and a sizeable €28.4 million two years earlier.

But, I hear you cry, Atlético did at least break even on a pre-tax basis in 2009/10, which is absolutely true, but there is another way of looking at this, namely that in their most successful season for ages, when they qualified for the Champions League and won the Europa League (after parachuting in), they still could not make any money.

Nevertheless, compared to some of the gigantic losses at other clubs, these bottom line figures are not that terrible, though they do disguise some worrying points.

Interest payments on the debt weighs heavily on the accounts, rising from €8.2 net payable in 2009/10 to €30.4 million in 2010/11, comprising €10.3 million received from investments and €40.6 million on debts to third parties. In fact, Atlético have had to pay a very high €68 million net interest in the last five years. To place that into context, only Valencia have had to pay a similar amount, while Barcelona (€52 million) and Real Madrid (€24 million) have paid much less, despite their larger debt levels.

However, the most important point to appreciate about Atlético’s losses is that they would be much higher without the inclusion of substantial asset sales, both in terms of players and property. The former was demonstrated last season with net profits on player sales of €38 million (€43 million profits less €5 million losses). Excluding this (and other unexplained exceptional losses of €5 million), the reported pre-tax loss of €12 million would have been a far more unhealthy €45 million.

In the same way, the accounts for many years have included huge profits on property sales (€46 million in 2005/06, €58 million in 2007/08 and €10 million in 2008/09). These are not fully explained, but the point is clear, namely that Atlético’s underlying losses are very large, adding up to a deeply concerning €229 million in the last six seasons, averaging nearly €40 million a season. The figure would have been even worse without the relatively small “real” loss of €4 million in 2009/10, which highlights the importance of European success to Atlético’s business model, assuming that they do not want to sell their best players each season.

With no European qualification, Atlético clearly make large losses at an operating level, amounting to €156 million over the last six years. The one year where they made money was unsurprisingly 2009/10 with  €4.1 million operating profit, though this included €29.6 million of revenue from Europe. Excluding this windfall, there would once again have been a large operating loss of €25.5 million.

The slightly encouraging news is that the club has made cash profits for the last three seasons, with EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) reaching €10.4 million in 2010/11, even with relatively small European revenue of €4.4 million. This is mainly due to operating expenses being kept under control, especially wages, which actually fell €3 million in the last two years.

That said, the great investor (and third richest man in the world) Warren Buffett once cautioned, “References to EBITDA make us shudder. It makes sense only if you think that capital expenditure is funded by the tooth fairy.” As we have seen, this is particularly relevant to Atlético with their large debt leading to high interest charges.

In fairness to Atlético, very few Spanish clubs are doing well financially. According to a study by the University of Barcelona, only eight of the 20 clubs in La Liga are profitable – and just one of these reported a profit higher than €5 million with Real Madrid powering to a €47 million profit. Although Barcelona made a €12 million loss in 2010/11, they have since announced record profits of €49 million for 2011/12. While the two Spanish giants gorge themselves, the other teams are starving. As Professor Gay said, “Everyone is concentrated on Madrid and Barca, who are then kings of the banquet, while the rest live an uncertain future.”

That dominance is easily seen by considering revenue of the La Liga clubs. In 2010/11 Atlético generated €100 million, which placed them fourth highest in Spain, €20 million below Valencia, the difference being entirely due to Champions League money. In fact, Atlético are one of only four clubs in La Liga that earn more than €100 million revenue, with the remaining clubs considerably behind them with the next highest being Sevilla €83 million, Villarreal €59 million and Athletic Bilbao €58 million.

That’s not too bad, you might think, until you look at the enormous amounts earned by Real Madrid (€479 million) and Barcelona (€451 million). In other words, they earn at least €350 million more a season – every season. That’s not exactly a fair fight: it’s as if Atlético have brought a knife, while the top two are armed with a gun (and a bloody big one at that). And just to twist that knife a little more, Barcelona recently announced record revenue for 2011/12 of €476 million.

The dispiriting thing is that Atlético’s revenue is actually good enough to put them in 23rd position in Deloitte’s European Money League, just €15 million behind Napoli, who gave such a good account of themselves in last season’s Champion League. However, in this era of stratospheric TV deals and commercial money-spinners, having reasonably good revenue is no longer sufficient, as a select few are now out of sight.

This trend can be clearly seen by looking at the revenue growth of some of Spain’s leading clubs in the last three years. Atlético’s performance is far from shabby, as they have grown their revenue by 27% (or €21 million), which is better than all their peers. Only Valencia have come close with €16 million growth in that time, while Athletic Bilbao’s revenue has been flat, and it has actually declined at Sevilla and Villarreal.

Great stuff, but then take a look at Barcelona and Real Madrid, who have increased their revenue by €142 million and €113 million respectively. In short, the gap between the aristocracy and the “commoners” is already colossal – and it’s getting wider every year. The chances of Atlético (or Valencia, Athletic, Sevilla or anyone else) mounting a sustained challenge in Spain are virtually zero, unless one of the big two somehow collapses.

Like most other clubs, Atlético’s revenue growth has been largely dependent on television, rising from €18 million in 2006 to €41 million in 2011 on the back of larger domestic deals. That actually represents a €21 million reduction from the €62 million registered in 2010, which was boosted by European success. If match day revenue is also included, revenue from European competitions fell €25 million between 2010 and 2011, which exactly matches the club’s decrease in total revenue from €125 million to €100 million.

Broadcasting is now worth 41% of Atlético’s revenue and accounted for an even larger proportion (50%) when Champions League money was received. In fairness to Atlético, they have also managed to grow their other revenue streams with match day income rising €13 million (79%) from €17 million to €30 million since 2006 and commercial revenue increasing by €10 million (54%) from €19 million to €29 million in the same period.

Despite increases in television revenue in 2011/12, Atlético’s €46 million is still a fraction of the €140 million that Real Madrid and Barcelona each receive, even though it is the fourth highest in the league, just behind Valencia’s €48 million and well ahead of Sevilla’s €31 million. Unlike all the other major European leagues which employ a form of collective selling, Spanish clubs uniquely market their broadcast rights on an individual basis, so Real Madrid and Barcelona on their own receive over 40% of the total TV money in La Liga or 11 times as much as the €13 million given to the bottom club.

This produces the most uneven playing field in Europe and compares unfavourably to the 1.5 multiple in the Premier League between first and last clubs. Looked at another way, Atlético, who finished fifth in the Spanish league, received less money than Wolves, the team that finished bottom of the Premier League. As Espanyol’s sporting director, Ramon Planes, said, “The Liga is abandoning its status as a top level tournament, because of the huge difference in economic revenues.”

This is why the majority of La Liga clubs have been pushing for a more equitable distribution of income from television rights, including Atlético, whose president Gil Marin commented, “We want a league that is solvent and competitive. To achieve that, it is fundamental that the gap in budgets and revenues is narrowed and there is a fairer distribution of TV rights. Only in that way can a more just, more competitive and more attractive league be achieved.”

The current approach of “every man for himself” really only benefits the big two and undermines the overall potential of La Liga, as noted by Professor Gay, who suggested that “clubs never think about how to maximise their collective worth.” This is a valid point, given that La Liga’s TV rights revenue of €0.6 billion is a long way behind the Premier League’s current €1.4 billion (rising to an estimated €2.2 billion in 2014). In fact, they have now been overtaken by the Bundesliga (€0.7 billion) and Serie A, whose return to a collective deal helped grow TV rights to just under €1 billion.

As well as more revenue, this might also help clubs like Atlético plan for the future with more certainty, as noted by Gil Marin, “Because there is no ordered model for exploiting TV rights, the clubs have to wait until just before the championship begins to see if the broadcasters can agree. The uncertainty means it’s impossible to set out any social, sporting, commercial or economic strategy for the club.” Indeed, the clubs could get caught in the crossfire of the latest disagreement between pay-TV operator Prisa and the Mediapro agency.

Atlético’s television revenue for 2010/11 included just €2.9 million from the Europa League, which was a sizeable decrease on the €21.4 million received the previous season from Europe (Champions League €15.1 million plus Europa League €6.4 million). This will rise again to €10.5 million in 2011/12 following the Europa League victory, though is still much less than the money received by Barcelona (€40.6 million) and Real Madrid (€38.4 million) in the Champions League – and indeed less than the other Spanish representatives: Valencia €18.8 million, Villarreal €13.9 million.

This underlines the importance of qualifying for Europe’s flagship tournament, especially as prize money will increase from next season.

Atlético are the third best-supported club in Spain with an average attendance last season of 43,000, only behind Barcelona 75,800 and Real Madrid 74,600. In fact, that fabulous support base has been very loyal over the years with attendances surpassing 42,000 even in the two years in the second division.

In 2010/11 this produced match day revenue of €30 million, better than eight of the top 20 clubs in Deloitte’s Money League. That’s not bad at all, but (stop me if you’ve heard this one before) pales into insignificance compared to Real Madrid’s €124 million and Barcelona’s €111 million (both around four times as much). On the other hand, 13 La Liga clubs earn less than €10 million match day income, so Atlético cannot complain too loudly about unfair competition – it works both ways.

It would be difficult to raise ticket prices, given the dire straits of the Spanish economy, including a very high unemployment rate, especially among the country’s youth, but the club hopes for “ a significant increase in income” when they move to a new stadium that should bring “a new future for Atlético Madrid.” Although it will hurt to leave a stadium so steeped in history as the Vicente Calderón, taking away some of the club’s unique identity, a new multi-purpose stadium with more executive boxes and commercial areas should indeed increase revenue, though this has not been quantified.

The stadium capacity should rise from the current 55,000 to 67,500 in a site that was designated as part of Madrid’s unsuccessful 2016 Olympics bid on the other side of the town. Atlético’s website states that it will cost around €200 million to build, which has already been paid by the sale of land around the Calderón to the brewers Mahou for development. At one stage, it looked like Atlético would make a large profit on this project, but it now seems like they will essentially just cover their costs.

Discussions on this project started in 2007, but final planning permission was only received in late 2011 for a project involving new road access (and the burial of the M-30). Although club president Enrique Cerezo suggested last year that the new stadium would be ready for the 2014/15 season, it now looks like 2015/16 may be a more realistic deadline.

Naming rights have been mentioned, but it is fair to say that most Spanish clubs are struggling commercially. It is the same old story here with the big two once again dominating. Atlético’s commercial revenue of €29 million is actually the best of the rest, but is at least €125 million less than Real Madrid and Barcelona. In fact, Real Madrid’s €172 million is about the same as all the other La Liga clubs combined (except Barcelona).

It’s not going to get any better in the short-term for Atlético, as they lost their main shirt sponsor Kia, who had been paying €7 million a season, at the end of 2010/11. At the time, President Cerezo claimed, “our jersey is worth between 5 and 8 million euros”, but no permanent replacement has been found, though Kyocera still sponsor the back of the shirt. Instead, Atlético have been forced to adopt a piecemeal approach, e.g. last season there were deals with Colombia Pictures whereby a different film was promoted each week; and Rixos Hotels for eight of the last nine games. Now Huawei Telecomms, having sponsored last season’s derby, will be sponsors for the first three games of this season.

While Barcelona have secured a €30 million contract with the Qatar Foundation and Real Madrid receive €20+ million from Bwin, almost half of the clubs in La Liga started last season without a shirt sponsor, including Valencia, Sevilla and Villarreal. Indeed, excluding the big two, the total shirt sponsorship in the Spanish top tier only amounts to around €10 million. As club director García Abásolo said, “There are sponsors who prefer to be the third of Madrid or Barca (rather) than the first of another club.”

To their credit, Atlético have done well in controlling the wage bill, as can be seen by the important wages to turnover ratio falling from 90% in 2006 to 64% in 2011 (and as low as 49% in 2010). In this period, revenue rose €46 million (86%), while wages only grew by €16 million (32%).

Their wage bill of €64 million is still the third highest in Spain, just ahead of Valencia €61 million and Sevilla €57 million. The revenue theme is thus repeated in costs, as Atlético are once again only lower than the big two, but significantly lower, with Barcelona spending €241 million and Real Madrid €216 million.

It should be noted that Atlético’s wage bill grew €3 million in 2011, despite the €25 million drop in revenue, so there is still work to do in this area. They could start by looking at the salary of Gil Marin, which has averaged €1.2 million a year for the last three years, even though club statutes prohibit such payments if the club makes losses.

Whatever. The critical point here is that the big two have (understandably) used their growing wealth to spend even more on their players, a vicious circle that kills off any hope of domestic competition. In the last four years, the wage bills at most Spanish clubs have hardly grown at all, while those at Barcelona and Real Madrid have surged (by €86 million and €49 million respectively). In this way, the gap between Atlético and Barcelona has expanded from €102 million in 2007 to €177 million in 2011, a veritable abyss.

The other major player cost is amortisation, i.e. the annual cost of writing-down a player’s transfer fee, which has fallen by €15 million from the peak of €38 million in 2009 to €23 million in 2007, as a result of the slowdown in the transfer market. In future, this will increase as a result of purchases like Falcao, but will also fall if there was any amortisation remaining on players that have departed, so the net effect is likely to be fairly small.

Another headache for Atlético is the implementation of UEFA’s Financial Fair Play rules that force clubs to live within their means if they wish to compete in Europe. Allowable losses are an aggregate €45 million for the first two years (then three years), but this falls to only €5 million if they are not covered by the owners, which might be an issue for Atlético.

As we have seen, FFP could be problematic, as Atlético’s 2010/11 loss excluding player sales and other exceptional items was €45 million. What this effectively means is that Atlético can only hope to meet the break-even target by either selling players or qualifying for the Champions League – though that task should not be beyond them, given Villarreal’s relegation and Malaga’s internal strife.

It should be noted that the costs of building the new stadium would be excluded from the FFP calculation, so that will not be an issue. Similarly, any expenses attributed to youth development are also excluded, so this should be an area of focus, certainly more than in the past, when Jesús Gil once actually closed the academy, resulting in Raúl moving to Real Madrid, where he proceeded to score over 200 goals. Although things have improved since then with the likes of De Gea and Alvaro Dominguez coming through (and being sold for large fees), there is still room for improvement.

Atlético’s financial future is also inextricably linked to how Spanish football fares in general – and the picture does not look good. Paradoxically, while results on the pitch have never been better for the Spanish national team and their clubs in Europe (five of the eight semi-finalists in Europe last season came from La Liga), most clubs are struggling off the pitch. In fact, a quarter of the clubs in the top division are in bankruptcy protection, while the beginning of last season was delayed by a players’ strike over unpaid wages and there were threats of similar this season, this time over TV rights and schedules.

Spanish football is tolling under the burden of debt, which has reached €3.5 billion for the 20 clubs in La Liga, more than double the annual revenue of €1.7 billion. That said, this is not a new issue with debt being about the same level for the last four years, a sign that football remains a remarkably resilient industry.

However, there is no room for complacency and the Spanish Football League (LFP) has now taken action. Up until recently, it was unable to impose any meaningful sanctions on financial miscreants, but a new law came into force in January 2012 that now permits the authorities to relegate a club in administration – though whether they have the stomach for a confrontation with a major club’s supporters is debatable.

"Turan - the Arda they come"

Although Atlético Madrid are a good club with great fans, their financial disadvantages (even after attempts to put their house in order), compounded by an almost unparalleled ability to shoot themselves in the foot, mean that they are unlikely to break the duopoly at the top of La Liga in the near future.

However, they have a realistic chance of qualifying for the Champions League this season, which would go a long way to help resolve their money issues – just so long as the tax authorities (and other debtors) remain patient and don’t call in their debts.

Paris Saint-Germain - Dream Into Action

So, barring any problems with a medical, Zlatan Ibrahimovic will today sign for Paris-Saint Germain. Many in the football world have been shocked by PSG’s audacious €65 million swoop for the Milan duo of Ibrahimovic and Thiago Silva, but it really should come as no surprise given the club’s massive transfer outlay ever since it was purchased by Qatar Sports Investments (QSI) last summer.

In much the same way as Manchester City did when they signed Robinho after their Abu Dhabi takeover, PSG immediately made a resounding statement of intent when they shattered the French transfer record with the €42 million purchase of Argentine playmaker Javier Pastore from Palermo. They also scooped up the cream of French football, buying Ligue 1 leading scorer Kevin Gameiro and powerful midfielder Blaise Matuidi, while raiding Serie A for Jérémy Menez (from Roma), Mohamed Sissoko (Juventus) and Salvatore Sirigu (Palermo), and securing the services of the Uruguayan captain Diego Lugano (Fenerbahce).

The spending did not stop there, as new manager Carlo Ancelotti brought in experience in the January transfer window in the shape of Thiago Motta (from Inter), Maxwell (Barcelona) and Alex (Chelsea). This summer, as well as Ibra and Silva, PSG have to date also splashed out €26 million for Napoli’s forward Ezequiel Lavezzi and €12 million for Pescara’s technically gifted young star Marco Verratti. There’s also talk that Kaká might join the French revolution.

QSI, an investment arm of Qatar’s sovereign wealth fund owned by the ruling Al Thani family, bought 70% of PSG from American investment company Colony Capital in May last year, before acquiring the remaining 30% in March in a transaction that placed a €100 million value on the entire club. Right away, they installed Nasser Al-Khelaifi as club president, banking on his sports experience from his role as director of the TV channel Al Jazeera Sports and president of the Qatar Tennis Federation.

"We'll meet again"

Al-Khelaifi spoke of his hopes for this sleeping giant, “It’s a big club with a history and super fans.” Indeed, PSG is only behind Marseille in terms of popularity in France. The year before, their potential had been underlined by no less a person than Arsène Wenger, “PSG is the only club in the world which is based in an area of 10 million inhabitants and doesn’t have any competition (from a rival club).” With spooky prescience, he added, “What needs to be done is to get a group of investors around the table to provide the club with some financial muscle.”

However, there is little doubt that they have been under-achievers since they were founded in 1970 after the merger of Paris FC and Stade Saint-Germain. In fact, they have not won the Ligue 1 title for 18 years, though in fairness they do hold the record for the longest current spell in the competitive French top flight without being relegated.

To an extent, QSI’s investment is nothing new under the sun for PSG. With obvious parallels to the current situation, they were bought in 1991 by TV channel Canal+, who proceeded to invest substantial sums in attracting players of the calibre of David Ginola, George Weah and Rai to Paris, leading to a glorious few years, when they reached a Champions League semi-final, two UEFA Cup semi-finals and two Cup Winners’ Cup finals, winning one of them in 1996 against Rapid Vienna and losing the other in 1997 to Barcelona.

"Ménez - Jérémy spoke in class today"

However, the club ran up huge losses and built up substantial debts, leading to the 2006 sale to Colony Capital (plus minority shareholders Butler Capital Partners, a French investment company, and Morgan Stanley, an American investment bank). On the plus side, this consortium wiped out the club’s debts, but against that they appeared more interested in the property development opportunities at the Parc des Princes stadium and the training centre at Camp des Loges. The supporters’ dissatisfaction with their approach was summed up by a banner unfurled at the ground a couple of years ago: “Colony: a great PSG or get lost.”

Those fans are unlikely to be disgruntled with the ambition shown by QSI, who have promised to spend €100 million a year for the next five or six years in order to build a strong team, before slowing down the investment. Although Al-Khelaifi claimed that this level of expenditure was “normal for a top-ranking club”, only Manchester City have really done anything similar for such an extended period.

The idea is “to invest a lot and immediately” with the objective of joining Europe’s elite. Al-Khelaifi emphasised the European aspirations, “Obviously everyone dreams of winning the league, but our priority right from next season is the Champions League.” As part of their five-year strategy, they hope to compete in the Champions League on a regular basis and be in a position to win the trophy in three years.

"Ancelotti - Hands off, he's mine"

Although PSG’s official statement on the QSI takeover included the usual, bland remarks about looking “to take the club to the next level”, Carlo Ancelotti was in no doubt about the new owners’ targets, “The aim of the club is very clear. They want to build a team to win in the Champions League, not just in France.”

Last season, PSG finished second in Ligue 1, which was enough to qualify them for the Champions League, though it must have been something of a disappointment for QSI, given last summer’s spending spree. Indeed, when PSG were leading the title race before Christmas, Al-Khelaifi said, “Given the league table at present, if PSG are not champions of France at the end of the season, it will be a failure.”

It must have been particularly galling that they lost out to Montpellier, a club whose entire annual budget of €33 million is less than the amount PSG paid for one player (Pastore). It would be small comfort to know that the French league is one of the most unpredictable around, having five different champions in the last five seasons.

Moreover, the club had sacked the unfortunate Antoine Kombouaré to make way for Ancelotti, despite the club stalwart guiding PSG to the top of the table, though his expensive team had just crashed out of the Europa League. The feeling was that Ancelotti was the right man to take the club forward, having won two Champions Leagues and Serie A with Milan plus the Premier League with Chelsea. In addition, his reputation would help PSG attract the calibre of player required to make that big jump in quality, though the high salaries on offer might also help and Paris is not exactly a hardship posting.

Off the pitch, there will be plenty of changes too, as PSG will rack up enormous losses. In fairness, the club has consistently lost money in the past few years, though these will pale into insignificance compared to what is about to hit their books.

In the last published accounts for the 2010/11 season, before the impact of the QSI takeover is considered, they made a tiny loss of €201,000, though this was heavily influenced by exceptional financial items of €27.9 million. These are not explained, though are probably due to movements in provisions, which was the case in 2009/10.

Excluding this adjustment, PSG’s loss would have been €28.1 million, even higher than the €21.9 million the previous season, which was the second highest in Ligue 1. The 2010/11 operating loss was essentially due to €130 million of expenses, including €70 million of wages, being far higher than the €101 million of revenue. Profit on player sales and interest payable were negligible.

In the previous five years, PSG’s loss averaged over €14 million a season, while the cumulative losses since 1998 add up to a colossal €300 million. In those 13 years, PSG have not once reported a profit.

In terms of Ligue 1 profitability, PSG were mid-table in 2010/11, but if the exceptional items were ignored, their underlying loss was about the same as Lyon’s €28 million, which was the worst in the league. This was a repeat of the previous season when Lyon (€35 million) and PSG (€22 million) also reported the largest losses.

The only other club that reported a double-digit loss in 2010/11 was Marseille with €15 million, while half of the 20 clubs were profitable. In fact, the total Ligue 1 losses of €46 million were much improved from the previous season’s €114 million, despite a 3% fall in revenue, as expenses were cut and profits from player trading increased – partly due to PSG’s purchases.

That’s all very well, but it will be a whole new ball game under QSI. The club had originally estimated a loss of €40 million for 2011/12, but this has been revised upwards to €100 million following the signing of new players, the hiring of new staff including Ancelotti and Kombouaré’s pay-off.

The plan for next season assumes a deficit of €70 million, based on €130 million revenue and €200 million expenses, comprising €120 million wages (60%), €40 million player amortisation (20%) and €40 million other expenses (€20 million). This is the first time that any French club’s budget has gone above €150 million and would mean combined losses over the next two years of €170 million, though even that may be under-estimated.

This is not a problem for the Direction Nationale du Contrôle de Gestion (DNCG), the organisation responsible for monitoring and overseeing the accounts of professional football clubs in France. In contrast to UEFA’s Financial Fair Play (FFP) regulations, they allow owners to dig into their pockets to cover shortfalls with their own funds and they are satisfied with the bank guarantees provided by PSG’s directors.

The DNCG president, Richard Olivier, explained their view, “The more famous players there are in L1, the more spectators there will be. The Qatari are great. They’re putting in €200 million and with them we can hope to gain the fourth place in UEFA’s coefficients. They’re filling the stadiums and bring money directly and indirectly.”

"Lavezzi - heading to Paris"

Of course, it’s a very different story with UEFA’s FFP, which will ultimately exclude from European competitions (Champions League and Europa League) those clubs that fail to live within their means, i.e. break even. In particular, clubs will not be allowed to make up for losses via handouts from the owners. The first season that UEFA will start monitoring clubs’ financials is 2013/14, but this will take into account losses made in the two preceding years, namely 2011/12 and 2012/13.

They don’t need to be absolutely perfect, as wealthy owners will be allowed to absorb aggregate losses (“acceptable deviations”) of €45 million, initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount).

In addition, UEFA’s break-even analysis allows clubs to exclude “good” costs, such as depreciation on fixed assets and expenditure on youth development and community, while the first year can deduct wages of players signed before June 2010.

That’s a help, but PSG’s projected losses of €170 million are clearly far higher than the €45 million allowance, so it looks like they will have to rely on one of UEFA’s get-out clauses, namely that an improving trend in the annual break-even results “will be viewed… favourably” (Annex XI). In this way, they might manage to avoid the ultimate sanction of being thrown out of the Champions League.

Indeed, while UEFA’s president Michel Platini has said that he is not a fan of clubs that “buy players left, right and centre”, Andrea Traverso, his head of licensing, has been more circumspect, “Before we apply any penalties, we will look at a club’s financial situation in its entirety.”

Nevertheless, Al-Khelaifi is well aware of this issue and has said that it is QSI’s long-term plan to make PSG into a profitable club, “In five years we want to make money.” The idea is to invest massively in new players in the first few years in order to boost the sporting and commercial potential of the club, so that it is self-sufficient by the time that FFP really begins to bite.

The impact of QSI’s arrival on the club’s activity in the transfer market has been dramatic. In the decade before the takeover, PSG’s net spend was just €27 million, but has been a remarkable €199 million since then. The director of football (and former PSG player), Leonardo, has said, “We want to do something long term and not buy ten Messis straight away. That’s not how you build a team”, but he added that the club was “obliged” to spend big sums if it wanted to compete at the highest level.

Evidently, they are following the playbook used by Chelsea and Manchester City, who spent massively in the first two seasons following the arrival of wealthy benefactors. Ancelotti has argued, “We don’t just want to spend for the sake of it”, though others might beg to differ, as the initial policy of buying proven domestic performers seems to have gone by the wayside in favour of international superstars.

This should lead to a significant competitive imbalance in France, as PSG have spent significantly more than the rest of Ligue 1 put together. The “closest” contenders to PSG’s €199 million net transfer spend since the QSI takeover are Rennes and Marseille, with just €16 million and €11 million respectively.

Not only that, but in that period PSG are the biggest spenders in Europe, ahead of Abramovich’s Chelsea (€127 million) and a rejuvenated Juventus (€117 million). No other club has spent more than €100 million in this period. Traditional powerhouses like Bayern Munich and Manchester United have been left in the shade, while the nouveaux riches clubs like Manchester City, Anzi Makhachkala and Malaga are also in PSG’s slipstream.

Up until the last accounts, PSG did a reasonably good job controlling their wage bill with their 2010/11 wages to turnover ratio of 69% being just within UEFA’s recommended upper limit of 70%. In the last five years, wages have grown in line with revenue, as both have risen around €20 million since 2006.

In fact, PSG only had the third highest wage bill in France of €70 million in 2010/11, a long way behind Marseille (€101 million) and Lyon (€100 million), though more than twice as much as Montpellier (€29 million), who went on to become champions the next season.

The gap to the leading European clubs was even more striking before the QSI takeover. The Spanish giants, Barcelona (€241 million) and Real Madrid (€216 million), had wage bills more than three times as much as PSG, while even the notoriously parsimonious Arsenal (€149 million) paid out twice as much. As an example of the impact of major squad investment, Manchester City’s wage bill has doubled in two years to €209 million.

These huge discrepancies help explain why PSG need to spend if they have any chance of breaking into this select group, though this will be even more of a challenge, given the high tax rates in France, which means they have to pay a higher gross salary than their competitors in other countries to ensure that the net salary is at the same level.

This is reflected in the salaries paid to the new recruits, which are as high as €4 million a year, according to a summary published by the Sportune website (based on figures collected from Le Parisien and France Football) for the 2011/12 season. On top of that, Ancelotti is reportedly receiving €6 million a year, an unprecedented figure for a coach in France. The list adds up to €65 million, but that excludes other players, coaching staff, administration staff, social security and bonus payments, so the total wage bill was actually much higher.

Although reported figures for transfer fees and player salaries are notoriously inaccurate, we can still make a reasonable estimate of the increase in costs arising from the new signings since the 2010/11 accounts.

First of all, we need to understand how football clubs account for transfer fees. Instead of expensing these completely in the year of purchase, players are treated as assets, whereby their value is written-off evenly over the length of their contract via player amortisation. As an example, Kevin Gameiro was bought for €11 million on a four-year contract, so the annual amortisation is €2.75 million (€11 million divided by four years).

In this way, the cost of buying players (in accounting terms) is spread over a number of years, but the table above suggests that the incremental amortisation is about €53 million. Additional wages amount to €78 million, including €25 million for Ibrahimovic (gross cost for €14 million net salary), plus social contributions of a further €20 million, so the total increase in costs should be around €151 million. That enormous figure excludes bonus payments, so the actual rise will be even higher.

It also does not take into consideration the super tax proposed by incoming Socialist president, François Hollande, whereby all income above €1 million would be taxed at 75%, a huge jump from the current 41%. There is some doubt over whether that would apply to footballers, but if it did come into force, it would significantly increase the gross costs to a football club when a player’s contract has been agreed on a net basis. In this case, a French tax expert calculated that the total cost of Ibrahimovic’s mega contract to the club, including social security, would be an unbelievable €70 million.

"Come on, Alex, you can do it"

Obviously, some players have left PSG since 2010/11, including Ludovic Giuly, Gregory Coupet and Claude Makélélé (though he has remained at the club as assistant manager), but the impact on wages would be relatively small.

Clearly, there are other costs besides salaries and player amortisation, but these are by far the most important for a football club, so even with the caveats outlined above, the calculated €151 million increase should give us a good idea of the financial challenge facing PSG. If we add that to the underlying 2010/11 loss of €28 million, we get to a projected loss of €179 million for PSG in 2012/13, which is a lot higher than the club’s budgeted loss of €70 million for that season. The only way that could be reduced is by growing revenue; so let’s explore the possibilities there.

QSI’s plans involve growing revenue from the current €101 million to €130 million in 2012/13 and then to €250 million in 2014/15 – a substantial increase by anybody’s standards. They have a four-pronged strategy to turn PSG into a leading global brand: (a) sporting success – reflected in higher TV revenues from Ligue 1 and the Champions League; (b) gate receipts – higher crowds paying higher ticket prices; (c) sponsors – a significant increase in the amounts paid by each sponsor; (d) merchandising – shirt sales off the back of superstars like Pastore and Ibrahimovic.

PSG’s current revenue of €101 million is the third highest in France, though it is a fair way behind Marseille (€151 million) and Lyon (€133 million). On the other hand, it is significantly higher than Lille, the fourth placed club, whose revenue is €34 million lower. It is again striking that the 2011/12 champions Montpellier had revenue of just €37 million.

Interestingly, PSG has the lowest reliance on TV with that category accounting for 44% of the club’s total revenue, though that is partly due to the lack of Champions League. Against that, they had the highest proportion from match day (18%) and second highest from commercial (38%), only behind Monaco.

Although PSG are not mentioned in Deloitte’s annual money league, their revenue would place them 22 nd in the list, just behind Benfica, and about the same level as Aston Villa. Their stated target of €250 million would give them the same revenue level as Arsenal and Chelsea, taking them into the top five, which demonstrates the extent of their ambition – or, alternatively, how difficult it will be to achieve this goal.

The last season that PSG’s revenue grew substantially was 2008/09, when it rose €28 million from €73 million to €101 million, which was because of two main reasons: (a) success on the pitch – higher league place and progress in the UEFA Cup, which resulted in higher TV revenue (aided by a slightly higher new French TV deal) and gate receipts; (b) different accounting for Nike merchandising – previously the club had only reported net royalties, but from 2009 they included gross revenue (around €8 million) with a similar increase in expenses.

Excluding those factors, annual revenue between 2006 and 2010 averaged around €80 million, though 2011 climbed to €101 million, largely due to television revenue, arising from Europa League participation and a higher position in Ligue 1.

The distribution model for French TV money is relatively equitable with 50% allocated as an equal share, while the remainder is distributed based on league performance 30% (25% for the current season, 5% for the last five seasons) and the number of times a team is broadcast 20% (over the last five seasons). This resulted in €43 million for PSG in 2011/12, €4 million higher than 2010/11, essentially due to finishing higher in the league.

There had been concern that the new four-year TV deal starting in 2012/13 would be considerably lower than the current deal, as one of the existing broadcasters, Orange, decided to withdraw from the bidding process, leaving Canal+ as the only game in town. However, Al Jazeera, whose director is the very same Al-Khelaifi that is president of PSG, helpfully stepped into the breach to take some of the packages, while strengthening their position in French football.

Although this has prevented a financial calamity for many French clubs, who are very reliant on TV money, it should be noted that the annual €610 million from the new deal is still lower than the current €668 million, though their president considered this to be “more than satisfactory in the current economic climate.” That said, Al Jazeera also picked up international rights for six years for €192 million, which works out to €32 million a year, nearly 70% higher than the current €19 million – though that is surely still a bargain, given the stars that are being attracted to PSG.

This is in stark contrast to the Premier League, where the new three-year domestic deal has increased by an amazing 70% to €1.3 billion a year, while the overseas rights are currently worth €0.8 billion a year (and likely to increase). The new French deal means that PSG’s revenue growth possibilities here are extremely limited for the next four years, leaving their TV revenue much lower than their competitors abroad.

If we compare PSG’s TV revenue for Ligue 1 of €43 million with the top two clubs in other major leagues, we can see the problem. Real Madrid and Barcelona earn nearly €100 million more a season from their lucrative individual deals, while the Italian clubs generate around twice as much even after their return to a collective deal. The two Manchester clubs receive €30 million more a year, while even the club finishing bottom in last season’s Premier League, Wolverhampton Wanderers, got €6 million more than PSG with €49 million.

Where PSG could grow their revenue is regular participation in the Champions League. Last season the three French clubs earned an average of €22 million (Marseille €27 million, Lille €20 million and Lyon €19 million), compared to PSG’s paltry €2.4 million from the Europa League. The amount earned is partly due to performance and partly an allocation from the TV pool, where half is based on progress in the current season’s Champions League and half on the previous season’s Ligue 1 finishing place (first club 50%, second 35%, third 15%).

Handily for PSG (and other French clubs), the amount paid to screen the Champions League in France has doubled for the three years from 2012/13, largely thanks to the intervention of (yes, you guessed it) Al Jazeera, who paid €180 million for that majority of the rights with Canal+ picking up the rest. This should mean that TV pool money will double from next season, so PSG can expect to collect around €28 million (and more if they progress beyond the group stage).

There is also plenty of room for growth in match day income. Although PSG’s €18 million is not too bad for France, it is miles behind Europe’s finest, e.g. Real Madrid, Manchester United, Barcelona and Arsenal all generate more than €100 million. PSG will be looking at many ways to (partially) close the gap: boost attendances, raise ticket prices and a better revenue mix (i.e. more premium customers, executive boxes, etc).

The new administration has already made much progress in attracting more crowds, with the average attendance rising an impressive 50% last season from 29,300 to 43,000 and many games being sold out. Admittedly, the previous season had seen a large decline from 35,100 due to former president Robin Leproux’s anti-hooliganism crackdown, following a number of incidents culminating in a death of a PSG supporter. This move towards a “broad family-based audience” initially saw a reduction in the number of attendees, but has now paid off, though the crowd is more gentrified these days. QSI’s ambitious target is to increase the number of season tickets to 40,000 from the current level of around 20,000.

At the same time, PSG will look to increase ticket prices (20% for the 2012/13 season), even though an analysis of the 2010/11 figures suggests that they are already the highest in France. There is a limit to how much the average fan is willing to pay, even when the football on offer is improving, so it will be imperative for PSG to find clever ways to maximise revenue from their premium customers. This can contribute a disproportionate amount of revenue, e.g. Arsenal make 35% of their match day revenue from just 9,000 premium seats at the Emirates stadium.

PSG currently play in the 48,000 capacity Parc des Princes, owned by the council, though they will have to play two seasons (2013/14 and 2014/15) at the nearby 81,000 Stade de France, as their current stadium needs to be renovated for Euro 2016. Although the local authorities have stated that PSG will return to the Parc des Princes for the long-term, there is a belief that PSG would prefer to build a new stadium, maybe on the same site, in a bid to emulate the revenue success of clubs like Bayern Munich and Arsenal, though that would be a longer-term project.

If PSG are going to have any chance of reaching their €250 million revenue target by 2014/15, they are going to have to get most of it from commercial activities. Although their current revenue of €38 million is again pretty good for a French club, it is a lot lower than Europe’s leading clubs with Bayern Munich (€178 million) and Real Madrid (€172 million) earning nearly five times as much as PSG.

They have hired Jean-Claude Blanc, former club president at Juventus, as chief operating officer in order to boost commercial revenue. As a first step, they have terminated the ten-year contract with sports marketing agency Sportfive, so that they can handle negotiations in-house. The strategy will essentially be to have fewer partners, who will pay more.

Long-term shirt sponsor Emirates pays €3.5 million a year in a deal extended to 2014, while Nike reportedly pays €6 million a season. PSG will look to increase each of these to €15-20 million per annum when they are up for renewal, which would be in line with the money earned by the big hitters, e.g. Manchester United receive €25 million from Aon’s shirt sponsorship and €32 million from Nike’s kit supplier deal.

In a sign of things to come, PSG dropped Winamax, as they do not pay enough, while they have signed up Qatar National Bank, who are reportedly paying €2-3 million a season just for a branding presence in the stadium. Some have speculated that his may be paving the way to them becoming main shirt sponsors, as their two-year deal ends at the same time as the Emirates’ contract finishes

Merchandising revenue should also significantly grow, particularly from shirt sales following the influx of top talent. Indeed, Al-Khelaifi said that shirt sales increased by 180% last year. That said, the amount of money earned per shirt is relatively small, so they will have to sell an awful lot to make a meaningful difference on their revenue. According to Nike and Adidas, the top selling clubs are Real Madrid and Manchester United – and even they “only” sell 1.2-1.5 million shirts a year.

Amusingly, the club’s commercial income actually includes a public subsidy. Although this has been cut from €2.3 million in 2008 to €1.25 million in 2012, many are unhappy that mega-rich PSG should continue to benefit from this funding.

"Gameiro - we need to talk about Kevin"

One possibility for PSG would be a mega sponsorship deal, similar to the one Manchester City signed with Etihad for a reported €50 million a year, which included stadium naming rights (even though City do not actually own their stadium). Here, PSG would have to be careful not to fall foul of UEFA’s FFP regulations, which specifically outlaw outrageous deals from “related parties”, so if QSI paid €100 million a season for a super-VIP executive box, this would be adjusted down to “fair value”.

PSG are also likely to make more money from player sales (only €2 million in 2010/11), as they will have to move on players that have lost their place following the new arrivals with candidates including the likes of Mamadou Sakho, Nenê and Clément Chantôme.

Now that we have reviewed PSG’s revenues and costs in detail, we can try to project PSG’s loss for 2012/13. Bearing in mind all the usual health warnings about forecasts never being 100% accurate, this should give us an indication of whether they are close to their target.

Taking the negligible 2010/11 loss as a starting point, we make an adjustment to remove the exceptional financial items, giving a “real” loss of €28 million. As calculated above, the new signings increase costs by €151 million for wages (including social security) and player amortisation.  This would be offset by some departures, though given the relatively low salaries paid before the takeover, this would be a small amount, say a €10 million reduction. We should include a nominal €10 million for additional bonus payments, though this might be on the low side.

For revenue, let’s make a few extravagant assumptions. First, PSG will win Ligue 1, so their revenue will rise to €46 million, which is €7 million more than they received in 2010/11. They will also reach the quarter-finals of the Champions League, as Marseille did last year, so will receive €38 million (after the increase in TV rights), which is €34 million more than the €4 million they received from the Europa League in 2010/11.

Following the growth in attendances and higher ticket prices plus more attractive Champions League matches, we’ll go for a gutsy 100% increase in match day revenue, producing an additional €18 million. Similarly, we’ll assume a 50% increase in commercial income, worth an extra €19 million. In the long-term, PSG should earn considerably more here, but they are constrained in the short-term by existing contracts. For good measure, we’ll assume that they can make €10 million more profit on player sales.

"A whole Motta love"

All of that gives us a projected loss of €92 million, which is not too far away from PSG’s budgeted €70 million, but this estimate does include some fairly aggressive assumptions regarding revenue growth. In any case, it is clear that PSG will have to be very persuasive in their FFP discussions with UEFA about how their “project” will ultimately deliver more revenue and help them towards the elusive break-even point.

They would do well to emphasise their investment in PSG’s academy with so much of France’s football talent coming from the Paris area. Historically, this has been under-exploited by PSG, but there have been encouraging signs at both under-19 and under-17 level in recent seasons.

Of course, QSI’s acquisition of PSG is part of a broader strategy for Qatar to use the riches accrued from their vast reserves of natural gas to gain more influence on the global stage. Sport is the ultimate instrument for gaining “soft” power, especially football clubs. Thus, another Qatari investor has bought the Spanish club Malaga, while the Qatar Foundation paid a hefty €170 million to be Barcelona’s first ever shirt sponsor.

"Sirigu - back of the net"

There are also strong trading links between France and Qatar, so it was not exactly out of the ordinary for former president Nicolas Sarkozy to host a dinner with a member of the ruling Al Thani family, nor to invite Michel Platini, given the Qatari’s interest in sport, but the aftermath was positive for all involved, as Platini surprisingly voted for Qatar to host the 2022 World Cup, while PSG secured their much needed investment. Sarkozy, a well-known PSG fan, was described by French newspaper Libération as “the Qatari team’s 12th man”. Incidentally, Platini’s son now works for QSI.

PSG’s plans are very bold, as confirmed by Ancelotti, “I know PSG are not yet at the top level, but our objective is to reach the level of Chelsea, Manchester United, Barcelona and Real Madrid.” There is no doubt that PSG have become what Milan president Silvio Berlusconi described as “ a strong economic force”, but that is not a guarantee of immediate success. As an example, QSI need look no further than Manchester City, who took four years to win the Premier League following their Abu Dhabi takeover.

On a cautionary note, we should remember the old comment from opposing fans that PSG stands for Pas Sûr de Gagner. The club can indeed not be sure of winning, not least financially where it has little room for error in the FFP era, but, if nothing else, this will certainly be an exciting ride with the new signings bringing some much needed glamour to French football.