Friday, February 27, 2015

Arsenal - Half The World Away

Arsenal’s half-year results for the six months ended 30 November 2014

Profit before tax of £11.1 million, compared to a loss in 2013 of £2.2 million, an improvement of £13.3 million.

Profit after tax only improved by £7.3 million from £2.8 million to £10.1 million, as 2013 benefited from a tax credit of £5 million.

Profit before tax of £11.1m was almost entirely from the football business £10.8 million, as there was “minimal activity” from property development £0.3 million.

The main reasons for the £13 million improvement in profit are: £21 million more profit from player sales and £14 million higher commercial income, partially offset by £19 million higher expenses due to “significant” investment in the playing squad (wages £13 million, player amortisation £6 million).

Profit on player sales rose from £6 million to £27 million, mainly due to the sale of Thomas Vermaelen to Barcelona and the net proceeds of canceling the option to reacquire Carlos Vela.

Total revenue of £148.8 million (2013 £137.9 million) is split between football £148.5 million (2013 £136.0 million) and property development £0.3 million (2013 £2.0 million).

Football revenue rose 9% from £136 million to £149 million, split between match day £43m (2013 £45 million), broadcasting £53 million (2013 £52 million), commercial £52 million (2013 £38 million), player loans £0.3 million (2013 £0.5 million).

Commercial income grew by an impressive 36% or £14 million (following 39% in the prior period) from £38 million to £52 million, mainly due to the new kit partnership with PUMA, but also helped by good progress in secondary partnerships.

Match day income fell by 5% (or £2 million) from £45 million to £43 million, largely because the Brazil World Cup restricted the pre-season tour to a single overseas fixture against the New York Red Bulls.

Broadcasting income was largely unchanged at £53 million, as the Premier League TV deal is in the second year of a three-year deal, while the Champions League is in the final year of the current UEFA contracts. Assuming Arsenal qualify for next season’s Champions League, there should be growth arising from the more lucrative BT deal, while there will be significant growth from the new Premier League TV deal in 2016/17.

Although broadcasting remains the largest revenue stream with 36% (2013 38%) of total revenue, it is now only just ahead of commercial 35% (2013 28%), followed by match day 29% (2013 33%) – though it should be noted that match day revenue is weighted to the second half of the year.

There was significant investment of £93 million in the squad with the summer acquisitions of Calum Chambers, Mathieu Debuchy, David Ospina, Alexis Sanchez and Danny Welbeck. The total transfer expenditure for the year will be over £100 million once the purchase of Gabriel from Villarreal in the January transfer is included. This will have pushed up the wage bill, but the figure is not divulged in the half-year statement (it was £166 million for the 2013/14 season).

The November 2014 cash balance of £162 million is £18 million higher than the same month in 2013, though it is £46 million lower than the £208 million reported in the annual accounts. The May balance is invariably higher than the November figure, as it includes season ticket renewals.

Although the cash balance is still on an upward trend, two points should be noted: (a) the club has to maintain a debt service reserve of £23 million; (b) the amount Arsenal owe to other clubs for transfers has increased from £38 million to £83 million.

Note: Arsenal always exclude the debt service reserve in their announcement, so talk of cash reserves of £139 million (cash balance of £162 million less £23 million debt service reserve).

Gross debt has reduced by £6 million from £240 million to £234 million with net debt falling by £24 million from £97 million to £72 million, due to the £18 million increase in cash.

Arsenal had to pay £13 million to service the debt, which was around the same as the prior period. On an annual basis, the club paid £19 million in 2013/14.

Monday, February 23, 2015

The Premier League TV Deal - Master And Servant

Premier League chief executive Richard Scudamore is a man accustomed to dealing with large numbers, but even he struggled to believe just how much his negotiating team had secured in the latest auction for the rights to broadcast his “product” in the UK. The amount was an astonishing £5.136 billion for the three-year cycle starting in the 2016/17 season, which represented a 70% increase on the current £3 billion deal.

This was a lot more than most analysts had expected, especially given that the current domestic TV deal had itself increased by 70% compared to the previous agreement. The magnitude of the increase was a testament to Scudamore’s ability to generate vast sums of money for the 20 Premier League clubs, but we could have done without his false modesty: “Am I surprised? Of course, the little old Premier League, doing quite well here.”

It should be emphasised that this deal is only for the UK live rights. We need to add the highlights package for which the BBC has paid £204 million (up from the previous £180 million) to give total UK TV rights of £5.340 billion, which represents a 67% increase.

In addition, the overseas rights for the 2016-19 cycle will only be sold towards the end of the year. These are currently worth around £2.2 billion with most observers reckoning that there will be another healthy increase. I’ve gone with a reasonably conservative 30%, which is in line with the estimate from well-known media analyst Claire Enders. This would take the overseas rights deal up to £2.9 billion, which would mean a 52% increase in the total rights from £5.4 billion to £8.2 billion.

Others have assumed a higher increase in the overseas rights, which would give a potential total of £8.5 billion (or even as much as £9 billion), but Ed Woodward, Manchester United’s executive vice-chairman, cautioned that the overseas rights were unlikely to increase at the same rate as the UK rights, which benefited from some specific reasons: “A record number of companies requested tender documents and serious interest emerged from several companies.”

The potential new entrants included Eurosport, backed by new parent company Discovery, and the Qatari broadcaster BeIn Sports, but the UK rights were once again shared between Sky, who paid £4.176 billion (up a noteworthy 83% from £2.3 billion) and BT, who paid £960 million (up a more modest 30% from £738 million).

The nature of the bidding process, namely a blind auction, clearly helped drive the increase, resulting in (likely) total annual revenue of around £2.7 billion, nearly a billion higher than the current £1.8 billion. That would be split between: the guaranteed domestic £1.780 billion (up from £1.066 billion) and the assumed overseas £968 million (up from £744 million). To place this into context, the initial Premier League TV contract back in 1992 was worth the princely sum of £51 million a season.

The new UK deal has increased the cost per game by 56% from £6.5 million to £10.2 million – or an amazing £113,000 a minute. The percentage growth is a bit lower than the absolute cost, as this deal includes more games per season (up from 154 to 168). Sky in particular have had to shell out a lot more for their share of the rights with their cost per game rising 69% from £6.6 million to £11.0 million (for 126 games). In contrast, BT’s cost per game has only increased by 18% from £6.5 million to £7.6 million (for 42 games).

All this lovely TV money has significantly improved the revenue of the Premier League clubs. In the 2013/14 season, which was the first of the current three-year deal, Liverpool received the most (£98 million), while bottom placed Cardiff still pocketed a cool £62 million. Half of the UK deal is shared equally among the 20 Premier League clubs, while 25% is linked to where a club finishes in the league and the remaining 25% is based on the number of times the club is televised live. The overseas TV deal and central commercial revenue is distributed equally.

That’s none too shabby, but the projected figures for the new deal (from the 2016/17 season) are even more impressive. Based on the 67% growth in the UK rights and the assumed 30% growth in the overseas rights, the top club would receive £152 million (up £54 million), while the 20th placed club would get £92 million (up £30 million). The size of the Premier League TV deal also explains why some clubs appear not to take the FA Cup that seriously, as the winners only receive around £3.5 million (in total).

The Premier League has one of the fairest distribution models in Europe, but it is worth noting that the gap between top and bottom would increase from £36 million in 2013/14 to £60 million in 2016/17.

This all assumes that the redistribution methodology remains the same, which Scudamore would not guarantee, though he was “absolutely confident that the clubs will do the right and proportionate thing.” He’s almost certainly right – so long as the right thing involves allocating the lion’s share of the money to themselves.

The much larger TV money enjoyed by Premier League clubs compared to the majority of their European peers, allied with the relative equality of its distribution, is evidenced by the Deloitte Money League. Not only did the number of Premier League clubs in the top 20 increase from six to eight in the 2013/14 edition, but even more strikingly, the number of Premier League clubs in the top 30 compared with last year has risen from eight to 14 and all 20 Premier League clubs are now within the top 40 globally.

In this way, Aston Villa earn more revenue than Roma, while Southampton generate more than Benfica, which might seem crazy to traditionalists, but is the logical result of the massive influx of TV money into the English Premier League. The absolute giants, like Real Madrid, Barcelona and Bayern Munich, are likely to remain at the top of the financial pyramid, but the rest of the Money League will come to be dominated by English clubs.

Although TV deals in the other major European leagues have also been on the rise, their growth rate has been nothing like as fast as the Premier League. The projected deal for 2016/17 of £2.7 billion a season is almost as much as the combined revenue from the deals for Serie A, the Bundesliga, Ligue 1 and La Liga, which is worth around £2.9 billion. In fact, if we were to use the current Euro exchange rate of 1.35, then it would actually be higher.

The next highest TV deal is Serie A, which will be around £1 billion in 2017/18 (€1.2 billion), while the Bundesliga and Ligue 1 are both around £0.7 billion. Even though the Bundesliga will have doubled its TV rights in the 10 years since 2001, it is still only projecting €835 million for 2016/17 (including a forecast of €162 million for international rights). The latest Ligue 1 deal also shows a healthy increase: 20% in the domestic deal (from 2016/17) and 150% in the international deal (from 2018/19), but again is way behind the Premier League. The Spanish league is estimating €800 million, which equates to around £0.6 billion.

The rise in TV money should therefore increase the competitiveness of Premier League clubs relative to their foreign competitors, but Scudamore was also at pains to note that it would also raise competitiveness within the league itself, thanks in part to the most equitable distribution of TV revenue among the top five European leagues.

The ratio of revenue from first to last in the Premier League is 1.6, which is indeed lower than the other leagues. Only the Bundesliga comes close at 2.0 (Bayern Munich £30 million, Eintracht Braunschweig £15 million) with La Liga at the opposite end of the spectrum at 7.8 (Real Madrid and Barcelona £112 million, Almeria £14 million). The distribution is also much wider than the Premier League’s in Italy, which has a 5.3 ratio (Juventus £75 million, Sassuolo £14 million), and France 3.4 (Paris Saint-Germain £36 million, Ajaccio £10 million).

Another way of looking at this is that all Premier League clubs already receive more money from their domestic league TV deal than all but 5 other European Clubs: Real Madrid, Barcelona, Juventus, Inter and Milan. When the new Premier League deals starts in 2016/17, this list will reduce to just Real Madrid and Barcelona – and even that is in doubt following La Liga’s decision to move to collective bargaining, where the top club will only be allowed to receive 4 times more than the lowest club.

Some of the comparatives are really striking, e.g. Bayern Munich (£30 million), Atletico Madrid (£34 million) and Paris Saint-Germain (£36 million) all received a lot less for winning their respective leagues than Cardiff (£62 million) did for being relegated from the Premier League. As Scudamore put it, somewhat jarringly, but completely accurately, “Burnley are now, economically, bigger than Ajax.”

Given the equitable distribution of the Premier League TV money, the importance of qualifying for the Champions League is underlined. In the 2013/14 season this was worth an average of £32 million to the English clubs, but the size of the prize will significantly increase from the 2015/16 season with the new deal. UEFA advised the European Club Association that clubs could expect a 30% increase in revenue, but the uplift should be even higher for English clubs, as BT’s exclusive acquisition of UK rights is double the current arrangement with Sky.

Financially there is already a large gap between the Premier League and the Championship, where clubs currently receive around £4 million a season, comprising £1.9 million central distribution from the Football League deal plus a £2.3 million solidarity payment from the Premier League. Those clubs relegated from the Premier League receive a parachute payment, which was £24 million for year 1 in the 2013/14 season, in place of the solidarity payment.

This means that the majority of clubs in the Championship last season received a hefty £58 million less than the club that finished bottom in the Premier League. Those clubs receiving parachute payments had £22 million more than a “normal” Championship club, but still £36 million less than the lowest Premier League club.

From 2016/17 that gap is likely to become an abyss, despite the Football League announcing last week what they described as “a significant financial boost on two fronts” with an extension to the current broadcasting agreement with Sky Sports and a new (higher) mechanism being put in place for the solidarity agreement.

No financial details were divulged for the Football League TV deal. It was portrayed as “the most lucrative in The Football League’s history”, but it is only a one-year extension covering the 2018/19 season (with the League also having an option to further extend the arrangement into 2019/20). Given the deal before the current one was worth £2.5 million a season (i.e. higher than he current £1.9 million), let’s assume that the extension might be worth around £3 million.

The new approach to the solidarity payment is more interesting, as this has now effectively been formally linked to the size of the Premier League TV deal, being equivalent to 30% of a third-year parachute payment. Note: League 1 and League 2 clubs will respectively receive 4.5% and 3% of a third-year payment. Based on my assumptions, that would increase the annual solidarity payment to £6.5 million from the current £2.3 million.

That would imply that TV money for a Championship club would rise to £8-9 million, while a club with a year 1 parachute payment would receive a mighty £38 million. However, here’s the thing: the gap to the bottom Premier League club would still increase from £58 million to £84 million. Mind the gap, indeed.

Note that the 2016/17 parachute payment to relegated Premier League clubs of £36 million is an estimate, based on the current approach, whereby the amount distributed as parachute payments is linked to the size of the TV deal, specifically to the equal shares received by Premier League clubs for both the domestic and overseas deals: 55% in year 1, 45% in year 2 and 25% in each of years 3 and 4 (adding up to a total of 150%).

Last week’s Football League announcement noted that from 2016/17 parachute payments will be reduced from the current four seasons to three seasons. I have assumed that the total paid out will be the same in percentage terms (i.e. 150%) and I have also maintained the methodology that has higher payments in the early years. There is obviously a number of assumptions here, but the central point about the gap to the Premier League increasing is likely to remain valid.

It does feel like the Football League has to be grateful for any crumbs that they might be given from the top table. Granted, this is still a lot of money, but everything is relative. The risk is that clubs will continue to extend themselves either in pursuit of promotion to the Premier League or to stay in the top tier.

Indeed, most of the additional money from previous TV deal increases has simply been spent on higher player wages, transfer fees and agents (Alan Sugar’s famous “prune juice” effect). To illustrate that point, since 2007 the wages to turnover ratio in the Premier League has deteriorated from 63% to 71% as wages have grown at an even faster rate than revenue.

However, that may well not be the case this time round, as clubs now have to operate within Financial Fair Play (FFP) regulations. Most pertinently, the Premier League’s rules have specific clauses relating to TV money, so clubs whose player wage bill is more than £52 million will only be allowed to increase their wages by £4 million per season for the next three years. It should be noted that this restriction only applies to TV money, so any additional income from higher gate receipts, new sponsorship deals or profits from player sales can still be spent on wages, but TV is clearly the most important revenue stream for most Premier League clubs.

Interestingly, the current regulations run to the end of the 2016 season, so it is more than likely that the thresholds will be revised upwards in line with the new TV deal, though the principle of not “wasting” all of the increase on player wages will almost certainly still be followed.

"Perfect Blue"

There is still likely to be an inflationary impact on transfer fees, as even mid-tier Premier League clubs will be in a position to outbid most leading European clubs, especially as they will be effectively restrained by UEFA’s FFP rules. This effect will be exacerbated by the strengthening of Sterling against the Euro, which will also boost the purchasing power of English clubs. That said, they will be forced to pay a premium compared to continental clubs, as sellers will be acutely aware of their higher bank balances.

Scudamore noted that the additional money would help clubs attract the best available talent to the Premier League, “People want to see the top stars here”, but he slightly weakened his argument when he added, “Look at the excitement of transfer deadline day”, which could surely only be enjoyed by anyone with a somewhat bizarre appreciation of yellow clothing.

The hope is that clubs will use some of the TV windfall to reduce ticket prices, especially as the vast majority of Premier League clubs’ revenue now comes from TV. Even in 2012/13, which was before the 2013/14 increase in TV money, let alone the new 2016/17 deal, half of the clubs sourced more than 65% of their revenue from television – and it’s only getting more important.

If we take Stoke City as an illustration, 70% of their 2012/13 revenue came from television, rising to 77% in 2013/14 and an estimated 84% in 2016/17. Just let that statistic sink in for a moment: when the new TV deal starts, less than one-fifth of Stoke’s revenue will come from gate receipts and commercial income.

So what? Well, at the risk of sounding like John Lennon (“you can say I’m a dreamer”), as gate receipts become less important as a revenue stream, that might just increase the chance of lower ticket prices. As an example, the Football Supporters’ Federation calculated that just 3% of the increase from the latest deal would pay for their “Twenty’s Plenty” campaign, which is an attempt to cap away ticket prices at £20. At the very least, clubs should freeze the current price levels.

Regardless of the moral imperative, there are sound commercial reasons why lowering ticket prices might be good for business. It would make football more affordable for youngsters (or a future generation of customers) and it would protect the brand by not only filling stadiums, but also improving the atmosphere with less of the “prawn sandwich” brigade. This was acknowledged by Scudamore: “Clubs understand that the number one strategic priority is to keep the stadiums full. They also need to understand that young fans must be encouraged to attend games. The clubs will do the right thing.”

Let’s hope so, but I’ll not hold my breath. Immediately after the deal, we were treated to the standard, mealy-mouthed response from a football club executive, this time Manchester United’s Ed Woodward, “Our prices are fairly priced compared to the market.” From a supply and demand perspective, he’s obviously right, given that last season saw record average attendances of 36,696 and stadium occupancy of 95.9% in the Premier League, but this stance excludes great swathes of society that simply cannot afford to go to a match these days.

"Richard Scudamore - shake your money maker"

One risk is that all this additional wealth will simply provide a return on the investment made by owners, especially as so many of the clubs have been bought by overseas investors. For some, it is clearly a vanity project rather than a commercial enterprise, but others have arrived with a hard-headed business strategy.

Scudamore admitted that “reducing losses and making clubs more sustainable…. does make clubs more attractive to investors”, though he cautioned that “it’s a pretty risky investment unless you are purchasing a club that can pretty much guarantee its Premier League status.” What might be better for investors on a risk-reward basis is to acquire a Championship club for a relatively small investment, then push for promotion to the Premier League and its associated riches.

There will also inevitably be an impact on the prices paid by subscribers to Sky Sports and BT Sports, though it is unlikely to reflect the entire increase. As Scudamore said, “If you look at what happened last time, we delivered a 70% increase and in no way has that been passed along in anything like the direct proportions to the consumer.” Indeed, Sky promised that “the majority of the funding would come through substantial additional savings to be delivered by efficiency plans.”

This raises the question of why Sky paid so much for these rights. Even though the old saying would have it that “he who pays the piper calls the tune” (certainly accurate when it comes to the scheduling of many matches), it is equally true that Sky’s business model is very dependent on Premier League football, which has been the driver for their revenue growth. This is especially the case now that Sky have lost the Champions League rights to BT from the 2015/16 season, which incidentally also increased their war chest available for the Premier League rights.

"In the City"

They literally could not afford to also lose the Premier League rights, so put in blockbuster bids to ensure that this nightmare scenario did not happen, also winning the most popular packages in the process (Super Sunday, Monday Night Football, Saturday lunchtime and the new Friday Night “Lights”).

The need for high-quality content is imperative for their so-called “quad play”, i.e. TV, broadband, mobile and phone customers. As MLS commissioner, Don Garber, explained, “Content is king and sports content is the king of kings.”

What is surely undeniable is that more of the Premier League TV money should benefit the grassroots. As Clive Efford, the shadow sports minister, put it: “These are incredible sums of money and it would be nothing short of criminal if none of this extra money goes to expand participation at the grassroots of football.”

Scudamore has defended the Premier League against the accusation that they should do more: “We have a very good track record of investing some of this money in the wider interests in football and the community. Overall we give away on an annual basis about £270 million. It will be £800 million over the course of this deal.”

However, these figures have to be reviewed very closely. In previous years, the Premier League have made great play of the fact that they distribute 15% of their revenue externally, but the reality is that this includes parachute payments to the relegated clubs, which is hardly what most people mean by “grassroots”.

According to the Premier League’s Season Review for 2013/14, the external payments amounted to £285 million, split between £169 million parachute payments and £116 million external distributions, i.e. just 6% of revenue. Unfortunately, the season review no longer fully details the external payments, but the previous years highlight the minimal growth in most areas, e.g. the money given to the Football Foundation actually fell.

Since 2010 the Premier League’s revenue has grown by £878 million from £1.037 billion to £1.915 billion. The vast majority of this growth £732 million has gone to Premier League clubs with a further £106 million boosting parachute payments, leaving just £41 million for additional external payments.

Put another way, just 5% of the Premier League's revenue growth  has gone to external distributions. There should surely be a moral responsibility to give the grassroots a larger slice of the cake. Yes, the Premier League might pay out substantial sums in absolute terms (and more than other leagues), but it could and should do more, e.g. it could link all external payments to the size of the TV deal in the same way they have just done with solidarity payments.

"Thank you for sending me an Angel"

If the clubs do not agree on such action themselves (and it has to be said that their altruistic record to date is not overly encouraging, e.g. not even paying a living wage to all their employees), then it might be down to the government to get more involved and legislate a broader distribution of the money to benefit grassroots football, especially as the sheer size of the new deal will mean that the Premier League’s actions will be under more scrutiny than ever.

In fact, the Premier League’s domestic TV deal is the second largest in world sports with the £1.8 billion only bettered by the NFL (American Football) whose deal until 2022 is worth an annual £3.2 billion. However, the Premier League’s new deal has overtaken the NBA (basketball), whose nine-year deal from 2016/17 is worth £1.7 billion, and is nearly twice as much as the £1.0 billion earned by the MLB (baseball). That said, even Scudamore admitted that “it might be a very, very long time” before the Premier League surpasses the NFL.

All of this assumes that the Ofcom investigation into the Premier League’s collective selling of TV rights concludes that that it is not anti-competitive. This review follows a complaint by Virgin Media that the Premier League makes a lower proportion of live matches available to be broadcast in the UK than other rival European leagues. Theoretically, if Ofcom rule in favour of Virgin Media, then the TV rights auction may have to be re-run under different rules.

There is no doubt that this is a spectacular TV deal, which will provide immense benefit to the 20 Premier League clubs. However, it is difficult to fully accept Scudamore’s overly simplistic view of his organisation: “Things like the Premier League, the BBC and the Queen are things that people feel are good about the UK. Ultimately, we’re a success story.”

To a large extent, yes, but the overwhelming feeling is that the TV money largely allows the Premier League to lord it over everybody else, so that they can indulge in their own version of Depeche Mode’s “Master and Servant”, both in terms of overseas leagues and all other parts of domestic football – from the Championship down to the grassroots. Simply put, the colossal amount of money now pouring into England’s top flight from the TV companies should be more fairly distributed. Then, all football fans could be genuinely proud of the Premier League.

Monday, February 2, 2015

Bayern Munich - The Model

Following the treble winning season in 2012/13, Bayern Munich enjoyed another year of success in 2013/14, once again securing the domestic league and cup double, while reaching the Champions League semi-finals before going down to eventual winners Real Madrid.

The excellent season on the pitch was matched off it with revenue surging 13% to €487.5 million and profit before tax up to €25.9 million (€16.5 million after tax). Furthermore, all outstanding debt on the club’s Allianz stadium was paid off 15 years early. Little wonder that deputy chairman Jan-Christian Dreesen stated, “FC Bayern can present its members with financial results better than any the club has ever had before.”

Bayern’s profit before tax rose €3 million (15%) from €23 million to €26 million, as the €55 million growth in commercial income and €40 million increase in profits on player sales was largely offset by a €12 million increase in the wage bill and an €80 million rise in other expenses.

Note that these are the consolidated group accounts for FC Bayern München AG, which include the Allianz Arena München Stadion GmbH and all subsidiaries.

Of course, making money is nothing new to Bayern Munich, as this is the 22nd year in a row that they have been profitable. Traditionally, the club invests almost all of its profits into the squad or stadium development, but their profits have been steadily rising recently, averaging €14 million over the last three years (after tax).

That’s very impressive, though it should be noted that it is not unusual for German clubs to make profits. In fact, 13 out of 18 Bundesliga clubs posted positive figures in the 2013/14 season.

Bayern retained 3rd position in the Deloitte Money League for 2013/14 with €488 million, only behind Real Madrid €550 million and Manchester United €518 million. At this point, we should clarify that Bayern’s reported revenue of €529 million in the club statement also includes €41 million from player transfers, which is excluded for the Money League.

Although they overtook Barcelona €485 million, Bayern were in turn passed by Manchester United, partly due to Sterling strengthening against the Euro (1.1668 to 1.1958 in Deloitte’s calculations), but also because English clubs grew at a faster rate, due to the new Premier League TV deal. On the other hand, Bayern’s 13% revenue growth is much more than the Spanish giants: Real Madrid 6%, Barcelona 0%.

There are only two other German clubs in the Money League (Borussia Dortmund €262 million and Schalke 04 €214 million), but Bayern earn around twice as much as their nearest domestic challengers with €488 million.

Not only is the gap large, but it is getting larger. Since 2007, Bayern has grown its revenue by €265 million, while Dortmund’s growth was €172 million and Schalke €100 million. Bayern’s revenue superiority over the second highest club was €103 million in 2007, but has climbed to €226 million in 2014. Even worse, revenue at clubs like Hamburg, Werder Bremen and Stuttgart has essentially been flat over this period, leading to concern that Bayern’s financial dominance will be bad for competition in Germany.

To further illustrate this point, the revenue disparity between Bayern and Borussia Dortmund has never been higher at €226 million. This is a worthy comparison, despite Dortmund’s current poor form, as their closest challengers won the Bundesliga twice in recent years (2010/11 and 2011/12) and narrowly lost to their Bavarian rivals in an all-German Champions League final in 2012/13. Although the gap off the pitch had closed to “only” €172 million, it is now growing again.

Revenue grew by €56 million (13%) in 2013/14, almost entirely driven by commercial income, which rose €55 million (23%) to a mighty €292 million. Match day and broadcasting revenue each rose by around 1%.

Since 2009, Bayern’s revenue has grown €198 million (68%) from €290 million to €488 million with all three revenue streams showing good growth: commercial up €133 million (83%), broadcasting up €38 million (55%) and match day up €27 million (45%). Most notably, merchandising revenue has almost tripled in that period, rising from €37 million to €105 million.

The growth in commercial income to €292 million means that it now contributes 60% of Bayern’s revenue with broadcasting at 22% (€108 million) and match day 18% (€88 million). Only one other club in the Money League top 20 has commercial income contributing more than 50% of total revenue: that is Paris Saint-Germain, thanks to the French club’s innovative deal with the Qatar Tourism Authority.

Indeed PSG is the only club with higher commercial revenue than Bayern with €328 million, though Bayern are well ahead of clubs like Real Madrid €232 million and Manchester United €226 million. Although commercial deals are very important to all German clubs, Dortmund €124 million and Schalke €104 million earn 2-3 times less than Bayern.

Bayern’s incredible commercial revenue of €292 million is made up of: sponsoring and marketing €118 million, merchandising €105 million, Allianz Arena €49 million and other commercial activities €20 million. Bayern do have the advantage of being the most supported team in the largest commercial market in Europe, but that’s still some going.

They are also boosted by strategic partnerships with three major German companies (Adidas, Allianz and Audi), who all have an 8.33% stake in the club with the other 75% owned by the fans. Adidas has a long-standing relationship with Bayern, recently extending their kit deal for a further eight years until 2020 for a reported €25 million a season. Allianz have also extended their stadium naming rights deal for a further five years to 2041 at around €6 million a season, while Audi is a main sponsor and automotive partner.

In addition, Deutsche Telekom extended their shirt sponsorship deal in 2013/14 for four years, reportedly increasing the annual fee by €5 million to €30 million. Bayern has a raft of other big name sponsors, including Lufthansa, Coca-Cola and Samsung.

The Allianz Arena is another major money-spinner for Bayern. They initially shared ownership with TSV 1860 Munich, but have fully owned the venue since 2006, leasing it back to their former partners since then. Bayern benefits from all other activities staged at the Arena, including concerts and German national team matches.

Perhaps the most staggering figure is from merchandising sales, which rose €22 million (28%) in the last season alone to €105 million. This means that over a fifth of Bayern’s revenue is generated by shirt sales and the like. In fact, Bayern sold 1.3 million replica shirts in 2013/14, which was more than the total sales of all other Bundesliga clubs combined.

Where Bayern (and other German clubs) lose out is in broadcasting revenue, largely due to the Bundesliga TV rights, which lag behind the deals in England, Italy and Spain (at least for the big two). Bayern’s total broadcasting revenue of €108 million is not too bad, but it is only around half of Real Madrid’s €204 million – and is even behind Tottenham Hotspur’s €113 million, even though the North London club did not qualify for the Champions League.

Bayern’s accounts state that they received €47 million from the Bundesliga TV distribution, up €10 million from the previous season. This included €37 million for the TV rights, almost entirely from the domestic deal, plus other money from central partnership deals with the likes of Adidas.

The German TV distribution is based on a points system, whereby points are awarded for finishing places in the Bundesliga over the last five seasons, weighted towards the most recent seasons, e.g. for 2013/14 the points are distributed as follows: 2013/14 factor of 5; 2012/13 factor of 4; 2011/12 factor of 3; 2010/11 factor of 2; 2009/10 factor of 1. The calculated points are then used to determine which place the club has in the distribution table, but the actual distribution is fixed, so that the last placed club receives half of the top place (for the domestic deal) with payments spread evenly for the clubs in between.

To place the Bundesliga TV deal into context, Cardiff City, who finished last in the Premier League in 2013/14, received €74 million TV money, which is significantly more than Bayern’s €47 million.

The good news for German clubs is that the Bundesliga TV rights are increasing and are forecast to almost double in the 10 years from 2006/07, increasing from €424 million to €835 million. In particular, international rights are anticipated to grow from the current €70 million to €154 million in 2015/16 and €162 million in 2016/17, though this will still be significantly lower than the Premier League. It is also worth noting that these TV rights cover the two top German leagues, e.g. in 2013/14 the €560 million domestic deal is split between Bundesliga 1 €448 million and Bundesliga 2 €112 million.

The news is much better for Bayern in Europe, where they received €45 million for reaching the semi-finals in the Champions League, though this represented a €10 million reduction compared to the previous season, when they received €55 million as winners. This has been a lucrative revenue stream for Bayern in recent times, as they have averaged €44 million a season over the last five years – since the disappointing 2007/08 season when they earned less than €5 million for participating in the UEFA Cup.

Despite Germany’s reputation for low ticket prices, Bayern’s match day revenue of €88 million is the fifth largest in the world, as they enjoy average attendances of more than 71,000, though the four clubs ahead of them all generate more than €100 million: Manchester United €129 million, Arsenal €120 million, Barcelona €117 million and Real Madrid €114 million.

In fairness, the Bundesliga only has 18 clubs, so Bayern play two fewer home matches a season compared to the other major leagues. The average revenue per match of €3.5 million is substantially more than any other German team and compares favourably to other Money League clubs.

Bayern’s wage bill rose 6% (€12 million) from €203 million to €215 million in 2013/14, but the wages to turnover ratio fell to a very impressive 44%, the lowest for many years, following the significant revenue growth.

Again, it is interesting to contrast the wages growth with Dortmund. Over the last seven years, the gap has averaged almost exactly €100 million, with Bayern’s €215 million wage bill being twice as much as Dortmund’s €108 million last season.

Using the same exchange rate as Deloitte’s Money League, Bayern have the 6th highest wage bill in world football, a fair way behind Manchester United €257 million, Real Madrid (only football wages, i.e. excluding basketball) €250 million, Barcelona €248 million, Manchester City €245 million and Chelsea €230 million. Only Real Madrid (45%) have a wages to turnover ratio close to Bayern’s 44%.

Traditionally, Bayern Munich have been the big spenders in the German transfer market, often acquiring the strongest players from rivals, e.g. Manuel Neuer from Schalke and Mario Götze and Robert Lewandowski from Dortmund. Since 2002/03 they have splashed out more than half a billion Euros on bringing in players with a net spend of €335 million after player sales.

Even with net sales of €2 million in 2014/15, Bayern still brought in Mehdi Benatia from Roma €28 million, Xabi Alonso from Real Madrid €10 million and Juan Bernat from Valencia €10 million, though this was offset by the sales of Toni Kroos to Real Madrid €30 million and Mario Mandzukic to Atletico Madrid €22 million.

Despite this flat 2014/15 expenditure, Bayern’s net spend of €135 million over the last four years is still miles higher than other German teams. In the same period, all other Bundesliga clubs only spent a net €172 million. Basically, Bayern’s motto has been, “If you’ve got it, flaunt it.”

Although the football club has had no debt for a while, the group did have debt from the Allianz Arena company, which was used to finance the €346 million needed to build the stadium. This loan was taken out in 2005 with the original intention to pay it off over 25 years, i.e. by 2030, but the club have announced that they have actually already paid it off, more than 15 years ahead of schedule.

This has largely been thanks to equity injections from the club’s strategic partners, including €110 million most recently from Allianz, but it is still a notable achievement. Importantly, now that the stadium debt is repaid, it will give Bayern even more cash to spend on transfers. It is not entirely clear exactly how much more, but former president Uli Hoeness once claimed that they would have an additional €25 million budget each year once the debt had been cleared.

This is symptomatic of Bayern’s refusal to rest on their laurels, even though deputy chairman Dreesen stated, “there is no doubt that Bayern are at a stage they have never been before, both on a sporting level and financially.” Indeed, they are already planning to “go global”, particularly in America, where they have set up an office in New York, developed a US website and played a number of pre-season friendlies.

Although past performance is no guarantee of future success, it would appear that Bayern’s financial prospects are every bit as good as their previous achievements – and that’s saying something.
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