Juventus - From A Whisper To A Scream

By anybody’s standards Juventus enjoyed a highly successful 2014/15 season. Not only did they capture the domestic league and cup double, winning the Serie A title for the fourth year in a row, but they also shone in Europe. There was a reminder of past glories as they eliminated Real Madrid and Borussia Dortmund on the way to reaching the Champions League final, where they only succumbed to mighty Barcelona after a closely fought encounter.

These achievements represented something of a triumph for the Juventus board and especially Andrea Agnelli, who had been appointed President in May 2010 after a disappointing season when the club only finished seventh, thus failing to qualify for the lucrative Champions League.

This necessitated what Agnelli described as “a complete overhaul of the team”, leading to a colossal financial loss of €95 million in 2011, but since those dark days Juventus have transformed themselves both on and off the pitch. Importantly, they have not lost sight of their “sporting performance on the field of play”, while improving their “financial performance in terms of revenue raising and cost containment.”

"French without tears"

These “two parallel and synergistic fronts” have become a recurring theme for Agnelli, who has emphasised the club’s dual goal of “achieving financial sustainability” while maintaining a “competitive edge in sport”.

The progress in the club’s finances was clearly demonstrated in the 2013/14 figures, the last published annual accounts, which Agnelli said “mark a turning point in the recent history of Juventus”, as the club delivered a small pre-tax profit of €0.1 million, compared to a €10.9 million loss the previous season, on record revenue of €280 million.

There was still a post-tax loss of €6.7 million, due to the impact of IRAP, a somewhat unique Italian tax that effectively penalises companies with high personnel costs, as these cannot be deducted for the purpose of this tax. Nevertheless, the loss after tax still improved by €9.2 million from the 2012/13 comparative of €15.9 million.

This improvement was largely driven by profit from player sales, which increased by €27 million to €35 million, mainly arising from Ciro Immobile to Torino, Simone Zaza and Luca Marrone to Sassuolo and Emanuele Giaccherini to Sunderland. Revenue also grew by €6 million (2%), despite a €15 million reduction in money from the Champions League, as commercial income surged €17 million (24%) and ticket sales increased by €3 million (9%).

This was partially offset by the wage bill rising by €21 million (13%) to €184 million. Although player amortisation increased by €3 million to €51 million, this was compensated by player write-downs being lower by an equivalent amount. Net interest payable was €1.6 million higher at €8.7 million, comprising €3.1 million financial income and €11.8 million financial expenses. The tax charge was also up €1.8 million to €6.8 million.

A €7 million loss might not seem a great deal to write home about, but few Italian clubs make money. According to the published accounts, only nine of the 20 clubs in Serie A were profitable in 2013/14.

Even that statistic is overly generous, as many clubs benefited from significant exceptional items, e.g. Inter’s accounts included €139 million for a one-off extraordinary gain relating to the valuation of the Inter brand. Similar gains, largely related to brand valuations, were included by Genoa €27 million, Verona €16 million and Cagliari €12 million.

If such “income” were to be excluded, then only six Serie A clubs would have reported profits in 2013/14 with the most profitable clubs being Napoli €20 million and Lazio €7 million. Juventus’ €7 million loss placed them in mid-table, while the largest effective losses were made by Inter €106 million, Roma €39 million and Genoa €27 million.

The fact is that Juventus have been steadily reducing their losses since the enormous €94 million deficit registered in the 2010/11 season (before tax). Agnelli called this “an intolerable loss”, but he noted that this was “a season for sowing seeds which we hope to harvest soon.” He has been true to his word, as the losses have been cut each year, first to €46 million in 2011/12, then to €11 million in 2012/13 and finally to break-even in 2013/14.

As the club stated in the 2013/14 annual report, there has been a “trend of marked improvement in economic performance”, but the club has still had to absorb a total of more than €150 million of losses in the three years before returning to the black.

Of course, the 2013/14 figures did benefit from high profits on player sales of €35.3 million, made up of €35.4 million gains (plusvalenze) less €0.1 million losses (minusvalenze), which was the most that Juventus had made from this activity since the €38.5 million recorded in 2007.

In fairness, the annus horribilis in 2010/11 was adversely impacted by a couple of special charges, namely an €11.7 million restructuring provision and a €7.4 million legal settlement. It is not uncommon for new executives to book all such costs in their first year, as the blame for clearing up a financial mess can be attributed to the previous management. This allows them to demonstrate improvements in the following years, e.g. the 2011/12 accounts included a write-back of the valuation of the Juventus Library, which reduced the loss by €14.5 million.

The importance of profits from player sales in Italy can be seen with Napoli, whose €68 million gain, largely from selling Edison Cavani to Paris Saint-Germain, was the major factor in them being the most profitable club in Serie A in 2013/14. The only other clubs to earn more from player sales than Juventus were Roma €52 million (largely Marquinhos to PSG and Erik Lamela to Tottenham Hotspur) and Parma €44 million (mainly Ishak Belfodil and Lorenzo Crisetig, both co-ownership deals with Inter).

The other side of the player trading coin is player purchases, which are reflected in a football club’s accounts through player amortisation. This has been steadily increasing from €22 million in 2007 to €51 million in 2014, reflecting Juventus’ significant investment in overhauling the squad.

As a reminder, player amortisation represents the annual cost of expensing player purchases. To clarify this point, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract – even if the entire fee is paid upfront. As an example, Stephan Lichtsteiner was bought from Lazio for €10 million on a four-year deal, so the annual amortisation in the accounts for him was €2.5 million.

Another element of player trading is when the club writes down the value of a player in the accounts, e.g. in 2012713 Felipe Melo’s value was reduced by €3.2 million. The largest such charge in recent times was the €12 million included in (you guessed it) the hefty 2010/11 loss.

Juventus’ €51 million player amortisation was the third highest in Serie A in 2013/14, only behind Inter €67 million and Napoli €59 million. The slowdown in transfer activity at the other habitual big spender Milan is evidenced by their relatively low player amortisation of €41 million.

A good way of looking at a club’s underlying business model excluding player trading is EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which has turned positive in the last two years. The negative EBITDA in the previous two years was adversely impacted by the club’s failure to qualify for the Champions League.

Very few Italian clubs achieve a sizeable positive EBITDA, so Juventus’ achievement in generating €34 million is not bad at all, only surpassed by Napoli’s €36 million. However, to put this into context, Manchester United’s EBITDA of €182 million was over five times as much, which is a huge difference.

Juventus’ revenue rose €6 million (2%) from €274 million to €280 million in 2013/14, largely due to a €17 million (24%) increase in commercial income to €85 million, though ticketing revenue was also up €3 million (9%) to €41 million. On the other hand, broadcasting revenue fell €13 million (8%) to €153 million with Champions League receipts down €15 million to €50 million, though domestic TV money was up €3 million to €101 million. Player loans were €1.4 million lower at €1 million.

Revenue has grown by around two-thirds since the first season back in the top flight in 2007/08, rising by €112 million. The growth has been fairly evenly distributed, coming from broadcasting €47 million (up 44%), commercial €37 million (up 76%) and ticket sales €28 million (up 228%).

The importance of Champions League qualification is obvious, especially in 2012/13 when this drove €72 million of the revenue growth: €65 million from TV prize money and €7 million from more matches played. Domestic TV rights income has grown in the past few seasons, but the money earned under the collective selling system has still not matched the Mediaset contract that Juventus had up till 2010. The consequent revenue reduction in 2010/11 was compensated the following season by the additional €20 million from the new stadium.

Juventus’ annual revenue of €280 million is by far the highest in Italy, some €33 million ahead of Milan’s €247 million. Only three other clubs generate more than €100 million and they are a long way behind: both Napoli €167 million and Inter €156 million are more than €100 million below Juventus; while Roma’s €130 million is less than half of Juve’s total.

It is worth noting here the differences between how revenue is reported in Italy and other European countries. The European definition used by Deloitte in their annual Money League excludes player loans, gate receipts given to visiting clubs and increases in asset values. In this way, Juventus’ revenue is considered to be €280 million in Italy, but €279 million by Deloitte.

There is no doubt that Juventus are now the kings of the castle in revenue terms in Italy, but this has not always been the case. Indeed, their feat in growing revenue is underlined by looking at the relative performance against other Italian clubs. Back in 2007 Milan and Inter both earned substantially more than Juventus, but the bianconeri have shot ahead, overtaking the two Milan clubs in 2013.

Since 2007 Juventus’ revenue virtually doubled, increasing by €138 million. In the same period, Milan’s revenue only increased by €21 million (9%), while Inter and Roma actually saw their revenue fall, by €13 million (7%) and €18 million (12%) respectively. The only team to experience comparable growth to Juventus was Napoli with €128 million, but that was from a very low base.

Juventus have the 10th highest revenue in the world with €279 million, according to the Deloitte Money League, which sounds fantastic until you appreciate the magnitude of the difference with the elite clubs’ revenue, e.g. Real Madrid have almost twice as much with €550 million, while four clubs receive around €200 million more: Manchester United €518 million, Bayern Munich €488 million, Barcelona €485 million and Paris Saint-Germain €474 million.

Although Juventus’ €138 million revenue growth since 2007 is seriously impressive, it still pales into significance compared to the growth of the “big boys” in the same period, all of whom increased their revenue by circa €200 million or more: Bayern Munich €264 million, Manchester United €203 million, Real Madrid €199 million and Barcelona €195 million. Then there’s the oil fueled advances of PSG €397 million and Manchester City €330 million.

"Shout to the top"

The situation is in reality even worse than that, as the English clubs’ growth has been held back by the lower Euro exchange rate used in the 2014 Money League of 1.20 compared to 1.49 in 2007. If we were to use the current rate of around 1.40, then Chelsea’s 2014 revenue would be up to €454 million, implying a growth since 2007 of €171 million.

Unsurprisingly, this revenue disparity is the focus of Agnelli’s attention: “the economic fundamentals of our international competitors have made us face a clear reality: our gap with the best European clubs is still large and must be reduced if we intend to aspire to results in line with our international history.”

The President was in a more feisty mood after the Champions League final, “A €315 million turnover (note: including player sales) at the end of 2013/14 enables us to go toe to toe with the biggest European sides on the pitch”, but the truth is that Juventus need to further improve their financials to remain consistently competitive.

If we compare the revenue of the nine clubs above Juventus in the Money League, we can immediately see where the problem is, namely commercial income. OK, the €243 million shortfall against PSG is largely due to the French club’s “friendly” agreement with the Qatar Tourist Authority, but there are still major gaps to other clubs in commercial terms: Bayern Munich €207 million, Real Madrid €147 million, Manchester United €141 million and Barcelona €101 million.

Despite the advances from the new stadium, Juventus are also a fair way behind on match day income, especially compared to the English clubs (Manchester United €88 million, Arsenal €79 million) and the Spanish giants (Barcelona €76 million, Real Madrid €73 million). On the plus side, Juventus look pretty good in broadcasting revenue.

This is perhaps not a great surprise, as broadcasting is the main source of income for Italian clubs. It contributed 55% of Juventus’ total revenue in 2013/14, which is actually down on the 61% the previous season, due to the lower Champions League receipts. Commercial income’s share increased from 25% to 30%, while match day rose slightly from 14% to 15%.

Juventus’ total broadcasting revenue of €153 million is by some distance the highest in Italy with only Milan €120 million and Napoli €105 million coming anywhere close. Their revenue is made up of €91 million from Serie A, €50 million from the Champions League, €10 million from their archive and €2 million from their own productions.

Under the new collective agreement that started in the 2010/11 season 40% is divided equally among the Serie A clubs; 30% is based on past results (5% last season, 15% last 5 years, 10% history, i.e. starting from the 1946/47 season); and 30% is based on media profile, i.e. the number of fans (25%) and the population of the club’s city (5%).

Although this methodology is more equitable than the previous individual deals, it still benefits a club like Juventus, most notably the element linked to a club’s support, as Juve’s share was €46 million here, while the distribution for clubs like Sassuolo and Livorno was less than €2 million. Even Milan and Inter only received around €31 million for this part, meaning their total money was nearly €20 million lower than Juventus.

Italy has the second highest TV rights deal in Europe, only behind the Premier League, which continues to sign ever more impressive contracts, but significantly ahead of the other major leagues. The new deal runs for three years from the 2015/16 season, rising by 21% from €998 million a season to €1.2 billion. The largest increase was in the international rights, where the incumbent, MP & Silva, has increased its payments by 59% from €117 million to €186 million. Domestic rights are now worth over €1 billion a season, with the largest agreements signed with Sky Italia and Mediaset.

That’s reasonably impressive, but is dwarfed by the blockbuster new Premier League deal, which is estimated to be worth a striking €3.8 billion from the 2016/17 season, including €1.4 billion for international rights. This is one area where the Italian league needs to help its top clubs.

Juventus’ broadcasting revenue has been significantly enhanced in the last couple of seasons by money from European competitions, which was worth €50 million in 2013/14, comprising €43 million from competing in the group stage of the Champions League and €7 million for reaching the semi-finals in the Europa League.

That was pretty good, but amazingly Juventus earned the most of any team the previous season, when they pocketed a cool €65 million, even though they only reached the Champions League quarter-finals.

This was largely due to the vagaries of the market pool, which is dependent on: (a) the value of the broadcast deal in each individual country – Italy has one of the highest; (b) how many clubs reach the group stage and so share the market pool – this was only two clubs for Italy in 2012/13; (c) how far the club progresses in the tournament compared to other Italian clubs; (d) their finishing place in the previous season’s domestic league.

In this way, Juventus should receive a massive payout for their achievement in reaching the final of the 2014/15 Champions League, especially as they only have to share the market pool with Roma, who did not get past the group stage. My estimate for the market pool is €50 million, which would take Juventus’ total prize money to more than €80 million, a €30 million uplift on the 2013/14 results.

The new Champions League deal from the 2015/16 season will further increase the prize money with UEFA advising the European Club Association that clubs could expect a 30% increase in revenue.

Juventus’ success in Europe is also a key part of their strategy to grow commercial income, as Agnelli explained: “Involvement in the UEFA Champions League must not be considered simply as the season’s objective, but as an ongoing intermediate aim which is part of a broader mid- to long-term strategy intended to increase Juventus’ appeal on a global market.”

Good progress was made on this front in 2013/14 with commercial income rising 24% (€17 million) from €68 million to €85 million, comprising €60 million of sponsorship and advertising and €25 million other commercial revenue. As well as a series of new partnerships, including Samsung and Bosch, the accounts included a special €6 million bonus from shirt sponsor Fiat for the excellent sporting results.

This was the second highest commercial revenue in Italy in 2013/14, only behind Milan’s €98 million, but well ahead of Inter €59 million, Napoli €39 million and Roma €36 million.

Future growth will come in 2015/16 from both the shirt sponsor and kit supplier. Fiat (Jeep) have extended their agreement by six years to 2021, increasing the annual payment from €13 million to €17 million. Adidas will replace the long-standing Nike arrangement in a six-year deal worth €139.5 million, meaning that the annual payment will increase from €12 million to €23 million (excluding an estimated €2 million for supply of materials and performance bonuses).

That’s not too bad at all, but the problem for Juventus is that although these deals are better than their Italian competitors, they are still a long way behind the deals signed by their international competitors. In particular, Manchester United’s incredible new deals give pause for thought with Chevrolet and Adidas paying the equivalent of €66 million and €105 million respectively.

Juventus’ match day income rose 9% (€3 million) to €41 million, largely due to an additional €1.7 million from Europe and €1.3 million from friendlies. This was again significantly higher than their Italian rivals (Milan €29 million, Roma €22 million, Napoli €21 million and Inter €16 million), even though they have stadiums with far greater capacities.

Match day revenue has more than trebled after the move from the Stadio Olimpico to the £150 million 41,000 capacity Juventus Stadium with attendances increasing from an average of around 22,000 to more than 38,000. This was the first Italian stadium to be owned by its club rather than the local council and boasts 24 bars, 8 restaurants and 4,000 parking spaces.

Building such a fine stadium is a notable accomplishment that has put much distance between Juventus and its Italian competitors. As Agnelli said, “The Juventus Stadium has begun to bear fruit. Its material contribution to our business margins has come through higher ticket sales and the renewed appeal of the Juventus brand, reflected in higher revenues from sponsorship and advertising.”

As well as match day income, the club also earns money from many other activities with 70 “no-match day” events being staged in 2013/14, including the prestigious Europa League final between Sevilla and Benfica.

Recently Juventus signed a 99-year lease for the area next to the stadium, known as the Continassa project, which will be the venue for the new training and media centre plus new offices and other services.

Unlike some other Italian clubs Juventus do not earn much money from player loans, generating only €1 million in 2013/14. As might be expected, those clubs where player trading is an important part of their business model lead the way, specifically Genoa €8.6 million and Udinese €6.0 million.

The wage bill rose by 13% (€21 million) from €163 million to €184 million, comprising €168 million for player wages and technical staff plus €16 million for other personnel. The increase was largely due to €14 million for players signed during season and €4 million higher bonus payments.

This resulted in the wages to turnover ratio increasing from 60% to 66%, though this is still much lower than the 90% registered in 2010/11, the year of the big loss. This is nonetheless very manageable, though not as good as Napoli’s 53%. This statistic has been a fairly good indicator of financial stability, as can be seen by the problems experienced by those clubs with a high ratio: Sampdoria 111%, Genoa 103%, Parma 102% and Bologna 89%.

Juventus do benefit from the highest wage bill in Italy with their €184 million being much higher than domestic counterparts: Milan €151 million, Inter €116 million, Roma €108 million and Napoli €89 million.

Although Juventus have only increased their wage bill by 33% (€46 million) since 2010, this period has actually seen a reduction at both Milan by 12% (€21 million) and especially Inter, who have halved their wages from €234 million to €116 million.

However, it’s again a very different story internationally, as Juventus are in turn way below clubs like Manchester United €257 million, Real Madrid €250 million and Barcelona €248 million – and they also have much lower wages to turnover ratios of between 45% and 51%. The situation would be even worse if we were to use the current Euro exchange rate of 1.40 instead of the Deloitte Money league rate of 1.20, e.g. Manchester United’s wages would be over €300 million.

Juventus have traditionally been one of the major players in the transfer market, averaging gross spend of €60 million and net spend of €30 million. This has been fairly consistent, especially if you split the last few years into two four-year periods running to 2011 and then to 2015.

In the latter period, there was major investment in the squad in the two seasons in 2011/12 and 2012/13, but the following two seasons effectively saw the club balance its books. However, there has been a return to big spending this summer with gross spend of €92 million to date (on Dybala, Mandzukic, Zaza and Pereyra), partially offset by €69 million of sales (Vidal, Ogbonna and Berardi).

Juventus have proved sharp operators when purchasing players, though paradoxically their limited spending power compared to the very top clubs might be considered an advantage, as they often seem to be quoted a different/lower price than, say, their wealthy English counterparts.

Even with the slowdown in transfer activity in the last two seasons, Juventus still lead the way in Italy. For example, over the last four years Juventus had a net spend of €134 million with the next highest being Roma €99 million and Napoli €92 million. The Milan clubs’ malaise in recent times is partly explained by their much reduced transfer spend over this period (Inter €38 million and Milan just €2 million), though they have started to splash the cash again this summer.

On the negative side, debt has been significantly increasing at Juventus, primarily to finance the construction of the new stadium and cover the costs of rebuilding the squad. Up until 2010 Juventus enjoyed net funds, but net financial debt has now risen to €207 million as at 30 March 2015, comprising €223 million of gross debt less €16 million of cash.

Short-term bank debt had surged to €106 million, but this has since been cut to €20 million, thanks to a €50 million line of credit from EXOR, the club’s parent company, and a €52 million increase in the amount owed to factoring companies to €96 million. There is also €46 million owed to the Istituto per il Credito Sportivo for the stadium loan (at a rate of 4.383%) and €11 million owed to leasing companies for the Vinovo training centre.

It is worth noting the importance of stage payments to Juventus’ transfer policy, as there is a hefty €73 million owed to other clubs, though this is reduced to a net €22 million payable once €51 million of receivables are taken into consideration.

Although Juventus have generated cash from operating activities in each of the last two seasons, this has been more than absorbed by (net) player purchases and capital expenditure, leading to aggregate net cash outflows of €90 million. Apart from the increase in debt, this has also been funded by €120 million additional share capital in 2011/12 (net €118.6 million after issue costs), similar to the €102 million raised in 2006/07.

Even though Juventus made large losses in 2011/12 and 2012/13 before breaking-even in 2013/14, the club has confirmed that UEFA have granted them a licence for the 2015/16 season, so they have met the Financial Fair Play (FFP) requirements. They would have been helped by the various allowable deductions in UEFA’s break-even calculation, including “healthy” costs such as those incurred for the academy and stadium development plus the cost of players under contract before June 2010.

One of Juventus’ objectives in the future will be to be completely self-sustaining from a cash perspective, though the club’s own forecast for 2014/15 is a loss, as it continues its policy of allocating significant resources to further strengthen the first team and retain its major talents.

"A kiss in the dreamhouse"

Going forward, Juventus’ prospects will largely depend on their ability to grow revenue. Given the probable increase in Champions League money, 2014/15 should see revenue rise from €280 million to €320 million (€335 million less player sales of €15 million), while 2015/16 will benefit from the new sponsorship deals and the 20% increase in the Italian TV deal. This should take Juventus’ revenue up to €340 million, though it could be higher or lower depending on the Champions League (progress in the competition, number of Italian clubs qualifying).

Profits from player sales should also be much higher in 2015/16 following Arturo Vidal’s move to Bayern Munich. Of course, if Paul Pogba were to be sold for anything like the €80 million reportedly offered by Barcelona, that would have a significant benefit on Juventus’ finances, as it would represent almost pure profit. Obviously, such a transaction would not be so good from a sporting perspective, but manager Max Allegri admitted, “When you talk about certain figures, it’s difficult to say no.”

It would be a shame if the club were forced to sell their brightest talents, as the recent years have shown that they have successfully recovered from the scandals of a few years ago, as Agnelli noted: “Juventus has transformed itself. It has regained its winning status – that has always set it apart.”

"Oh, the Swiss!"

Furthermore, the club’s economic progress is inextricably linked to success on the pitch, in particular to qualification for the money-spinning Champions League, so it would make little sense financially to weaken the team, especially after the club has lost two of its talismen in the shape of the masterly Andrea Pirlo and the effervescent Carlos Tevez.

Allegri put his finger on Juventus’ principal challenge, “The difference in economic potential between clubs in Italy, those in England, or the big two in Spain is very high.” As we have seen, it will be important for the club to further grow commercially to help narrow that gap. Agnelli acknowledged this, “We are aware that the internationalisation of our brand is fundamental”, though he also knows that this is partly out of his control, requiring a stronger hand by the Italian authorities in improving the match day experience and better marketing the league.

All that said, Juventus are already one of the top ten clubs in the worlds. Even with the financial disparity against the top English and Spanish teams, they somehow found a way to reach the Champions League final, so it is far from a hopeless case. Allegri explained how this could be addressed, “To reduce this gap we need to use our ingenuity. We need to go out and find talented young players, we need to have a solid core of Italian players on which to build – as Juventus does – and then we need foreigners who can provide a really high technical quality to the group.”

The turnaround at Juventus has been deeply impressive, but how far can they go? That’s a difficult question to answer, but the fans’ response would probably be along the lines of the club’s famous slogan “fino alla fine” – until the end.