Money League - Oh! You Pretty Things

A couple of weeks ago Deloitte published the 19th edition of their annual Football Money League, which ranks leading clubs by revenue, this time for the 2014/15 season. On the face of it, little has changed compared to the previous year, as Real Madrid once again top the table for the 11th year in a row with annual revenue of €577 million (£439 million), and there are no new entrants in the top 10.

However, there has been some movement with Barcelona (€561 million) overtaking both Manchester United (€520 million) and Bayern Munich (€474 million) to reclaim second place, as they became only the third club to break the €500 million revenue barrier.

In turn, United fell to third place, while Bayern dropped to fifth place, the first time in 12 years that it has slipped down the table. Paris-Saint Germain (€481 million) climbed to fourth place, the highest position ever achieved by a French club, on the back of their commercial growth.

The seemingly inexorable rise of the English clubs continued apace, as the top 20 now includes nine clubs from the Premier League. Although the Spanish giants still lead the way, there are no fewer than five English clubs in the top nine: Manchester United £395 million, Manchester City £353 million, Arsenal £331 million, Chelsea £320 million and Liverpool £298 million.

Then, a fair way back, come Tottenham Hotspur £196 million, Newcastle United £129 million, Everton £126 million and West Ham £122 million.

Total revenue for the top 20 clubs rose €470 million (8%) from €6.161 billion to €6.631 billion, split between commercial €2.7 billion (41%), broadcasting €2.6 billion (39%) and match day €1.3 billion (19%).

However, individual clubs sometimes have a very different revenue mix. Within the top 20, the highest reliance on a specific revenue stream was as follows: match day – Arsenal 30%; broadcasting – Everton 69%; commercial – Paris-Saint Germain 62%.

On the other side of the coin, the clubs with the smallest share of their total revenue from each category were: match day – Milan 11%; broadcasting – Paris-Saint Germain 22%; commercial – Everton 16%.

It is worth emphasising the role that exchange rates play in these rankings, as Sterling has strengthened by 10% against the Euro (moving from 1.1958 last year to 1.3145 this year). This has greatly benefited the English clubs relative to their continental counterparts. In fact, around half (€262 million) of the €532 million year-on-year growth for this year’s top 20 clubs is purely down to this FX movement, leaving the real growth as €270 million (4%).

This effect is perhaps best highlighted with Manchester United, whose revenue increased in Euro terms by €2 million from €518 million to €520 million. However, the exchange rate movement produce a Euro increase of €51 million, so their underlying revenue actually fell by €50 million. This is backed up by looking at their figures in Sterling, where the revenue decreased by £38 million from £433 million to £395 million.

Partly as a result of this favourable movement in exchange rates, the revenue of all English clubs grew compared to 2013/14  with Liverpool €86 million and Arsenal €76 million leading the way.

It’s a slightly different story if the FX impact is stripped out, with the most impressive real growth being reported by Barcelona €76 million, Liverpool €56 million, Roma €53 million, Juventus €45 million and Arsenal €41 million. The big losers were Milan €51 million, Manchester United €50 million and Bayern Munich €14 million.

The main drivers for the revenue growth in 2014/15 were broadcasting €207 million (up 9%) and commercial €202 million (up 8%). The match day increase lagged at €60 million, but this still represented 5% growth.

The revenue growth at the leading football clubs in the last few years is remarkable, rising from below €4 billion in 2009 to the current €6.6 billion, an increase of €2.7 billion (just under 70%). Deloitte expect the €7 billion threshold to be reached next season with new TV deals driving the total towards €8 billion in 2016/17.

Perhaps surprising to some, commercial income has been the main contributor with growth of €1.5 billion (115%) from €1.3 billion to €2.7 billion, followed by broadcasting, up €1.0 billion from €1.6 billion to €2.6 billion. In the same period, match day has risen by less than €0.3 billion (25%) from €1.0 billion to €1.3 billion.

These growth rates have obviously been reflected in the revenue share. Since 2009, commercial has significantly increased from 32% to 41%, while broadcasting has eased from 42% to 39%. Match day has slumped from 26% to just 19%, its lowest ever share.

In fact, with further increases anticipated in commercial and broadcasting revenue in the coming years, the revenue that clubs generate from match day should fall in importance even more than its current record low. This trend of corporates paying more for a club’s upkeep than the match going supporters could be considered a good thing – so long as the growth elsewhere were reflected in lower ticket prices.

Real Madrid and Barcelona have the highest broadcasting revenue with £152 million apiece, as they continue to benefit from the freedom to negotiate their own lucrative TV rights deals for La Liga. Even though this is due to change next season, the new collective deal is significantly higher than the aggregate of the previous individual arrangements – and the big two will be protected from any revenue reduction.

Juventus are in third place, partly due to receiving the highest Champions League distribution of £68 million (€89 million). This is heavily influenced by their share of the Italian market pool, due to a combination of a very good TV deal and the fact that they only had to divide this with one other Italian club, Roma, as these were the only two to qualify for the group stages.

"Play to win"

The importance of revenue from European competition is highlighted by Paris Saint-Germain, whose £43 million payout was actually higher than their domestic money £38 million. Similarly, Atletico Madrid generated half of their broadcasting money from Europe. This will be further emphasised by the higher Champions League deal starting from the 2015/16 season.

The English clubs fill all the places between fourth and tenth for broadcasting income, thanks to the size of the Premier League contract. This is even before next year’s blockbuster deal, which should increase the TV revenue of the top clubs by around £50 million a season.

The relative weakness of the Bundesliga TV deal is evidenced here with the German clubs towards the lower end of the table. Their domestic money is nowhere near the English clubs: Bayern Munich £43 million, Borussia Dortmund £37 million and Schalke £33 million.

Commercially, six clubs are well above the rest: Paris-Saint German £226 million, Bayern Munich £212 million, Manchester United £201 million, Real Madrid £188 million, Barcelona £186 million and Manchester City £174 million. There then follows a big gap to Liverpool at £116 million.

Indeed, there is much work to do for many English clubs on the commercial side with three of them filling the bottom spots: in the top 20: Everton £20 million, West Ham £24 million and Newcastle £25 million.

"The Leader"

PSG benefited from renewed deals with Emirates and Nike, but the lion’s share of their revenue comes from their innovative €200 million arrangement with the Qatar Tourism Authority. Barcelona also saw a hefty commercial increase, partly due to additional sponsorship bonuses paid in their treble winning season.

There seems little sign of a saturation point being reached commercially, at least for the elite, as Manchester United’s revenue will further increase in 2015/16 following the start of their record £750 million ten-year Adidas kit deal. Moreover, in the last few days the media has reported that even this mega deal will be eclipsed by Real Madrid signing a new 10-year contract, also with Adidas, for a staggering £106 million a season.

Arsenal have the highest match day revenue in the world with £100 million, despite the Emirates Stadium having a substantially lower capacity than the Bernabéu, home of Real Madrid, and Nou Camp, Barcelona’s famous ground. This is a reflection of Arsenal’s ticket prices and a high proportion of corporate seating.

Match day revenue has more than doubled from the £44 million Arsenal generated in their last season at Highbury, which helps explain why Tottenham and Chelsea are so keen to redevelop their grounds. Even though the construction is a significant investment, football clubs still need to assess this option or risk falling further behind their rivals.

What is particularly striking is the low match day income for Italian clubs. Juventus’ move to a club-owned stadium has helped increase their revenue to £39 million, but the others’ revenue is miles behind: Roma £23 million, Milan and Inter both £17 million. It was recently reported that the average attendance in Serie A had dropped below 22,000 in the 2015/16 season.

For the fourth time in the last seven seasons the Money League top 20 clubs is wholly populated by representatives from the “Big Five” leagues, namely England, Germany, Spain, Italy and France. The number of English clubs rose from eight to a record nine, while the other leagues were unchanged: Italy four, Germany three, Spain three and France one. The only club from outside the “Big Five” last year, Galatasaray from Turkey, dropped to 21st place.

England only had six clubs in the top 20 in 2013, but funnily enough had eight back in 2006, so the current dominance is not a completely new phenomenon. The big losers are Germany, whose representation has fallen from five clubs in 2009 to three, and France, who had three clubs in 2012, but now just the one.

Turkey had two clubs in the top 20 as recently as 2013, while the last time a Scottish club made the rankings was Celtic in 2007. Portugal’s last representative was Benfica a year earlier in 2006.

The top 30 clubs is where the English strength is really reflected with the number of representatives rising from eight in 2013 to 17 in 2015 (up 3 from 14 in 2014), including three debutants: Crystal Palace, Leicester City and West Bromwich Albion. As Deloitte observed, “This is again testament to the phenomenal broadcast success of the English Premier League and the relative equality of its distributions, giving its non-Champions League clubs particularly a considerable advantage internationally.”

This has produced some notable exclusions from the top 30, including Valencia, Seville, Hamburg, Stuttgart, Lazio, Fiorentina, Marseille, Lyon, Ajax, PSV Eindhoven, Porto, Benfica and Celtic.

If we look at the growth of the highest ranked club in each of the “Big Five” leagues since 2009, the absolute growth of Real Madrid (€176 million), Manchester United (€193 million) and Bayern Munich (£184 million) is broadly similar, though the percentage growth is much smaller at Madrid (44%), compared to United (59%) and Bayern (63%).

The outlier is Paris Saint-Germain, whose revenue has shot up by €380 million from €101 million to €481 million since the Qatari takeover. Juve have recorded impressive growth of 60%, but in absolute terms the increase was “only” €121 million, which means that the gap to the other four clubs has widened.

Despite a sizeable reduction in revenue following their failure to qualify for Europe in 2014/15, Manchester United still managed to remain in the top three of the Money League, thus demonstrating the underlying strength of the club’s business model.

In England, the two Manchester clubs (United and City) continued to lead the way, but Arsenal overtook Chelsea, due to the commencement of the new kit supplier deal with Puma. Liverpool’s healthy growth was due to the Reds’ return to the Champions League, which boosted both broadcasting and match day revenue.

Since 2009 Manchester City have registered the stand-out growth of £362 million, which is around twice as much as their peers, mainly due to their commercial success, including the celebrated Etihad deal.

Despite their revenue fall in 2015 (in Sterling terms), United are still well ahead of City, while there is a bunching of the pursuers (Arsenal, Chelsea and Liverpool), whose relative positions basically depend on the timing of their principal sponsorship agreements, e.g. Chelsea’s Yokohama Rubber deal will only be included in the next set of figures.

In a similar way, the revenue at the mid-tier clubs (Newcastle United, Everton and West Ham) is also converging, albeit at a much lower level. The interesting one is Tottenham, who are stuck in the middle between the top five clubs and the rest. “Neither Fish Nor Flesh”, as Terence Trent D’Arby once put it.

In Spain, it’s essentially a case of the rich get richer, though Barcelona’s growth last year (€76 million) was much better than Real Madrid (€28 million). Nevertheless, Madrid kept their noses in front and their figures will soon be enhanced by the barely credible new kit supplier deal with Adidas.

The other Spanish clubs are so far behind that they are almost out of sight with the nearest challenger being Atletico Madrid at €187 million – exactly one third of Barca’s revenue. Valencia did not even reach the top 30 clubs, which is unsurprising given that their 2014 revenue was less than €100 million.

There will be a boost in broadcast revenue for Spanish clubs with the new collective selling regime in La Liga, but the gap will remain massive.

In Germany, the situation is even worse, as Bayern Munich are in a league of their own. Despite a dip in revenue in 2015, due to a decrease in commercial income, Bayern’s €474 million is nearly €200 million more than Borussia Dortmund’s €281 million with Schalke 04 another €61 million behind. Incredibly, there is then a further €100 million difference to the closest German clubs, namely Hamburg and Stuttgart.

Since 2009 only Dortmund have managed to keep pace with Bayern, at least in terms of growth: €175 million vs. €184 million. In the same period, Schalke only grew by €95 million, while Stuttgart’s revenue was flat and Hamburg’s actually fell.

How do you say, “mind the gap”, in German?

In Italy, it’s a similar story, as Juventus’ revenue of €324 million is €125 million more than Milan’s €199 million. The bianconeri also led the way in Italy in 2009, but since then they have increased their revenue by €121 million, while it has been a tale of woe for their rivals from Milan: in the same period, Milan’s revenue has barely moved, while Inter’s revenue has actually fallen by €32 million to €165 million.

There has been encouraging growth at Roma, largely thanks to their return to the Champions League in 2014/15 for the first time since 2010/11. Napoli suffered from the opposite effect, as they participated in Europe’s premier competition the previous season, though they have still grown revenue by €38 million since 2009 to €126 million to creep into the top 30 clubs.

These are worrying time for Italian clubs, as they struggle to match the growth of their foreign peers, largely due to the continuing lack of stadium development, which is reflected in feeble match day income.

In 2006, it was a very different story with three Italian clubs in the top seven: Juventus 3rd, Milan 5th and Inter 7th. The nerazzurri are now perilously close to falling out of the top 20. As a man who lived three years in Milan at a time when Arrigo Sacchi’s team bestrode Europe like a colossus, it gives me absolutely no pleasure to say this, but how the mighty have fallen.

Paris Saint-Germain remain the only French club in the Money League this year and have moved up a position to fourth. Marseille and Lyon have been regular representatives in the top 20 (16th and 17th respectively in 2012), but their lack of revenue growth has seen them disappear from the rankings.

A combination of PSG’s “friendly” commercial deals and healthy Champions League income means that the financial difference between them and other French clubs is not so much a gap as an abyss. Little wonder that Ligue 1 is pretty much a cakewalk for the Parisians.

After a few years when the gap between the 10th place club and 11th place club seemed to be closing, it has widened this year from €18 million to €43 million, being the difference between Juventus €324 million and Borussia Dortmund €281 million.

The gap between top and bottom, defined as 1st place to 20th place, has been constantly growing. In fact, it has more than doubled since €207 million in 2006 to €416 million in 2015, representing the difference between Real Madrid €577 million and West Ham €161 million.

That said, the financial threshold for membership of the Money League club is becoming increasingly challenging with the requirement for a place in the top 20 rising 12% from €144 million to €161 million. This has nearly doubled in the last 10 years from €85 million.

As Deloitte noted, Napoli, down in 30th position this year with revenue of €125 million, would have had a position in the top 20 as recently as two seasons ago with the same revenue.

Although Deloitte have done a fine job in adjusting the clubs’ reported revenue figures in order to enable a meaningful, like-for-like comparison, it is still worth exploring some of these adjustments, as the supporters of individual clubs might be a little puzzled over differences with the figures they might expect to see.

I have taken an example of each of the following adjustments to demonstrate that reported revenue figures are not always black and white and there is often room for interpretation, even with something as theoretically rigorous as a football club’s accounts:

• Profit on player sales
• Different classification of revenue types
• Holding company vs. football club
• Operating income
• Change in accounting year
• Restatement of prior year revenue
• Calendar year 

Continental clubs often include profit on player sales in their revenue figures, as seen by Bayern Munich boasting of €524 million revenue in their 2014/15 press release. The difference between this number and the €474 million in the Money League is the €50 million they earned from selling players.

This is further complicated with Italian clubs who include profit on player sales in revenue, but any losses made on player sales are booked in expenses.

The classification between different revenue categories can be different, as seen with Everton. Commercial revenue in the club accounts rose 37% from £19 million to £26 million, comprising sponsorship, advertising and merchandising £10.4 million plus other commercial activities £15.6 million.

This always seemed a bit high with the suspicion that Everton had included the commercial element of the Premier League TV deal within commercial income, even though most other clubs classify it as broadcasting income, and Deloitte have duly reduced commercial and increased broadcasting (though the total revenue is the same).

Football’s a simple game, but clubs increasingly operate within a more complex corporate structure. In particular, sometimes there is a holding club that owns the football club with different revenue figures (usually higher).

A good example is Chelsea, where the football club (Chelsea FC plc) had revenue of £314.3 million in 2014/15, which is around £5 million lower than the £319.5 million shown in the Money League. This is almost certainly because Deloitte have used the figures from the holding company (Fordstam Limited). Although this company has not yet published its 2015 accounts, the £324.4 million reported in 2014 is exactly the same as the figure in last year’s Money League.

Football clubs usually separate non-trading income from turnover and classify this as Other Operating Income. As an example, West Ham reported revenue (turnover) of £120.7 million, but Deloitte have also included £1.7 million of Other Operating Income to give their revenue figure of £122.4 million.

Clubs sometimes change their accounting date, i.e. when they close their accounts, which means that the length of that accounting period is not the usual 12 months. For example, Swansea City changed their close from May to July in 2014/15 in order to be more aligned to the football season, so their latest accounts cover 14 months.

Their revenue was only slightly higher, as there is no additional match day or broadcasting income in June and July, but commercial agreements are evenly accrued. Thus, Deloitte have reduced the 2014/15 revenue from the £103.9 million reported by the club to £101.0 million.

The Money League occasionally restates the revenue figures used in its own report the previous year. One example of this is Paris Saint-Germain, where Deloitte reported €474.2 million last year, but have included €471.3 million as a 2014 comparative this year. This does not impact this year’s rankings, but does affect the stated year-on-year growth.

Most clubs now use the football season for their accounting period, but some use the calendar year, especially in Italy. As an example, Milan’s most recently published accounts cover the 12 months up to 31 December 2014 and the adjusted revenue is around €215 million, which is higher than the €199 million reported by Deloitte.

The main reason for the difference is that Milan’s 2014 accounts include a part of the Champions League money they earned in the 2013/14 season.

"Paint me down"

Next year’s Money League may well see Manchester United topple Real Madrid, as the English giants are projecting revenue of £500-510 million for the 2015/16 season, following their return to the Champions League and the start of the record Adidas kit deal, which would make them the first English club to break through the half-billion pounds barrier.

Beyond that, Real Madrid might well bounce back if reports of their huge new sponsorship deal with Adidas are not exaggerated.

Obviously a club’s financial performance does not begin and end with its revenue, as explained by no less an authority than the famous German actress, Marlene Dietrich, “There is a gigantic difference between earning a great deal of money and being rich.”

"Points of authority"

In the past, clubs suffered from what Alan Sugar’s described as the “prune juice effect”, whereby any increases in revenue simply fed through to higher player wages, transfer fees and agents’ commission.

This is no longer automatically the case, largely due to the implementation of various Financial Fair Play regulations, which has increased profitability, especially in England, thus making it more likely that overseas investors will explore the purchase of football clubs.

In “All The President’s Men” the whistle blower Deep Throat advised the investigative journalists to “Follow the money. Always follow the money.” The circumstances were clearly somewhat different in the movie, ultimately leading to the resignation of the President of the United States, but that is still sound advice that is more true than ever in the world of football.

In other words, money talks and is almost invariably reflected in success on the pitch. There might be the occasional exception to the rule, as we have seen with Leicester City's rise this season, but after all is said and done those clubs at the top of the Money League will usually be the ones competing for trophies.

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.