Monday, 29 January 2018

There’s something seriously wrong with Football Economics

According to financial information collated by the accountants Deloitte, the combined turnover of the top 20 football clubs in the world (Europe) is GBP6.97bn or circa HK$73bn. Manchester United was identified as the top club in terms of revenue with a figure of GBP581m (say HK$6bn).  

On the face of it these look like quite large numbers but are they really? Personally I think they are surprisingly small. Arguably Manchester United is one of the world’s best known brands up there in terms of recognition with the likes of Apple, Amazon, Alibaba, etc and yet its turnover figure is miniscule in comparison, as illustrated by the wafer thin bar in the chart below.

Considering the global reach and appeal of both football and the top brands such as Manchester United not to mention the ubiquitous TV/media coverage, the amount of money actually being generated by the clubs is rather pathetic. And of course most of these clubs have huge debts and make a financial loss every year. Operationally the loss can be (at least in part) attributed to the fact that an unsustainable amount of revenue is going on player wages. If the stories about the salary being paid to Sanchez at Man Utd are true, then he alone is getting over 4% of the club’s entire revenue. It’s not unusual for the playing staff alone to account for significantly more than 50% of turnover. Some of the recent transfers have also been ridiculous. My own club Liverpool recently paid GBP75m for a defender (a very good one it has to be said) which is 20% of the club’s annual turnover.

I’m not blaming the clubs by the way. They have little choice in paying vast sums of money to players and their agents. It’s market forces and if they want to stay at the top, they simply have to fork out ever increasing astronomical amounts. The problem as we know is that many fans are being priced out of the market altogether.

The main point I am coming round to making however is that there are even bigger amounts of money being made out of football that never goes near the clubs.

And I’m not talking about the Leagues or even the Governing Bodies such as FIFA. The Premier League generates a lot of money by selling the TV rights (GBP8.4billion between 2016-19) but a large proportion of that goes back to the clubs and contributes to the turnover figures above. FIFA generates money from the World Cup but that gets recycled into football activities and programmes mainly through Member Associations. So in these cases the football ‘product’ is being used to fund football – I have no problem with that.

The problem I have is that the organisations making the most money from football invest nothing in the ‘product’ of football or the infrastructure of football or give much back. They use the ‘product’ of football as a cuckoo uses another bird’s nest. I’m talking about betting companies.

The global football sports betting market is worth HK$7.8trillion (US$1trillion) per annum. That’s US$ 1,000,000,000,000 or not far short of the GDP of Australia. How much of that goes back to the clubs or football in general?

Just one of the many UK betting companies Bet365 had a turnover last year of around four times that of Manchester United and made a healthy profit margin of over 20%. How football clubs would like margins like that!

The Hong Kong Jockey Club generates revenues from football betting (not including horse racing) in excess of the collective turnover of the world’s top 20 football clubs. It’s an astounding amount of money but at least in this case a large percentage of the profit generated goes to good causes (and the Government in tax). Similarly, in England 1% of the ‘pools’ (national tote) money has been used to fund the Football Foundation and this investment has helped to transform grassroots football.

I’m not name dropping but in December I was having lunch with FIFA President Gianni Infantino and he was rightly bemoaning the fact that football sees very little of the money generated from commercial football betting. He mentioned that in France there is legislation to ensure that 1% of betting turnover goes to the sport that generates it. If this model was followed internationally and if my maths is correct it would result in an additional US$10 billion investment back into football. Imagine the power of this money to change people’s lives through social responsibility programmes, grass roots football initiatives and even in tackling the problems caused by football betting such as match-fixing, addiction etc!

Undoubtedly, some of this money should go back to the owners of the ‘product’ that created the wealth in the first place i.e. the clubs as long as there were safeguards in place to stop all of the extra money going to mercenary players and greedy agent! Lower ticket prices maybe? It’s high time that there was a much closer and global symbiotic relationship between football and football betting.

Mark Sutcliffe CEO, January 2018