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Football club finances - Part 2 - On InsideIIM's Knowledge Cafe

Jun 7, 2012 | 7 minutes |

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Revenues

In the last post, a comparison of Real Madrid’s revenues with corporate giants made club football look like a cottage industry. However, we hadn't looked at Revenue per employee and now that we have the data, we find that the big clubs do redeem themselves.


In revenues per employee, the comparison with Apple is misleading and should be omitted. This is because Apple, in its operations, behaves like a design company– they design ipads whose components are actually manufactured by ARM, Samsung etc. and assembled by Foxconn in China. The people in the Chinese sweatshops aren’t being counted as employees of Apple, but their contribution is being reflected in Apple’s revenues. The revenue per employee, is therefore, artificially inflated.

The best peers for comparing football clubs would be software companies – where (alert: HRspeak) employees are the only assets. Real Madrid, Man U, Arsenal and Chelsea are extremely productive organisations, especially considering the fact that at around 20-25% of the employees are caterers and cleaners – a function that could easily be outsourced. (Real Madrid has 770 employees, Man around 450, Arsenal around 380 and Chelsea around 580).

Wages

We first look at average player earnings (pre-tax) at the top football clubs- (data - ESPN/SportingIntelligence global survey - here)

The Spanish duo tops this list as well. Considering the kind of revenues they generate, they can afford to pay such handsome wages. An interesting variation would be to consider post tax salaries for domestic and immigrant players. The tax rates (maximum) that apply to domestic and immigrant footballers is given below:-

Now, you might observe the following :

Wages – Balancing the Budget

The earlier section was from the viewpoint of the players. This section looks at wages through the eyes of the club’s administration. The ratio to be considered is wages to revenue. 'Wages' now includes wages to coaching staff etc. UEFA Fair Play Regulations have mandated that all clubs should have a wages to turnover ratio of less than 70%. Those clubs whose wages-to-revenue ratio is 70% or above, I have colour-coded in red. (data - swiss ramble blog)

A common feature of all the clubs that have a wages/turnover ratio over 70% is that they are owned privately by a wealthy businessman.

Transfers

Transfer spending is the most glamorous part of football finances. Mainly because the sums involved are astounding. Let’s look at transfer spending over the last three years. (Data source: Transfermarkt.com)

Man City’s leadership needs no explanation.

The presence of teams like Juve so high in the list seems to be a mystery. This will be clearer when we look at the data more closely. Now, let’s look at the number of acquisitions in these three years and the average ticket size (data: transfermarkt.com).

So you decide which is the most active club on the transfer market. Juve and co? Or Man City, Real Madrid etc.? Based on the last two graphs, I’d say it is Man City, Real Madrid, Barcelona and Chelsea who are the real market movers. These are the four clubs that have, for various reasons, the power to buy whatever they want. I’ll look at debts etc. in the next part. Part 1 can be accessed here  - (Shyam Sunder Ramakrishnan) The author is an alumnus of IIM Indore, batch of 2011 and currently works for Institutional Investor Advisory Services – a startup in the financial services industry. Also Read:   Articles in our Knowledge Cafe   Insights@InsideIIM :  A must read section for any management education aspirants, current students or recruiters   New ! – Industry Series : Interview with Rishiraj Singh Pruthi – Head, Customer Marketing at Abbot Nutrition  Interview with Ravishankar Iyer: Building vocational skills for India Tomorrow     Our facebook page : InsideIIM Follow us on twitter here : @InsideIIM