Introduction to the business of Football Clubs
Firstly, it needs to be said that Football is not a profitable industry as such. It generates a lot of revenue (it is a big ‘money spinner’ – according to the Deloitte ‘Money League’, for a football club to gain a place as one of the top 30 highest revenue making clubs in the world, it had to generate in excess of €100m), but very few football clubs actually make a profit every year.
Even where profit is made, very few clubs pay out dividends to the owners. Usually profits are reinvested into the football club for use in paying wages, player transfers and other expenditure. (Football clubs generally spend about 60-70% of their revenue on wages, and sometimes a sizeable amount in paying transfer fees to recruit new players.)
Taking the example of Chelsea FC, their most recent figures for revenue in the 2012/13 financial year was €303.4m, yet they had a pre-tax loss of around £49.3m. Similarly, Manchester City had revenue of €316.2m, yet made a loss of over £90m for the same financial year. In fact the 20 English Premier League clubs made a loss of £291m collectively in 2012-13. Only 8/20 PL clubs recorded a profit in 2012/13, most of this being nominal in comparison to the size of the revenue.
Clearly Football is not a business where the owners invest capital for short-term gain, or sometimes for any direct gain at all.
In fact, since the introduction of the Financial Fair Play rules by the European governing body UEFA, which ultimately mean that the owners of a football club cannot inject capital freely into the clubs they own (so as to promote self-sustainability of the football clubs), the amount of money that clubs can ‘borrow’ from their own owners has decreased.
The sources of Revenue
There are three main ways in which a football club ‘makes money’:
- The Matchday revenue and merchandising (for example through the sale of tickets and other related packages that all adds to the match-going experience)
- Broadcasting income
- Corporate sponsorship
Out of the three main sources of income, Matchday revenue is stagnating. Football clubs have already been charging very high prices, hence much further increases are not possible without driving fans away from the stadiums.
Broadcasting revenue is rising rapidly, with the broadcasting rights to live football matches being bought by TV companies for ever increasing amounts of money – recently Sky and BT spent £3.018billion on the right to show live Barclays PL matches until 2016. Most of this money will be paid out to the clubs on a sliding scale depending on the position they finish in the League up until the 2015/16 season.
Sponsorship:
However, our focus is on probably the most lucrative of the three types of incomes: corporate sponsorship.
As the popularity of the sport has increased, all the major companies of the world want to be associated with the sport so as to increase the exposure of their own brand to the football fans. The companies are willing to spend a lot for the chance to be associated with football.
It is not just football clubs who are sponsored by the large companies, but the football competitions themselves have major sponsors which are their main source of revenue. For example the English premier League is sponsored by Barclays, the rest of the Football League (making up the lower divisions) is sponsored by Sky Bet, the FA Cup is sponsored by Budwiser, the League Cup sponsored by Capital One, and the UEFA Champions League has 6 major sponsors including Gazprom, Sony and Heineken.
Commercial sponsorship is a major part of the revenue of the clubs. For example, 55% of German Club Bayern Munich’s revenue of €303.4m is generated from commercial activities. Furthermore, PSG’s (Paris St Germain) commercial revenue of €254.7m is the record amount a football club has ever earned in one season through sponsorship related streams.
The major methods of sponsorship in football are usually:
- Selling the naming rights to stadiums (for example Arsenal have been receiving major sponsorship revenue from Fly Emirates in consideration for naming their stadium the Emirates Stadium until 2028. Similarly, Manchester City receives sponsorship revenue in exchange for naming their stadium the Etihad Stadium, and Bayern Munich also receive sponsorship income due to selling the naming rights to their stadium to German Insurance giants, Allianz).
- Kit sponsorship (all clubs are sponsored by major kit manufacturers in order to wear kits produces by them. Currently the largest deal is Chelsea FC’s Adidas sponsorship of £30m per year for the next 10 years, though Manchester United are close to agreeing a larger deal).
- Shirt Sponsorship (Clubs sell the right to advertise the logo or name of a company in their football shirt).
- There are also many other minor sponsorship methods. For example a club may have a designated airline, designated energy partner, etc. However, the amount of revenue the club receives from these minor sponsors, is much less than the amount received from the major methods of sponsorship.
Stadium, kit and shirt sponsorship decisions are purely commercial decisions. The sponsor will obviously want the link to the football club and the exposure that comes with it for as little money as possible.
The football club will want as much money as it can get in order to remain competitive off the playing field. Though the football club will want the security of securing a sponsorship deal on the long-term, it needs to be aware that the deal could become outdated in a short period of time (in the sense that other clubs may agree much more favourable sponsorship deals in the meantime). Therefore the length of the sponsorship deal is probably as crucial a negotiating point between the club and the sponsor as the amount of sponsorship money.
Shirt Sponsorship – Restrictions and Future Developments
Spanish club Barcelona FC were the first club to actually pay an organisation (the charity UNICEF) £1.25m-a-year in order to display their name on their shirt. This deal was recently extended until 2016, however, Barcelona has moved the name and logo of the United Nations Children’s Fund to the back of the shirt and replaced them from main shirt sponsor after agreeing a sponsorship deal with Qatar Airways that earns the club €30m per year for three years.
Barcelona were also the first club to sell an advertisement space on the inside of their football shirts displaying the trade mark ‘Intel Inside’ belonging to computing company Intel.
However, football clubs are restricted on how much advertisement they can display on their playing kits. Though Spanish clubs like Barcelona are permitted to display numerous advertisements on their kits, the FAPL in their Kit and Advertising Regulations prohibits more than 200 cm2 of advertisements used on the front of the shirt and no more than 100 cm2 on the back of the shirt, the back of the shorts and on the socks comprising the football kit. This does not include the logo of the club itself and the logo of the kit maker which may be additionally displayed.
However, it is clear that a club is restricted in the amount of advertising space it can sell to sponsors, and a football club playing in England could not follow Barcelona’s example and sell advertisement space on the inside of their shirts. The FAPL reserve the right to issue disciplinary proceedings against any club that breaches the advertisement rules.
In the future, in order to increase sponsorship revenue, football clubs may become more creative: maximising advertisement whilst staying within the rules. One possibility could be to sell advertisement space on the tracksuits worn by players before the start of the match. Another, as Manchester United has recently found out, is to sell the right to advertise on their training kit (Manchester United’s training kit sponsor is Aon). However, the exposure of the companies through these means is minimal, so this is unlikely to become another major type of sponsorship income.
By Andi Terziu
Law and Football 