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EconomicsSense: Why Are Football Teams Able To Spend So Much On Players?


Analysing the relationship between players and football clubs and whether football clubs can really afford the high transfer fee?

The transfer window for the Barclays Premier League has ended. We witnessed a few last minute signings, some were a “ hit” and others simply a “ last minute desperate measure” ( Yes, we are looking at Arsenal’s number 23).

Over the past months, we have seen football clubs splurging on millions of dollars worth of players as if money grew on trees behind their backyards.

Is the football business really so lucrative?

 

The relationship between football players and their clubs

Manchester United spent close to £135 million (SGD279 million) during the most recent transfer window. Yes. Manchester United’s shopping list for one summer is enough to give 620 Singapore families each a 5-room resale flat at Woodlands.

Now we wonder, is the revenue sufficient to be able to support the spending of the football club?

 

Revenue of the football clubs

Football clubs obtain revenue through a few means.

1)    Premier League television rights:

In Barclays Premier League, 50% of all revenue from the TV rights is split evenly among all the 20 football clubs in the league. This provides all premiership clubs an instant £55 million in year 2014. And yes, revenue from Singapore via way of SingTel ridiculous bid is most definitely contributing to that large revenue pool.

The rest of the revenue from TV rights are distributed to the clubs depending on their final placing in the league, with a £1.2 million difference for every increase in position, meaning the Premier League winner will bag £24 million more.

For each match that is broadcast live in United Kingdom, the football club receives an additional £750,000 per match.

Having a strong squad increases the chances of finishing higher in the league, more possible live games being broadcasted, and most importantly, a higher chance of fighting off relegation!

 

2)    Match day revenue:

The chanting from fans at the stadium during match day is no longer foreign to those of us who watch the Premier League. These fans actually pay for tickets, which acts as an additional revenue for the football club.

For example, Manchester United made £109 million solely from the sales of match day tickets last year.

 

3)    Commercial:

A large part of the revenue actually comes from wearing the jersey, instead of playing the game itself. Commercial actually occupies close to 50% of the revenue that some football clubs are getting.

Out of the total £363.2 million revenue for Manchester United, close to 42% actually comes from commercial.

It is known that the higher the standing of a football club, the easier it is to obtain lucrative sponsorship deals due to the larger fan base or the volume at which the match is being viewed.

Performance of a team opens up doors for other opportunities for the football club to competitions such as the UEFA Champions League, which provides additional bargaining power to get sponsors to pay more, plus more TV revenue.

 

Footballers are an asset:

Imagine a football club as a production factory; the players are the machines in the factory. Football players, unlike the typical employees at a company, can be sold to other clubs at a price. This makes them an asset to the football club. Splurging on players is an investment and risk the club takes, just like any other companies, in the hopes for better returns.

And of course, whenever a club made the right investment, it enjoys its returns.

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