Tuesday, December 6, 2016

Bayern Munich - Elevation


Bayern Munich won the double of the Bundesliga and the German Cup in 2015/16, obviously a fine feat, but not that surprising for Germany’s most successful club. In total, the Bavarians have won the league no fewer than 26 times and the cup on 18 occasions, though Karl-Heinz Rummenigge said that it was still a “historic achievement” to top the Bundesliga four years in a row.

The Bayern chairman was impressed: “If I were to assign grades for the 2015/16 season, I’d give the coach and the team an A. Even in our greatest eras we were lucky to win the championship three times on the bounce at the most.” He added, “The days of FC Hollywood are over – and that’s good. We make headlines on the pitch now.”

The story was almost as good in Europe. Rummenigge again, this time on the Champions League: “We’ve advanced to the last four for the fifth time in a row. That too is unprecedented in terms of continuity at FC Bayern.” Indeed, in that period Bayern have reached the final twice and won the trophy in 2012/13 by beating Borussia Dortmund at Wembley.

However, the traditional giants are showing some signs of vulnerability this season after Pep Guardiola departed for a new challenge with Manchester City in the Premier League to be replaced by experienced Italian manager, Carlo Ancelotti. Guardiola won seven trophies in his three years in Germany, including two doubles, but Ancelotti’s team has not had things all their own way this season.

They currently sit behind newly promoted RB Leipzig in the Bundesliga and have failed to top their Champions League group following an embarrassing 3-2 defeat at Russian minnows FC Rostov. As Rummenigge admitted, “A new era is about to begin. Everyone has chased us over the last few years. Now we’re doing the chasing!”

"Radio, Radio"

Off the pitch, Bayern’s dominance remains unchallenged, as they have just announced record profits and revenue for the 2015/16 season. Profit before tax shot up by €23 million (72%) from €31 million to €54 million, though profit after tax “only” rose by €9 million (39%) from €24 million to €33 million, due to a higher €21 million tax charge.

Revenue increased by a massive €118 million (25%) from €474 million to €592 million, just shy of the €600 million threshold. All revenue streams grew, though commercial income led the way, increasing by €65 million (23%) from €278 million to €343 million, driven by sponsorship, up €56 million (49%) to €170 million, and merchandising, up €6 million (6%) to €108 million.

Broadcasting income actually rose more in percentage terms (39%) or by €42 million from €106 million to €148 million with the growth split fairly evenly between the Bundesliga (€21 million) and the Champions League (€16 million). Match day income was up €12 million (13%) to go above €100 million for the first time (€102 million).


However, much of the revenue growth was eaten up by a rise in expenses. Wages increased by €33 million (15%) from €227 million to €260 million, while other expenses rose €39 million (25%) from €185 million to €224 million and player amortisation was up €9 million (15%) to €70 million.

Player sales also fell €15 million from €50 million to €35 million. Incidentally, I am using the Deloitte definition of revenue here in order to facilitate comparisons with other European clubs, so have excluded this €35 million of transfer income. Adding this to my revenue of €592 million gives the €627 million announced in Bayern’s press release.

As another technical aside, note that these are the consolidated group accounts for FC Bayern München AG, which include the Allianz Arena München Stadion GmbH and other subsidiaries.

Whichever way you look at it, deputy chairman Jan-Christian Dreesen was justifiably proud of these results: “The 2015/16 fiscal year has been fantastic for FC Bayern, in terms of both sports and finances.”


Of course, making money is nothing new to Bayern Munich, as this is the 24th year in a row that they have been profitable. Traditionally, the club invests almost all of its profits into the squad or stadium development, but their profits have been steadily rising recently, averaging €37 million over the last three years (before tax).

Rummenigge boasted, “This combination is what makes FCB unique. We have the greatest success in our sporting endeavours, and we pay for it all by ourselves.”


That’s very impressive, though it should be noted that it is far from unusual for German clubs to make profits. In fact, 11 out of 18 Bundesliga clubs were in the black in 2014/15 (with 13 of 18 profitable in the preceding season).

Indeed, many of Bayern’s rivals across Europe have also posted large profits in recent times, e.g. in 2015/16 Manchester United reported a pre-tax profit of €59 million (at a Euro exchange rate of 1.20), Real Madrid €43 million and Barcelona €36 million. Moreover, these are not necessarily “flash in the pan” performances, as Real Madrid and Arsenal have been profitable since 2002, while Barcelona have reported profits the last five years.


One factor behind Bayern’s growing profits is that they now make more money from player sales, averaging €42 million in the last three seasons, compared to just a €13 million average in the previous seven seasons.

The 2015/16 player sales of €35 million included the sale of Xherdan Shaqiri to Inter €15 million, Sebastian Rode to Dortmund €12 million, Bastian Schweinsteiger to Manchester United €9 million and Dante to Wolfsburg €4.5 million. The previous season was even better at €50 million, thanks to selling Toni Kroos to Real Madrid €30 million and Mario Mandzukic to Atletico Madrid €22 million.

Next year’s accounts should also include a reasonable contribution from player sales following Mario Götze’s €22 million return to Dortmund plus Pierre-Emile Hojberg’s move to Southampton €15 million.


Bayern highlighted the growth in EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which rose by €31 million (28%) from €111 million to €143 million. This has more than doubled from the recent low of €69 million in 2011.

It should be noted that Bayern’s definition includes transfer income, but the growth was even better using the more generally accepted definition of recurring income, i.e. excluding lumpy profits from player sales. This metric improved by €46 million (75%) from €62 million to €108 million.

That’s very good, but to place it into perspective, Manchester United announced 2015/16 EBITDA of €230 million, i.e. more than twice as much, so it’s not surprising that they could pay so much money for Schweinsteiger and still leave him in the stands.


Despite a blip in 2014/15, due to the lack of competing in the UEFA Super Cup and FIFA Club World Cup, Bayern’s revenue growth has been mighty impressive, as the €302 million increase since 2009 means that the revenue has more than doubled in the last seven years.

Over 60% (€183 million) of that growth has come from commercial operations, largely sponsorship (€97 million) and merchandising (€71 million), but the two other principal revenue streams have also shot up: broadcasting by €78 million (112%) and match day by €41 million (68%).


In Germany Bayern’s revenue places them in a league of their own. Not only is the gap large, but it is getting larger. Since 2009, their closest challenger, Borussia Dortmund, managed to grow their revenue by an impressive €179 million, but this was still €123 million less than Bayern’s growth in this period.

The situation is even worse for the other German clubs. Since 2009 Schalke have only grown revenue by €95 million, while Stuttgart’s revenue was flat and Hamburg’s actually fell. This has resulted in Germany only having three clubs in the Money League top 20, compared to five clubs in 2009. This has inevitably led to concerns that Bayern’s financial supremacy will be bad for competition in Germany.


It’s a different story in Europe with Bayern battling to keep pace with the other elite clubs. Indeed in 2014/15 Bayern actually slipped two places in the Money League to fifth, their lowest position since the 2006/07 season. However, it should be noted that Bayern are one of only three clubs to be ever present in Deloitte’s annual rankings.

Bayern found themselves around €100 million behind Real Madrid and Barcelona, so the significant 2015/16 revenue growth was required to keep up with the Spanish giants, not to mention repelling the threat of the newer clubs like Paris Saint-Germain and Manchester City, who sandwiched Bayern in last year’s table.


For 2015/16, on a like-for-like basis, Bayern’s growth to €592 million has made inroads into the top clubs’ advantage. Real Madrid still lead the way with €620 million, though this is only €28 million ahead of Bayern, closely followed by Manchester United €618 million and Barcelona €612 million.

We should make clear the importance of exchange rates here, as I have used €1.20 to the £, while it is entirely possible that Deloitte might use an average 2015/16 rate of around €1.30 when they publish the next edition of the Money League, which would obviously have a favourable impact on Manchester United’s Euro figures.


Returning to the 2014/15 Money League, if we compare Bayern’s revenue with the other clubs in the top ten, we can see that they enjoy a substantial commercial advantage over almost all clubs, but they are lagging behind in broadcasting income.

As we have seen, this already rose significantly in 2015/16, while there is further scope for improvement in this revenue stream from the new Bundesliga TV deal starting in 2017/18, which should be worth at least an additional €30 million to Bayern.


From a domestic perspective, Bayern’s gap to the second club (Borussia Dortmund) was €193 million in 2014/15, which was only surpassed in France, where PSG were €371 million ahead of Marseille. However, the gap is much smaller in Italy, England and Spain.

Moreover, the gap to the 3rd placed club in Germany (Schalke) was  €254 million, which is a huge competitive advantage. This is much more than the gaps in England and Italy, though the difference is even higher in Spain and France.

Following Bayern’s impressive 2015/16 revenue growth, the gap to Dortmund has now widened to an astonishing €307 million: €592 million vs. €285 million. In other words, Bayern now earn more than twice as much as their closest domestic competitor.


As we have seen, the largest revenue category at Bayern is commercial income, which accounts for more than broadcasting and match day combined. That said, commercial’s share of 58% has dropped from the 60% peak two years ago, thanks to the growth in broadcasting taking that category’s share up to 25%. As a consequence, match day has diminished in importance to just 17%, even though it does bring in more than €100 million.


Only one other club in the Money League top 20 had commercial income contributing more than Bayern, namely Paris Saint-Germain with 62%, thanks to the French club’s “innovative” deal with the Qatar Tourism Authority, which is apparently worth €200 million.


Indeed PSG was the only club with higher commercial revenue than Bayern with €297 million, though Bayern were ahead of clubs like Manchester United €264 million, Real Madrid €247 million and Barcelona €244 million.

And that was before Bayern’s 2015/16 growth in commercial revenue from €278 million to €343 million, comprising sponsoring and marketing €170 million, merchandising €108 million, Allianz Arena €39 million and other commercial activities €26 million. Bayern do have the advantage of being the most supported team in the largest commercial market in Europe, but that’s still some going.


Although commercial deals are very important to all German clubs, Bayern still earn significantly more than the others. In fact, the commercial gap to Dortmund, which had narrowed in 2014/15, rose to €191 million last season, the highest ever difference between the two.

Bayern’s returning president Uli Hoeness said that Dortmund would need to have a more consistent track record of winning trophies if they hoped to match Bayern’s global appeal, but that is a tough ask, given their revenue shortfall.

Bayern have been boosted by strategic partnerships with three major German companies (Adidas, Allianz and Audi), who all have an 8.33% stake in the club with the other 75% owned by the fans.

Adidas has a long-standing relationship with Bayern, extending their kit deal in 2015 until 2030, even though it had a further five years to run. This was for a reported €900 million, which is worth €60 million a season, up from the previous €25 million. Allianz have also extended their stadium naming rights deal for a further five years to 2041 at around €6 million a season, while Audi is a main sponsor and automotive partner.


That’s great news, but it is still far below Manchester United’s €90 million deal with Adidas (and, for that matter, the new kit deals at Real Madrid and Barcelona, which are worth  €120-150 million according to various press reports). On the other hand, it is considerably higher than Dortmund’s latest kit deal with Puma, which is worth only €15 million.

In addition, Deutsche Telekom have extended their long-running shirt sponsorship deal, first established in 2002, to 2023, reportedly increasing the annual fee to €30 million (though some reports have this as high as €35 million).

Although the highest in Germany, It’s a fair way behind other leading European clubs, e.g. Manchester United’s Chevrolet deal is worth around €70 million, while Barcelona have just signed an agreement with Rakuten for €55 million.

As well as Bayern’s four main partners, the club also has a raft of other big name partners, split between 9 platinum, 5 gold and 11 official, including DHL, Gigaset, Goodyear, Hypovereinsbank, Lufthansa, SAP, Paulaner Coca-Cola and Giorgio Armani.

"Mats Entertainment"

The Allianz Arena is another major money-spinner for Bayern. They initially shared ownership with TSV 1860 Munich, but have fully owned the venue since 2006, leasing it back to their former partners since then. As well as annual stadium naming rights of €6 million, Bayern benefits from all other activities staged at the Arena, including concerts and German national team matches.

Perhaps the most staggering figure is from merchandising sales, which has nearly tripled since 2009  to €108 million. This means that nearly a fifth of Bayern’s revenue is generated by shirt sales and the like. In fact, according to consultants PR Marketing, Bayern have averaged sales of 1.2 million replica shirts in the last five years, a figure only surpassed by Manchester United, Real Madrid and Barcelona.

Internationalisation is a key element of Bayern’s plans, both in America and Asia. They have opened a new office in New York, while a tour to China in the summer of 2015 was preceded the launch of an official online store and a content sharing agreement with Chinese state broadcaster CCTV.


Where Bayern (and other German clubs) have lost out is in broadcasting revenue. Their total of €106 million in 2014/15 was not too bad, but it was only around half of the  €200 million earned by Real Madrid and Barcelona, who benefited greatly from their individual domestic deals. It was even behind the likes of  Manchester United, Tottenham Hotspur and Everton, even though none of those clubs managed to qualify for the Champions League.

More encouragingly, Bayern grew their broadcasting income by 39% (€42 million) to €148 million in 2015/16 with increases coming from both the Bundesliga (€21 million) and the Champions League (€16 million).

The increase in Bundesliga distribution to €72 million was largely due to Bayern’s successful performances in international club competitions over the previous five seasons and the resulting improvement in their UEFA coefficient ranking, as well as the increase in income from international TV rights.


TV revenue in Germany is divided among clubs via a points system, which ranks clubs proportionate to their league positions over the past five seasons. Performance is weighted in favour of the more recent years, so last season a factor of 5 was applied to 2014/15, 4 to 2013/14, 3 to 2012/13, 2 to 2011/12 and 1 to 2010/11.

However, a form of equality is then applied, as the club with most points from this algorithm only receives twice as much money as the club that has the lowest number of points. In this way, Bayern received €40 million in 2015/16, while bottom club Darmstadt received €20 million.

Nevertheless, television income is not very high in Germany, as can be seen from the 2014/15 Money League, where Bayern were only 12th, Borussia Dortmund 18th and Schalke 20th. Rummenigge said, “It’s a dramatic disadvantage. The DFL has to make sure the German top clubs remain competitive among the elite teams in Europe.”

To place the Bundesliga TV deal into context, Aston Villa, who finished last in the Premier League in 2015/16, received around €80 million TV money, which was higher than the €72 million Bayern received for winning their league.


It is therefore good news that the Bundesliga recently announced a new domestic TV rights deal with Sky and Eurosport for the four years from 2017/18 to 2020/21, which will significantly increase the money by 85% from €2.5 billion to €4.6 billion, working out to €1.160 billion a season. As the league advised that total rights would be worth €1.4 billion, that implies that the international rights will also rise to €240 million a season.

According to projections, Bayern’s share of the TV revenue should rise to around €100 million a season (though the distribution model will also change), but this is still a lot less than the money earned in England. The new Premier League deal is likely to deliver €150-200 million to the top four English clubs, depending on the Euro exchange rate.

The new Bundesliga total of €1.4 billion will take it ahead of Serie A (€1.2 billion) and Ligue 1 (€0.8 billion), but they will still lag behind La Liga (€1.5 billion) and obviously be miles below the Premier League (€3.4 billion).


It is also worth noting that these TV rights cover the two top German leagues with 80% of the domestic deal going to Bundesliga 1 and 20% to Bundesliga 2.

However, the Bundesliga’s chief executive, Christian Seifert, noted, “We are now number two behind the Premier League (in terms of domestic rights).” Although he described the TV market as challenging, Seifert did emphasise the growth prospects: “Germany is the biggest single market in Europe, but pay TV still does not have the market position of other countries. There is a lot of potential though.”

Some believe that the relatively low amount paid for international rights can be ascribed to Bayern’s dominance, which has made the league boring, but Seifert argued that overseas interest was not purely in the title winners: “Last year we saw very competitive games to decide who will play in the Champions League, who will play in the Europa League or relegation.”


The news is much better for Bayern in Europe, where they received €64 million for reaching the semi-finals in the Champions League. That said, it was still less than four clubs who did not progress as far as Bayern, i.e. Juventus, Paris Saint-Germain, Chelsea and Roma, thanks to the more beneficial TV pools in Italy, France and England.


A club’s share of the market pool is based on the value of the national TV deal and the number of clubs from that country who reach the group stages. Thus, Bayern are adversely impacted by Germany’s €68 million TV pool being less than half England’s €143 million, while Italian and French clubs benefited from only two clubs reaching the group stage.

Half then depends on the progress in the current season’s Champions League, while half depends on the position that the club finished in the previous season’s domestic league (1st place 40%, 2nd place 30%, 3rd place 20% and 4th place 10%).


As a result, Bayern only received €26 million from the TV pool in 2015/16, even though they reached the Champions League semi-final, compared to Juventus €53 million, Roma €48 million, Manchester City €46 million, Chelsea €45 million and PSG €40 million.

Little wonder that Bayern are strong supporters of UEFA’s  proposed change in the TV pool distribution system, so that each country will retain much less from its national TV deal than the current arrangement (reportedly down from around 50% to 15%) with the vast majority going into the central plot in future. With a completely straight face, Rummenigge observed, “I am pleased that we have managed to reach quick and simple decisions for the good of football.”


Despite the disadvantages of the TV pool, the Champions League has still been a lucrative revenue stream for Bayern in recent times, earning them €256 million in the last five season, around €100 million more than Dortmund in the same period.

The other German clubs were even further behind: Bayer Leverkusen received €117 million, Schalke €101 million, Wolfsburg €61 million and Borussia Mönchengladbach €39 million.


Bayern’s match day income rose 13% (€12 million) from €90 million to €102 million in 2015/16, partly due to the capacity at the Allianz Arena being raised to 75,000 in the second half of the 2014/15 season.

Their average attendance was only below Dortmund’s incredible 81,178 in Germany, though a fair way ahead of Schalke 61,386. In Europe, Bayern were only surpassed by Barcelona 78,250 and Manchester United 75,300, but ahead of Real Madrid 67,700.


Despite Germany’s reputation for low ticket prices, Bayern’s match day revenue of €90 million was actually the sixth largest in the world in 2014/15, even before last season’s increase, though the likes of Arsenal, Real Madrid, Barcelona and Manchester United all generate €115-130 million.


In fairness, the Bundesliga only has 18 clubs, so Bayern play two fewer home matches a season compared to the other major leagues. Their average revenue per match of €3.6 million is substantially more than any other German teams (Dortmund €2.5 million, Schalke €1.9 million), but is still a fair way below the money earned by Manchester United (€5.4 million) and Arsenal (€4.9 million).


Bayern’s wage bill rose 15% (€33 million) from €227 million to €260 million in 2015/16, but the wages to turnover ratio still fell to a very impressive 44%, the lowest for many years, following the significant revenue growth, and way below the 50% targeted by the Bundesliga.


Again, it is interesting to contrast the wage bill with Dortmund, whose €140 million is around half as much as Bayern’s, despite a 19% increase in 2015/16. In fact, the €120 million gap between Bayern and Dortmund is as high as it has ever been. In fairness to the Bavarians, their revenue is also substantially higher, but that does not make it any easier for Dortmund (or anyone else) to compete.


Using the same exchange rate as Deloitte’s Money League, Bayern had the 8th highest wage bill in world football in 2014/15, along with one of the lowest wages to turnover ratios (only beaten by Dortmund in the top 15 clubs).

However, that gap should be much smaller now, as the wage bills at the English clubs will be impacted by the weakness of Sterling. It should also be noted that the Spanish giants’ figures are inflated by sports, such as basketball and handball.


The other staff cost, player amortisation, rose 15% (€9 million) from €61 million to €70 million. This has sharply grown from €33 million in 2011, reflecting Bayern’s increasing activity in the transfer market.

However, this is still not particularly high for a leading club. As a comparison, player amortisation at big spending Manchester United and Real Madrid is over €100 million. That said, it is considerably higher than the €32 million booked by Dortmund.


To explain this concept, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract. As an example, Mats Hummels was reportedly bought from Dortmund for €35 million on a five-year deal, so the annual amortisation in the accounts for him will be £7 million.

Traditionally, Bayern Munich have been the big spenders in the German transfer market, often acquiring the strongest players from rivals, e.g. Mario Götze, Robert Lewandowski and Hummels from Dortmund; Manuel Neuer from Schalke.


However, Rummenigge was keen to emphasise the club’s two pillar system: “We sign crucial players like Robert Lewandowski and Arjen Robben, but we also aspire to nurture our own talents.”

That may be the case, but Bayern’s outlay on players has been on the rise: averaging €31 million 2005-09; €53 million 2009-13; and up to €68 million 2013-16. Recruitment has been good with the club bringing in the likes of Arturo Vidal (Juventus), Douglas Costa (Shakhtar Donetsk), Joshua Kimmich (Stuttgart), Mehdi Benatia (Roma), Juan Bernat (Valencia) and Xabi Alonso (Real Madrid).

However, the net spend has actually fallen in the last four seasons: from €44 million to €24 million, as Bayern have earned good money from the sales of Kroos, Mandzukic, Götze, Luiz Gustavo, Mario Gomez, Hojberg, Shaqiri and Rode.


Despite these sales, Bayern’s net spend of €95 million over the last four years is still miles higher than almost all other German teams – with one important exception, as new boys RB Leipzig have actually spent most in the Bundesliga with a cool €100 million in this period.

To show how far ahead these two clubs are, the next highest spending clubs (on a net basis) have shelled out less than half: Hamburg €43 million and Dortmund €42 million. In fact, over the last four years no fewer than eight Bundesliga clubs had net sales, as opposed to spend. Moreover, all other Bundesliga clubs combined only spent a net €78 million – less than either Bayern or Leipzig.

Although the football club has had no debt for a while, the group did have debt from the Allianz Arena company, which was used to finance the stadium, though this was paid off 16 years ahead of schedule. As Rummenigge explained, “In 2005 we borrowed exactly 346 million euros in a 25-year plan, which was meant to last until 2030. Now we have paid the stadium off after only nine years. I'm very proud of that.”


This meant that bank debt was completely eliminated in 2014, having been as high as €167 million in 2009. At the same time cash balances have been over €100 million for the last few years.

We will not know whether this is still the case in 2015/16 until the detailed accounts are published, but we can see that current assets (including cash) have risen by 29% (€51 million) to €227 million, so the chances are that cash has increased. On the other hand, total liabilities (including debt) have also grown 67% (€68 million) to €171 million.

The (early) clearing of the debt is undoubtedly a splendid achievement, as recognised by former Bayern great Paul Breitner, “Bayern are self-sufficient. We are independent and we are the only major club in the world that does not have any debts and is in a secure financial situation.”


Again, we will have to wait for Bayern’s detailed accounts to see a cash flow statement, but the club’s power can be seen from previous reports. In the ten years up to 2015 Bayern generated €540 million of cash from operating activities. However, they were also boosted by €200 million from new share capital.

Unfortunately, Bayern do not analyse their €475 million net investment in assets between players and infrastructure, but it is likely that the vast majority of this expenditure has been for improving the squad.


What is notable is that more than a quarter of a billion Euros was used to repay loans. Another €35 million was used to pay dividends, an increasing trend. In fact, the next dividend payment has been increased to €12 million, up from €7.5 million.

Now that the stadium debt has been repaid, it has given Bayern even more cash to spend on transfers. It is not entirely clear exactly how much more, but Uli Hoeness once claimed that they would have an additional €25 million budget each year once the debt had been cleared.

Hoeness is once again Bayern president, having been elected unopposed at the recent AGM. He had resigned in February 2014 after being found guilty of tax avoidance via an undeclared Swiss bank account, though he was released after serving half of his prison sentence due  to good behaviour.

"Street Fighting Man"

Bayern make great play of their independence with Breitner saying, “We do not need any sheikhs or oil tycoons.” Deputy chairman Dreesen sang from the same sheet: “We pay everything through our own efforts. The main thing is we’re one of the very, very few clubs at the top of Europe that are completely independent.”

That said, there is little doubt that the club’s strategic shareholders have been instrumental in the club’s success, developing a virtuous circle, whereby each Bayern trophy means more sales for the sponsor (especially Adidas), which in turn means more money for Bayern. Not to mention the funding made available by direct investment, such as Audi paying €110 million for an 8.33% stake in 2014.

Perhaps the biggest threat to Bayern’s position in Germany is the way clubs have started to get round the  “50+1” rule, which dictates that members must own a minimum of 50% of the shares plus a deciding vote, theoretically preventing a club from being subject to the whims of an individual owner and taking on excessive debt.

"Look Sharp!"

However, RB Leipzig, owned by Austrian energy drink manufacturer Red Bull, have implemented a scheme whereby a member must pay €800 a year (compared to Bayern’s €60) and they reserve the right to reject any application without justification. This means that Leipzig only have 17 members (and most of them are Red Bull employees) compared to 284,000 at Bayern.

This may not break the letter of the rule, but it is clearly against the spirit, though what other option does an “upstart” club have if it wants to mount a genuine challenge to Bayern’s financial dominance?

Though not entirely convincing, Hoeness seemed to welcome the emergence of RB Leipzig, “The more I think about it, it is good to have really good rivals. Good for us and the competition.”

"Calling Captain Autumn"

Captain Philippe Lahm followed a similar line after Bayern’s recent defeat to Dortmund, though his remarks were heavily laced with sarcasm: “It’s wonderful for the league, exactly what everybody had wished for.”

This was a reference to people becoming fed up with the predictability of Bayern winning the Bundesliga. Indeed, before he knew he was joining, Ancelotti had observed, “Bayern win the league with their hands in their pockets.”

A large part of that success has been due to their financial strength, as acknowledged by Dreesen: “FC Bayern is in outstanding shape, operating at the highest Champions League level in financial terms. Our club is in a superb position. That’s been the case for the last few years, and that's more than ever true for 2016. Our entrepreneurial objective is the maximisation of sporting success alongside financial prudence.”

He added, “Our increasing financial power will be used primarily to make the regular investments required in our first-team squad in order to ensure we remain competitive among the elite teams in Europe.”

Bayern’s appetite for more Champions League success is obvious, as Rummenigge admitted, “We long for it.” Whether they have enough firepower to win again in Europe is another question. Their excellent 2015/16 financial results will certainly do their prospects no harm, but it will still be difficult for Ancelotti to add to his three (managerial) victories in Europe’s flagship tournament.

Tuesday, November 22, 2016

UEFA Champions League - Safe European Home


The importance to a football club’s bottom line of qualifying for Europe has been evident for many years, as the money distributed to teams competing in UEFA’s competitions can have a significant impact on their revenue.

This is even more the case with the latest cycle of UEFA’s TV deals that has seen the total funds available for distribution to clubs rise by 38% in 2015/16 from €1.270 billion to an amazing €1.756 billion. The lion’s share of €1.345 billion went to the Champions League, but the Europa League also received a much larger proportion than the previous arrangement, amounting to €411 million.

Despite the steep growth in the Premier League’s TV deals, Europe is still important for English clubs, as seen by Manchester City earning more than any other club with €84 million, followed by Real Madrid €80 million, Juventus €76 million, Paris Saint-Germain €71 million, Atletico Madrid €70 million and Chelsea €69 million.


In other words, City received more money for reaching the Champions League semi-finals than Real Madrid did for actually winning the trophy. This puzzling anomaly is down to the high value of the British TV deal, which means that English clubs can earn more than teams from other countries who progress further in the tournament.

This was also demonstrated in the Europa League, where the top earners were Liverpool €38 million and Tottenham Hotspur €21 million, followed by Villarreal €16 million, Lazio €15 million, Fenerbahce €15 million and Borussia Dortmund €14 million.

The amount earned by Liverpool for reaching the final showed that clubs can now generate useful cash from the Europa League. The Reds’ distribution of €38 million was the 14th highest overall in Europe last season, i.e. more than the money earned by 19 clubs that qualified for the Champions League group stage.


The discrepancy between different countries’ receipts is highlighted by comparing the top two earners. Manchester City’s €84 million total was geared towards the TV pool €47 million (56%) with prize money €37 million (44%), while it was the opposite for Real Madrid, who earned more from prize money €54 million (67%) compared to the TV pool €26 million (33%).

The contrast is just as stark for the Europa League, e.g. Villarreal received €16 million for reaching the semi-final, split between prize money €8 million (49%) and TV pool €8 million (51%); while Tottenham received €21 million, i.e. €5 million more, for only reaching the last 16, split between prize money €6 million (28%) and TV pool €15 million (72%).


This is linked to the huge British TV deal with BT Sports, who paid a hefty €299 million a season for the 2015-18 three-year cycle. This is more than double the €132 million paid by the combination of Sky Sports and ITV for the previous agreement.


As a result of the higher deal, English clubs did much better (at least from a financial perspective) in 2015/16 with Manchester City leading the way, as their revenue increased by €38 million (84%) from €46 million to €84 million. Similarly, Chelsea’s revenue rose by €30 million (76%) from €39 million to €69 million, while Arsenal’s revenue grew by €17 million (47%) from €36 million to €53 million.

Liverpool’s revenue was also 11% higher, even though they competed in the Europa League, as opposed to the more lucrative Champions League the previous season. Tottenham’s revenue was an astonishing 244% (€15 million) higher for going one round further in the Europa League.


Last Five Years

To emphasise the value of the Champions League to the leading clubs, it is worth exploring how much they have earned in the last five years. At the top of the pile are Juventus with €281 million, which is perhaps somewhat surprising, given that they have only reached the final once in that period, but is again testament to the might of the TV pool.

Next come Real Madrid €277 million (winners in 2014 and 2016), Bayern Munich €256 million (winners in 2013), Chelsea €253 million (winners in 2012) and Barcelona €246 million (winners in 2015). All to be expected.

However, this table also highlights a core element of the strategy of the nouveaux riches clubs, i.e. spending for success, as we find Paris Saint-Germain and Manchester City in sixth and seventh places with €228 million and €222 million respectively.


In England consistency has been rewarded with the three clubs ever present in the Champions League leading the way: Chelsea €253 million, City €222 million and Arsenal €177 million. Manchester United would have been higher if they had qualified for Europe in 2014/15, but they still earned €159 million.

Despite qualifying for the Champions League in 2014/15 and reaching the Europa League final in 2015/16, Liverpool are a long way back with €77 million, while Tottenham’s Europa League residency has earned them only €41 million.


In Germany Bayern’s Champions League exploits have earned them €256 million, almost €100 million more than Borussia Dortmund’s €162 million. Europe has allowed the Bavarian giants to put even more distance between them and their domestic rivals.

All of these have earned much less: Bayer Leverkusen €117 million, Schalke 04 €101 million, Wolfsburg €61 million and Borussia Mönchengladbach €39 million (the latter two almost all from 2015/16).


The gap between the top club and the others is even wider in Italy, as Juventus’ €281 million is around €150 million more than the next club Milan, whose €129 million was restricted by not qualifying for Europe in the last two seasons. Juve’s performance is even more impressive, given that they did not even qualify for Europe in 2011/12.

Milan’s place in the Champions League has been taken by Roma, who have earned €116 million in that period. The next highest are Napoli €100 million and Lazio €51 million. Inter’s recent difficulties are highlighted by the nerazzurri only earning €45 million  from Europe in the last five years. This is less than the €49 million they earned in 2010/11 when they defeated Bayern Munich to win the Champions League.


Spain is all about the big two with Real Madrid €277 million and Barcelona €246 million a long way ahead of Atletico Madrid €179 million, who are in turn much higher than Valencia €89 million, Sevilla €69 million and Athletic Bilbao €51 million.

Sevilla are an interesting case, as their reward for winning the Europa League three times in a row is clearly much less than qualifying for the Champions League. Following a change in the rules, Sevilla’s victory in 2014/15 gave them a place in the following season’s Champions League, so their 2015/16 €35 million revenue is split between €21 million from that competition and €14 million from dropping down to the Europa League.


France demonstrates Paris Saint-Germain’s domination, as their €228 million is €150 million more than Lyon’s €78 million, closely followed by Marseille €73 million and Monaco €69 million.

Paris Saint-Germain’s competition has been weakened by the other French Champions League spots being shared among their domestic rivals, e.g. Lille and Montpellier have also featured in this period. In fact, PSG only earned €2 million in 2011/12, so their earnings in the last four seasons have been really high.


Portugal demonstrates the rivalry between Benfica €111 million and Porto €98 million, while the others are nowhere: Sporting €31 million, Braga €22 million, Estoril €5 million and Belenenses €4 million.


Galatasaray’s “welcome to hell” has been worth €98 million, even though there was no revenue in 2011/12, a long way ahead of Trabzonspor €37 million, Besiktas €27 million and Fenerbahce €26 million.


UEFA Distribution Model

As we have seen, the amount of revenue available to distribute to the clubs increased significantly in 2015/16 by €487 million (38%) from €1.270 billion to €1.756 billion, but this masked a couple of interesting developments.

First, UEFA decided to give proportionally more to the Europa League, whose pot rose by 71% (€171 million) from €240 million to €411 million, while the Champions League fund “only” rose by 31% (€315 million) from €1.030 billion to €1.345 billion. The Europa League has always provided a platform for smaller clubs to compete in Europe, but now has the added bonus of being financially worthwhile (though obviously still no match for the Champions League money).

In UEFA’s terms, clubs in the Europa League now receive about €1 every €3.3 received by clubs in the Champions League, compared to €4.3 under the old arrangement. This might be considered a step in the right direction, but, put another way (and rather less impressively), the Europa League still only has 23% of the total pot, albeit up from 19% the previous season.

"At The Height Of The Fighting"

Second, UEFA has endeavoured to reward success more by increasing the amount allocated to prize money compared to the TV pool. In 2014/15 the split was 52% for prize money and 48% for TV pool, but the 2016/17 budget is essentially a 60:40 split in favour of prize money.

UEFA’s 2016/17 estimate provides a useful break-down of how the distribution model works. Based on gross commercial revenue of €2.350 billion, 12% (€282 million) is required to cover organisational and administrative competition-related costs, while solidarity payments have been significantly increased to €200 million, comprising €82 million for those clubs participating in the qualifying rounds and €118 million to national associations for club development projects.

After these deductions, we are left with €1.868 billion of net commercial revenue. Of this, €149 million (8%) is reserved for “European football”, i.e. remains with UEFA, which gives a €1.719 billion pot for distribution to the clubs. This is equivalent to the €1.756 billion in the 2015/16 season, which was higher than expected due to more commercial revenue proceeds than budgeted.


Champions League

Looking at the payments by country for the Champions League, it’s a case of the rich getting richer, as the payments are dominated by the Big Five leagues (Spain, England, Germany, Italy and France). They accounted for 71% (€949 million) of the total €1.345 billion pot.

Spain earned the most with €254 million, closely followed by England €245 million, though Spain’s money was largely due to success on the pitch with €105 million from prize money, nearly twice as much as England’s €54 million. In contrast, England’s share of the TV pool of €143 million was considerably higher than Spain’s €89 million.

Italy were also boosted by a relatively high TV pool of €112 million, while their prize money was just €23 million. Germany’s €52 million prize money was almost the same as England, but their TV pool was less than half at €68 million.


Champions League – Prize Money

In 2015/16 each of the 32 teams that qualified for the Champions League group stages was guaranteed a minimum participation fee of €12 million - even if it lost every single game. This was a significant 40% increase on the 2014/15 fee of €8.6 million.

In addition, the performance bonuses in the group stage were increased by 50% to €1.5 million for each win, though stayed at €500,000 for a draw. So if a team were to really put the pedal to the metal and won all six of its group matches, it would get €9 million on top of the participation fee.

If a team qualifies for the last 16, it is awarded €5.5 million, while there is additional prize money for each further stage reached: quarter-final €6 million, semi-final €7 million, final €10.5 million and winners €15 million.

Therefore, the maximum that a club could have earned (by winning all its group matches and lifting the trophy) was an impressive €54.5 million (not counting the TV pool), up from €37.4 million in 2014/15. The prize money for 2016/17 has been tweaked upwards again, so the maximum will rise to €57.2 million this season.

Clubs involved in the play-offs shared a total of €50 million: €2 million for each winner and €3 million for each club that was eliminated. Teams defeated in the qualifying rounds received: first qualifying round €200,000; second qualifying round €300,000; third qualifying round €400,000. In addition, each domestic champion that did not qualify for the group stage received another €250,000.


As we have seen, Spain earned much more money from prize money in the Champions League than any other country with their €165 million, far ahead of England €102 million and Germany €100 million. This is a fair reward for the two Madrid clubs reaching the final, meaning that the winners Real Madrid trousered €54 million with their city rivals Atleti earning €48 million, while Barcelona got €31 million for reaching the quarter-finals.

The two other semi-finalists, Bayern Munich €39 million and Manchester City €37 million, helped boost Germany and England. France and Italy were a long way back earning just €48 million and €47 million respectively, partly due to their third clubs not reaching the group stages.


Champions League – TV Pool

In addition to prize money, clubs received a share of the television money from the TV (market) pool, which amounted to €578 million for the Champions League in 2015/16. Each country’s share of the market pool is based on the value of the national TV deal, which means that English clubs have prospered from the huge BT Sports deal, though it should be noted that around half of this goes into the central pot, so they do not receive the full benefit.

Half of the TV pool depends on the position that a club finished in the previous season’s domestic league. For countries with four clubs, the team finishing first receives 40%, the team finishing second 30%, third 20% and fourth 10%. If only three clubs reach the group stage, the share would increase to 45%, 35% and 20% (for national associations ranked 1 to 3, i.e. Spain, England and Germany).

For countries with only two representatives through to the group stage, the share is 55% and 45% (for national associations ranked 4 to 6 and 13 to 16). If only one team gets through to the group stage, they would take 100% of that country’s TV pool.

In other words, from a purely financial perspective a club would hope that the other clubs from its country would be eliminated in the qualifying and play-off rounds, as the available money would then be divided between fewer clubs.

The other half of the TV pool depends on a club’s progress in the current season’s Champions League, which is calculated based on the number of games played (starting from the group stages).


Thanks to BT Sports’ exclusive “game changer” of a deal, England’s TV pool was the highest in Europe at €143 million. Nevertheless, the club that earned the most from the TV pool in 2015/16 was Juventus, whose €53 million was higher than Manchester City’s €47 million, despite only reaching the last 16. This is because the Italian TV pool of €112 million was only shared between three clubs compared to the four in England.

It was even worse for the Spanish clubs, where €89 million was shared between five clubs after Sevilla were awarded a place in the Champions League for winning the Europa League in 2014/15. German clubs were hit by the “double whammy” of having the lowest TV pool of €68 million, allied with having to share this sum between four clubs.


England’s TV pool increased by a hefty 52% (€49 million) from €94 million to €143 million in 2015/16. Manchester City earned the most with €47 million, even though they only finished second in the Premier League in 2014/15, due to their achievement in reaching the semi-final when no other English club got beyond the last 16.

One little known fact is that English clubs receive less from the TV pool when a Scottish club (usually Celtic) qualifies for the group stage, as they are awarded 10% (based upon the population split), because there is no separate Scottish broadcasting deal with UEFA.

If an English club were to enjoy a perfect season, I estimate that they could earn around €113 million from the Champions League: the maximum prize money for winning the trophy and all six group games would be €57 million; while the TV pool could be as high as €56 million. This assumes: (a) they won the Premier League the previous season; (b) the other English clubs were all eliminated at the group stage.


Bayern Munich only received €26 million from the TV pool in 2015/16, even though they won the Bundesliga the previous season and reached the Champions League semi-final, highlighting just how low the German TV deal is. Moreover, last season this only increased by 4% to €68 million.


Spain’s TV pool rose by 6% (€5 million) from €84 million to €89 million, but the most earned was only €27 million by Barcelona, as this had to be shared between five clubs including Sevilla from the Europa League.

This demonstrated a new rule, whereby a club that qualifies for the Champions League by winning the Europa League (i.e. like Sevilla) or indeed the Champions League, but would not have qualified via their position in the domestic league, does not receive any money from the first half of the TV pool.


The Italian TV pool grew by an impressive 19% (€18 million) in 2015/16 from €94 million to €112 million. The last two seasons' payouts show how Juventus and Roma have benefited from the inability of Italy’s third club to reach the group stages, first Napoli in 2014/15 and then Lazio in 2015/16.

Even though a new rule introduced last season meant that a club eliminated in the play-offs would be allocated 10% of that country’s TV pool, the vast majority of the large Italian TV pool was still shared between just two clubs.


It was a similar story in France with Monaco eliminated in the play-offs in 2015/16, thus receiving 10% of the French TV deal, which increased by 11% (€7 million) from €68 million to €75 million. Lille received nothing for losing their play-off in 2014/15, as the rules were only changed the following season.

Paris Saint-Germain have benefited from regularly winning Ligue 1, but the relatively small differential between first and second place (55% vs. 45%) has resulted in good payouts to Monaco and Lyon in the last two seasons.


Europa League

The payments by country show a more equitable revenue distribution in the Europa League. The share received by clubs from the Big Five leagues was still the highest, but only 52% (€216 million) of the total €411 million, compared to 71% of the Champions League money.

The Europa League features clubs from many more countries than the Champions League, e.g. in 2015/16 24 countries were represented in the Europa League (group stages onwards), compared to 16 in the Champions League group stages.

England led the way with €63 million, ahead of Spain €47 million, though again this was more down to the TV pool (England €44 million vs. Spain €20 million) with Spain once again doing better on the pitch, resulting in higher prize money (Spain €22 million vs. England €14 million).


Europa League – Prize Money

The allocation of prize money in the Europa League is much the same as the Champions League, though the sums involved are clearly smaller and there are a couple of other differences.

In 2015/16 each of the 48 clubs involved in the group stages received a participation fee of €2.4 million, up from €1.3 million the previous season. In addition, there was €360,000 for each win and €120,000 for each draw in the group stage, up from €200,00 and €100,000 respectively.

One difference in the Europa League, presumably to encourage clubs to give their all in this secondary tournament, is an additional bonus for teams that qualify for the knock-out stages, with the group winners earning €500,000 and runners-up €250,000.

"One More Time"

Clubs receive a further €500,000 for reaching the last 32, €750,000 for the last 16, quarter-finalists €1 million and semi-finalists €1.5 million. The Europa League winners collected €6.5 million and the finalists €3.5 million.

Thus, the maximum that a club could receive is €15.31 million, 55% up from the previous season’s €9.9 million. That’s now a pretty good incentive, compared to the €6.2 million prize money awarded to the 2011/12 winners Atletico Madrid.

One other difference to the Champions League is that only clubs eliminated in the play-offs receive a payment (of €230,000). Teams defeated in the qualifying rounds received: first qualifying round €200,000; second qualifying round €210,000; third qualifying round €220,000.


Europa League – TV Pool

The allocation of the TV pool in the Europa League is again similar in principle to the Champions League, as half is based on performance in the previous season’s domestic competitions and half on the progress in this season’s Europa League, but there are some subtle differences.

The percentage split for the first half again depends on the number of teams qualified from a country, but if a domestic cup winner reaches the group stage, then that club receives a higher share for this element. For example, if four clubs qualified, then the cup winner would receive 40% with the other three clubs getting 20% apiece; if no cup winner, then each of the four clubs would receive 25%.

OK, that’s relatively straightforward, but the second half of the TV pool is more complicated. First, it is divided up between each round of the Europa League: group stages 40%, last 32 20%, last 16 16%, quarter-finals 12%, semi-finals 8% and final 4%.

The stage money is then split into as many portions as there are countries represented by at least one club in the round concerned, proportional to the value of the relevant country’s TV deal. Each country’s share is then split equally among all the country’s clubs participating in that round.


Let’s take the England TV pool in 2015/16 as an example. As the total TV pool was €183.1 million, €91.6 million was available for participation and €91.6 million for performance. England contributed around 20% of the TV pool, so their share of the first (participation) half was 20% of €91.6 million, i.e. €17.9 million. As there was no cup winner qualified from England, this was split evenly between Liverpool and Tottenham, resulting in €8.9 million each.

For the second (performance) half, I have estimated England’s share of the TV pool in each round. The assumptions are pretty solid in the latter stages of the tournament, e.g. the final is a simple carve-up between England (62%) and Spain (38%), but the earlier stages require more guesswork.

In the group stage, England’s share was divided evenly between Liverpool and Tottenham, while Manchester United were added for the last 32 and last 16, having dropped down from the Champions League, which meant one-third for each club.

From the quarter-finals onward, Liverpool were England’s only remaining representative, so they took 100% of England’s share. This success resulted in Liverpool earning the substantial sum of €26.4 million from the TV pool.

"Everybody's Happy Nowadays"

Other Factors

As anybody who has opened a newspaper recently will know, Brexit has had a dramatic impact on the exchange rate. In particular, the weakening of the Pound against the Euro has significantly increased the UEFA revenue in Sterling terms.

To illustrate this impact, Manchester City’s 2015/16 distribution of €84 million would be worth £72 million at the current exchange rate of 1.17, compared to just £60 million at the mid-2015 rate of 1.44. As the saying goes, every cloud has a silver lining.

In addition to the TV money from UEFA, clubs playing in Europe also benefit from additional match day revenue. Not every club analyses this revenue stream between different tournaments, but as an example of how much this can be worth, Roma’s €52 million match day revenue in 2015/16 included €29 million from the Champions League.

Furthermore, participation in the Champions League should boost a club’s sponsorship revenue, both in the short term through contractual bonuses, and longer term by strengthening the attractiveness of the brand through increased exposure and a better profile.

However, there can also be a downside, as shown by Manchester United’s kit supplier deal with Adidas. This is worth an astonishing £750 million over the next 10 years, i.e. £75 million a year, but if United fail to participate in the Champions League for two or more consecutive seasons, then the payment for that year would reduce up to 30%, i.e. £22.5 million.

"When the Angel sings"

Here’s To Future Days

To place the €1.756 billion from UEFA’s competitions into perspective, it is still considerably less than the €3.3 billion a season from the new Premier League TV deal. Incredible as it may seem, this means that the bottom placed club in the English top flight will earn more than the Champions League winners this season.

Nevertheless, European money still makes a difference for the elite clubs and there’s little sign of the gravy train slowing down with UEFA predicting a 30% rise in revenue for the next 2018-21 cycle. That’s useful, but what is really thought-provoking is that there are plans to change the distribution model.

First, the big four leagues (England, Spain, Germany and Italy) will each receive four guaranteed places in the Champions League group stages, thus taking up half of the available 32 places. This is no big deal for Spain, England and Germany, as their four representatives invariably qualify for the group stages. However, Italy are the big winners here, as they currently only have three places – and also have a disastrous record in the play-offs.

"Love don't Costa thing"

In addition, the distribution of the TV pool will be amended, so that each country will retain much less from its national TV deal than the current arrangement (reportedly down from around 50% to 15%) with the vast majority going into the central plot in future. So far, so good, as a more even distribution of the richer countries’ TV wealth is probably no bad thing and should help boost competitive balance.

However, here’s the rub: the future split will be based on individual clubs’ UEFA co-efficient, which has been modified to include credit for historical performances. Again, this just happens to favour Italian clubs like Milan and Inter, who have not even qualified for the Champions League recently, but can boast several trophies in their glorious past.

It will also prove advantageous to the old establishment, e.g. Manchester United would do better out of the new approach to co-efficients than their “noisy neighbours” Manchester City.

The new model has unsurprisingly drawn criticism, not least from the European Professional Football Leagues (EFPL), leading to the European Club Association (ECA) promising to increase the "support" to the Europa League by €60 million.

"New Gold Dream"

ECA chairman, Karl-Heinz Rummenigge, boasted, “I am pleased that we have managed to reach quick and simple decisions for the good of football.” That’s one way of putting it, Kalle.

In fairness to UEFA, they are caught between a rock and a hard place, as the leading clubs carry the persistent threat of forming a breakaway Super League, but this proposed change still leaves a sour taste in the mouth.

That man Rummenigge, also Bayern Munich’s chief executive, had shown his hand back in 2013, when he complained, “The highest prize is the Champions League, but it is a competition where there are no guarantees, and the things you take for granted in domestic football don’t always work.”

Hence, the desire of the leading clubs to make Europe’s premier tournament as much of a closed shop as possible. As The Clash once sang, it is indeed a “Safe European Home”, at least for a privileged few.
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